<PAGE>
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.
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- -------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
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):
<TABLE>
<CAPTION>
Nature of Expense Amount
----------------- -------
<S> <C>
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................................................................
=======
</TABLE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit Page
Number Description No.
------- --------------------------------------------------------------- ----
<C> <S> <C>
*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.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number Description No.
------- --------------------------------------------------------------- ----
<C> <S> <C>
+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.
</TABLE>
- --------
* To be filed by amendment to this registration statement.
5
<PAGE>
+ 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
<PAGE>
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
<PAGE>
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.
<TABLE>
<S> <C>
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
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
*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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
+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.
</TABLE>
- --------
* To be filed by amendment to this registration statement.
+ Confidential Treatment requested.
. Previously filed.
<PAGE>
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
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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
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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
</TABLE>
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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.
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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.
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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
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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,
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<PAGE>
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.
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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.
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<PAGE>
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
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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-
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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
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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.
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(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,
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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
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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.
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(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
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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
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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.
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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
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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
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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
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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
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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
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<PAGE>
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-
<PAGE>
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-
<PAGE>
PLUG POWER, L.L.C.
By: /s/ Gary Mittleman
-----------------------------------------
Gary Mittleman, President and CEO
-23-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
<PAGE>
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.
<PAGE>
GE FUEL CELL SYSTEMS, LLC
STRATEGIC PLAN
JANUARY 1999
<PAGE>
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.
<PAGE>
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)
<PAGE>
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.
<PAGE>
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.
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<PAGE>
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
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<PAGE>
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-
<PAGE>
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-
<PAGE>
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
---- ---- ---- ---- ------ -------
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<PAGE>
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
<PAGE>
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-
<PAGE>
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
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<PAGE>
EXHIBIT 7
---------
FORM OF GE TRADEMARK AND TRADE NAME AGREEMENT
(See Exhibit 10.3)
<PAGE>
EXHIBIT 8
---------
FORM OF PLUG POWER TRADEMARK AGREEMENT
(See Exhibit 10.4)
<PAGE>
EXHIBIT 9
---------
FORM OF DISTRIBUTOR AGREEMENT
(See Exhibit 10.5)
<PAGE>
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-
<PAGE>
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,
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<PAGE>
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;
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<PAGE>
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.
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<PAGE>
"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-
<PAGE>
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.
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<PAGE>
"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.
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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.
<PAGE>
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.
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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-
<PAGE>
EXHIBIT A
Initial Management of the Company
Barry Glickman President
Frank Scovello Director of Sales
Rick Robertson Director of Marketing
-6-
<PAGE>
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:
_____________________ _______________________________
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<PAGE>
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:
______________________ _______________________________
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<PAGE>
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;
<PAGE>
(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
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<PAGE>
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-
<PAGE>
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.
<PAGE>
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.
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<PAGE>
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-
<PAGE>
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.
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<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
EXHIBIT A
LICENSED MARK REGISTRATION NO.
------------- ----------------
-10-
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
[***]
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
EXHIBIT A
LICENSED MARK REGISTRATION NO.
------------- ----------------
_______________
-9-
<PAGE>
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.
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
[***]
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-
<PAGE>
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-
<PAGE>
SCHEDULE F
----------
COPIES OF TRADEMARK REGISTRATIONS
-48-
<PAGE>
DISTRIBUTOR's Trademark
-49-
<PAGE>
SUPPLIER's Trademark
-50-
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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).
<PAGE>
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
<PAGE>
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).
<PAGE>
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
<PAGE>
EXHIBIT 10.8
- --------------------------------------------------------------------------------
PLUG POWER, LLC
-------------------------
LLC INTEREST PURCHASE AGREEMENT
-------------------------
Dated as of February 16, 1999
- --------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Schedule 5.9
Warrants and Options for Class A Membership Interests
As of February 15, 1999
<TABLE>
<CAPTION>
Option/Warrant Type of Date of Expiration Date No. Of Shares Exercise price
Holder Agreement Agreement of Agreement per share
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
*If the Board of Managers determines that Plug Power requires additional
funding.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
PLUG POWER, LLC
By: /s/ Gary Mittleman
-----------------------------------------
Gary Mittleman, President and Chief
Executive Officer
/s/ Micheal J. Cudahy
--------------------------------------------
Michael J. Cudahy
<PAGE>
EXHIBIT 10.10
- --------------------------------------------------------------------------------
PLUG POWER, LLC
------------------------------
LLC INTEREST PURCHASE AGREEMENT
------------------------------
Dated as of February 16, 1999
- --------------------------------------------------------------------------------
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Schedule 5.9
Warrants and Options for Class A Membership Interests
As of February 15, 1999
<TABLE>
<CAPTION>
Option/Warrant Type of Date of Expiration Date No. Of Shares Exercise price
Holder Agreement Agreement of Agreement per share
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
*If the Board of Managers determines that Plug Power requires additional
funding.
10
<PAGE>
EXHIBIT 10.11
PLUG POWER, LLC
LLC INTEREST PURCHASE AGREEMENT
Dated as of April 11, 1999
<PAGE>
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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
SCHEDULE 5.8 TO THE LLC INTEREST PURCHASE AGREEMENT
Class A Membership Interest
<TABLE>
<CAPTION>
Holder Number
<S> <C>
EDC 10,000,000
MTI 7,750,000
GE 2,250,000
Cudahy 1,440,000
Lindsay 60,000
Total outstanding: 21,500,000
</TABLE>
9
<PAGE>
SCHEDULE 5.9 TO THE LLC INTEREST PURCHASE AGREEMENT
Options for Class A Membership Interest
<TABLE>
<CAPTION>
$ to Company
Holder Number Exercise Price Upon Exercise
<S> <C> <C> <C>
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
</TABLE>
10
<PAGE>
EXHIBIT 10.12
PLUG POWER, LLC
LLC INTEREST PURCHASE AGREEMENT
Dated as of April 9, 1999
<PAGE>
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
<PAGE>
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
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<PAGE>
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.
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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,
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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
<PAGE>
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
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<PAGE>
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
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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.
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<PAGE>
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.
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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:
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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.
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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
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SCHEDULE 5.9 TO THE LLC INTEREST PURCHASE AGREEMENT
Options for Class A Membership Interest
<TABLE>
<CAPTION>
$ to Company
Holder Number Exercise Price Upon Exercise
<S> <C> <C> <C>
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
</TABLE>
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
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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
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<PAGE>
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
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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.
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<PAGE>
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
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<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
"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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
[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,
<PAGE>
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.
<PAGE>
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]
<PAGE>
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.
<PAGE>
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
- --------------------------------------------------------------------------------
<PAGE>
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
- --------------------------------------------------------------------------------
<PAGE>
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
- --------------------------------------------------------------------------------
<PAGE>
[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
<PAGE>
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
---------------------
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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.
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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
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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
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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
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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
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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
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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,
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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
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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
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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
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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
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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
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NEW YORK STATE ENERGY RESEARCH
AND DEVELOPMENT AUTHORITY
By: /s/ F. William Valentino
----------------------------
Title: President
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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.
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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
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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
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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.
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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)
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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
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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
<TABLE>
<CAPTION>
Section Page
<S> <C>
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
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
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,
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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.
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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.
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. 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.
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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
[email protected]
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
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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:
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(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:
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(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;
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(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
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Intellectual Property Provisions - Assistance
LARGE BUSINESS, STATE AND LOCAL GOVERNMENTS
OR FOREIGN ORGANIZATIONS
(Research, Development or Demonstration)
<TABLE>
<CAPTION>
CLAUSE REFERENCE TITLE PAGE
- ------ --------- ----- ----
<S> <C> <C> <C>
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
</TABLE>
5
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
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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).
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(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.
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<PAGE>
(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
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<PAGE>
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
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<PAGE>
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)
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<PAGE>
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.
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(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
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<PAGE>
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
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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.
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(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.]
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(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,
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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
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(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
<PAGE>
(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
<PAGE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(iii) a report, prior to closeout of the contract, listing all subject
inventions or stating that there were none.
(End of clause)
34
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
ADDITIONAL SPECIAL PROVISIONS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CLAUSE SUBJECT PAGE
- ------ ------- ----
<S> <C>
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
</TABLE>
41
<PAGE>
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
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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
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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;
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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.
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Replaces
Clause No. 04., 48 C.F.R. 952.227-13 Patent Rights
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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
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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;
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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.
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(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
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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.
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(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.
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(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
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(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
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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)
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(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.
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(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)
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<PAGE>
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
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2. All other terms and conditions remain unchanged.
61
<PAGE>
Clause No. 05, 48 C.F.R. 52.227-14, Rights in Data - General
63
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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."
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<PAGE>
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
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2. All other terms and conditions remain unchanged.
70
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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
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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
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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
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<PAGE>
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
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<PAGE>
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
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(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
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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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
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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
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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.
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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
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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.
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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:
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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.
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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.
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DEPARTMENT OF COMMERCE
FINANCIAL ASSISTANCE
STANDARD TERMS AND CONDITIONS
DEPARTMENT OF COMMERCE
[SEAL]
UNITED STATES OF AMERICA
NOVEMBER 1993
<PAGE>
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
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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
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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.
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.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.
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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.
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.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
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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;
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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.
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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
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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.
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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
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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.
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.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.
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.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.
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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.
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<PAGE>
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.
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federal register
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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
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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
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Federal Register / Vol. 58, No. 227 / Monday, November 29, 1993 / Notices 62993
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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.
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___.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.
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(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
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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
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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
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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.
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Federal Register / Vol. 58, No. 227 / Monday, November 29, 1993 / Notices 63005
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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
<PAGE>
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
<PAGE>
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)
<PAGE>
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
<PAGE>
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.
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PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.104
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"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
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FAC 97-02 OCTOBER 10, 1997
31.105 FEDERAL ACQUISITION REGULATION
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(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
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PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.106-2
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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
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FAC 97-04 APRIL 24, 1998
31.106-3 FEDERAL ACQUISITION REGULATION
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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
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PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.201-3
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(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
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31.201-4 FEDERAL ACQUISITION REGULATION
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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
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PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.203
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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
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FAC 97--02 OCTOBER 10, 1997
31.204 FEDERAL ACQUISITION REGULATION
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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
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(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
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31.205-6 FEDERAL ACQUISITION REGULATION
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(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
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PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-6
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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
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31.205-6 FEDERAL ACQUISITION REGULATION
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(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
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PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-6
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(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
<PAGE>
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
<PAGE>
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-6
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(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
<PAGE>
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
<PAGE>
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
<PAGE>
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)
<PAGE>
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-13
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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-
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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--
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FAC 97-03 FEBRUARY 9, 1998
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-18
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(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-
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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-
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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
<PAGE>
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
<PAGE>
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
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FAC 97-02 OCTOBER 10, 1997
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-28
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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
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FAC 97-02 OCTOBER 10, 1997
31.205-29 FEDERAL ACQUISITION REGULATION
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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
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PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-35
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(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
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31.205-35 FEDERAL ACQUISITION REGULATION
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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
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PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.20-38
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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
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31.205-39 FEDERAL ACQUISITION REGULATION
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(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
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FAC 97--02 OCTOBER 10, 1997
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-42
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(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
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31.205-43 FEDERAL ACQUISITION REGULATION
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(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)
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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
<PAGE>
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
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PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES 31.205-47
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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
<PAGE>
31.205-47 FEDERAL ACQUISITION REGULATION
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(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
<PAGE>
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
<PAGE>
31.603 FEDERAL ACQUISITION REGULATION
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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)
<PAGE>
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
<PAGE>
[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
<PAGE>
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
<PAGE>
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
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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
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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:
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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
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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.
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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.
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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
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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.
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
- --------------------------------------------------------------------------------
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
<PAGE>
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
<PAGE>
[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
<PAGE>
- --------------------------------------------------------------------------------
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT A
----------
PARTIES TO THE AGREEMENT
Polyfuel, Inc.
Plug Power, L.L.C.
SRI International
8
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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Date: April 6, 1999
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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.
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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
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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
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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.
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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.
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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
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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
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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
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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.
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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
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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.
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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:_______________________
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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.
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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.
<PAGE>
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
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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:
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
"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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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
<PAGE>
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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
Exhibit A1
Prototype Specifications [To be attached on or before July 1, 2000.]
<PAGE>
Exhibit A2
Initial Product Specifications [To be attached on or before January 1, 2001.]
<PAGE>
Exhibit B
FCS Development Plan [To be attached on or before November 30, 1999.]
<PAGE>
Exhibit C
HS Development Plan [To be attached on or before November '30, 1999.]
<PAGE>
Exhibit D
Integration Development Plan [To be attached on or before November 30, 1999.1
<PAGE>
Exhibit E
FCS Production Plan [To be attached on or before January 1, 2001.]
<PAGE>
Exhibit F
HS Production Plan [To be attached on or before January 1, 2001.]
<PAGE>
Exhibit G
Initial Product Production Plan [To be attached on or before January 1, 2001.]
<PAGE>
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");
<PAGE>
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
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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
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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
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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
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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
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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
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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.
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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
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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;
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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)
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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,
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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
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be prorated as of the Closing Date.
12.2. The interest on the IDA Loan shall be prorated as of the Closing Date.
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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
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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;
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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.
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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
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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
<PAGE>
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
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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
<PAGE>
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.
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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
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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.
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<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
-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
<PAGE>
-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
<PAGE>
-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,
<PAGE>
-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
<PAGE>
-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:
<PAGE>
-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.
<PAGE>
-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
<PAGE>
-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
<PAGE>
-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.
<PAGE>
-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:
<PAGE>
-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
<PAGE>
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:
<PAGE>
-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
<PAGE>
-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;
<PAGE>
-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
<PAGE>
-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
<PAGE>
-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
<PAGE>
-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
<PAGE>
-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
<PAGE>
-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:
<PAGE>
-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.
<PAGE>
-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:
<PAGE>
-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.
<PAGE>
-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:
<PAGE>
-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
<PAGE>
EXHIBIT F
Permitted Exceptions
--------------------
The Permitted Exceptions are listed in Schedule B of the Commitment for
Title Insurance, Exhibit "B" attached hereto.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
"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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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,
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
"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
<PAGE>
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
<PAGE>
(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:
<TABLE>
<CAPTION>
Coverage Percentage Applicable Percentage Category
- -------------------------------- ---------------------------- --------
<S> <C> <C>
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
</TABLE>
(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.)
<TABLE>
<S> <C>
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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"):
<PAGE>
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
<PAGE>
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.
<PAGE>
"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
<PAGE>
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.
<PAGE>
"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.
<PAGE>
"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.
<PAGE>
"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
<PAGE>
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
<PAGE>
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.
<PAGE>
"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
<PAGE>
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.
<PAGE>
"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
<PAGE>
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
<PAGE>
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.
<PAGE>
"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
<PAGE>
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;
<PAGE>
(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.
<PAGE>
(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
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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:
<PAGE>
(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.
<PAGE>
(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;
<PAGE>
(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
<PAGE>
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.
<PAGE>
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;
<PAGE>
(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
<PAGE>
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.
<PAGE>
(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:
<TABLE>
<CAPTION>
YEAR SINKING FUND PAYMENT YEAR SINKING FUND PAYMENT
<S> <C> <C> <C>
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
</TABLE>
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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
<PAGE>
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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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,
<PAGE>
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
<PAGE>
(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:
<PAGE>
(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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
(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:
<PAGE>
(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
<PAGE>
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
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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)
<PAGE>
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%).
<PAGE>
(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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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)
<PAGE>
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)
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
(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
<TABLE>
<CAPTION>
YEAR SINKING FUND PAYMENT YEAR SINNKING FUND PAYMENT
<S> <C> <C> <C>
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
</TABLE>
<PAGE>
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
<PAGE>
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]
<PAGE>
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].
<PAGE>
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];
<PAGE>
(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).
<PAGE>
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).
<PAGE>
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
<PAGE>
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);
<PAGE>
(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
<PAGE>
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
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12050.0009/03:110172_5/01-28-99
12050.0009/03:110172_5/01-28-99
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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
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<PAGE>
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
<PAGE>
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").
<PAGE>
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.
<PAGE>
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.
<PAGE>
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,
<PAGE>
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,
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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.
<PAGE>
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"
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
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
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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
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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).
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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
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complete the contemplated development, collaboration and distribution agreements
contemplated by that certain memorandum of
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<PAGE>
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
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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
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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
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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.]
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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
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