-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sx2iqsXnfmylJwtccjD8oNXsxQO5lZYh+15gwco/55X4WfDe1r8kM5/m1aFQKJC+ GGDDrnO6RsBWJ7hrECdY8g== 0000927016-02-001777.txt : 20020415 0000927016-02-001777.hdr.sgml : 20020415 ACCESSION NUMBER: 0000927016-02-001777 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLUG POWER INC CENTRAL INDEX KEY: 0001093691 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 223672377 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27527 FILM NUMBER: 02594457 BUSINESS ADDRESS: STREET 1: 968 ALBANY-SHAKER ROAD CITY: LATHAM STATE: NY ZIP: 12110 BUSINESS PHONE: 5187827700 MAIL ADDRESS: STREET 1: 968 ALBANY-SHAKER ROAD CITY: LATHAM STATE: NY ZIP: 12110 10-K 1 d10k.txt FORM 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from ________ to ________ COMMISSION FILE NUMBER: 0-27527 PLUG POWER INC. (Exact name of registrant as specified in its charter) Delaware 22-3672377 (State or other (I.R.S. Identification jurisdiction Number) of incorporation or organization) 968 ALBANY-SHAKER ROAD, LATHAM, NEW YORK 12110 (Address of principal executive offices, including zip code) (518) 782-7700 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share. Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or an amendment to this Form 10-K. [_] As of March 22, 2002, 50,344,959 shares of the Registrant's Common Stock were issued and outstanding. The aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant, based upon the closing sale price of $10.13 on the Nasdaq National Market on March 22, 2002, was $509,994,435. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement relating to the Registrant's Annual Meeting of stockholders to be held on May 16, 2002 are incorporated by reference into Part III of this report to the extent described therein. ================================================================================ PART I Item 1. Business Overview We design, develop and manufacture on-site electric power generation systems utilizing proton exchange membrane (PEM) fuel cells for stationary applications. We were formed in 1997, as a joint venture between Edison Development Corporation (EDC), a DTE Energy Company and Mechanical Technology Incorporated (MTI). In addition, we have established strategic relationships with suppliers of key components as well as certain other development arrangements. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Acquisitions, Strategic Relationships and Development Agreements. Our initial product is a fully integrated, grid parallel 5 kilowatt (kW) fuel cell system that operates on natural gas. This initial product is being marketed to a select number of customers, including utilities, government entities and our distribution partners, GE Fuel Cell Systems, L.L.C. and DTE Energy Technologies, Inc. This initial product is intended to offer complimentary, quality power while demonstrating the market value of fuel cells as a preferred form of alternative distributed power generation. We expect subsequent enhancements to expand the market opportunity for our fuel cells by lowering the installed cost, decreasing operating and maintenance costs, increasing efficiency, improving reliability, and adding features such as grid independence and co-generation of heat and electric power. During 2001, a substantial portion of our business activity was focused on the development, manufacture and delivery of our initial products pursuant to contracts with a select number of customers, including the Long Island Power Authority and the New York State Energy Research and Development Authority. Fuel Cells and Fuel Cell Systems A fuel cell is an electrochemical device that combines hydrogen and oxygen from the air to produce electric power without combustion. Hydrogen is derived from a fuel such as natural gas, propane, methanol or gasoline and can also be obtained from the electrolysis of water, stored hydrogen or a hydrogen pipeline. A single PEM fuel cell consists principally of two electrodes, the anode and the cathode, separated by a polymer electrolyte membrane. Each of the electrodes is coated on one side with a platinum-based catalyst. Hydrogen fuel is fed into the anode and air enters through the cathode. Induced by the platinum catalyst, the hydrogen molecule splits into two protons and two electrons. The electrons are conducted around the membrane creating an electric current and the protons from the hydrogen molecule are transported through the polymer electrolyte membrane and combine at the cathode with the electrons and oxygen from the air to form water and produce heat. To obtain the desired level of electric power, individual fuel cells are combined into a fuel cell stack. Increasing the number of fuel cells in a stack increases the voltage, while increasing the surface area of each fuel cell increases the current. In addition to a fuel cell stack, a complete PEM fuel cell power system generally includes supporting subsystems, such as fuel, air supply, cooling and control, and may also require an inverter or power conditioner to change the direct current produced by a fuel cell into alternating current. If the PEM fuel cell system does not use hydrogen directly as its fuel, then a fuel processor is also required to extract hydrogen from hydrocarbon fuels such as natural gas or propane. Product Development and Commercialization We continue to advance the development of our fuel cell systems. Our research and development facility contains over 150 test stations where we conduct design optimization and verification testing, rapid-aging testing, failure mode and effects analysis, multiple technology evaluations, and endurance testing in our effort to accelerate the development and commercialization of our fuel cell systems. During 2001 we delivered 132 systems to a select number of customers, including 131 five kilowatt (kW) systems that operate on natural gas, 2 and one 50 kW prototype system that operates on hydrogen. Further, we have significantly reduced the unit cost, size, weight and part count of our systems. Recent accomplishments include a 37% reduction in the direct material cost of our initial product since January 1, 2001. In addition to our initial products, we are developing combined heat and power (CHP) fuel cell systems for residential and light commercial applications. We are conducting a joint development program with Vaillant GmbH to develop a combination furnace, hot water heater and fuel cell heating appliance for the European market. We provide the fuel cell system to Vaillant who integrates the system with their commercial natural gas heating appliances, resulting in a heating and hot water system that provides supplemental electrical power. We are also developing CHP fuel cell systems for the U.S. market that provide supplemental heat as electricity is produced. Further, we are developing a back-up power fuel cell product that is based on our initial product, but is fueled by pure hydrogen and, therefore, does not require a fuel processor. As a result, this back-up power product is expected to be smaller and less expensive than our initial product. These units are expected to supply high quality, extended-run direct current (DC) power for the telecommunications and information technology industries. We also have an effort underway to create a system architecture for our future strategic product platforms which we expect will enable the flexible integration of subsystem and component modules, including a fuel processor, a fuel cell stack and power conditioning modules. We believe that this modular system architecture will enable us to produce fuel cell systems that are configurable across a range of stationary applications and operable within a customer's specific environment. Manufacturing Our goal is to manufacture reliable, efficient and safe fuel cell systems at an affordable cost. We are focusing our efforts on overall system design, component and subsystem integration, assembly, and quality control processes. We have also begun to establish a manufacturing infrastructure by installing a new management information system and developing our manufacturing processes based on lean manufacturing practices. We have a 50,000 square foot manufacturing facility, adjacent to our development laboratories, that allows us to produce our initial products. Based on our current sales expectations, we believe our manufacturing plant will provide sufficient capacity to meet our production levels for at least the next two years. Our strategy continues to evolve around working with third-party suppliers to design, develop or manufacture subsystems and components that we expect will achieve our cost and reliability targets. We perform significant quality testing before we integrate any third-party subsystems and components into our final assembled fuel cell systems. We have implemented a supplier approval and qualification process with the goal of improving our return on investment and cash flow by driving component and subassembly manufacturing back to our supply partners, resulting in reduced capital investment, engineering cost, product cost and inventory investments. We are focused on keeping our supply base small and establishing long term, strategic relationships with our supply chain partners. Since our inception we have formed strategic relationships to develop and supply key components, including: VAILLANT: In March 2000, we finalized a development agreement with Vaillant GmbH to develop a combination furnace, hot water heater and fuel cell heating appliance that will provide both heat and electricity for the home. See Management's Discussion and Analysis of Financial Condition and Results of Operations--Acquisitions, Strategic Relationships and Development Agreements. CELANESE: In April 2000, we finalized a joint development agreement with Celanese GmbH (formerly, AXIVA GmbH), to develop a high temperature membrane electrode unit for our stationary fuel cell systems. The membrane electrode unit is expected to facilitate the simplification of the fuel processor 3 and fuel cell water management. See Management's Discussion and Analysis of Financial Condition and Results of Operations--Acquisitions, Strategic Relationships and Development Agreements. ENGELHARD: In June 2000, we finalized a joint development agreement with Engelhard Corporation for the development and supply of advanced catalysts to increase the overall performance and efficiency of our fuel processor. See Management's Discussion and Analysis of Financial Condition and Results of Operations--Acquisitions, Strategic Relationships and Development Agreements. Distribution and Marketing In February 1999, we entered into a joint venture agreement with GE MicroGen, Inc. to form GE Fuel Cell Systems, LLC (GEFCS). GEFCS has the worldwide right to exclusively market, sell, install and service our PEM fuel cell systems designed for use in stationary power applications, with the exception of the states of Illinois, Indiana, Michigan and Ohio, in which DTE Energy Technologies, Inc., has exclusive distribution rights. GE MicroGen, Inc. is a wholly owned subsidiary of General Electric Company that operates within the GE Power Systems business. Under our agreements, we will sell our systems directly to GEFCS, which, in turn, will identify qualified resellers who can distribute and service these systems. Under our amended distribution agreement, we may sell systems directly to governmental and quasi-governmental entities under certain circumstances. For example, in 2001, we entered into an agreement directly with the Long Island Power Authority under which they purchased from us 75 of our initial products, together with installation, maintenance, training, engineering and other technical support services for an aggregate purchase price of $7.0 million. Plug Power systems sold through GEFCS are expected to be co-branded with both the General Electric and Plug Power names and trademarks, and may also carry the brand of the local reseller. Currently, however, we expect to sell some of our initial products through GEFCS that do not carry the General Electric name and trademark. Potential GEFCS resellers include gas and electric utilities and new market entrants such as gas and power marketers, unregulated affiliates of utilities, appliance distributors and energy service companies. To date, GEFCS has entered into several distribution agreements, including agreements with Flint Energies, a Georgia-based rural electric cooperative, NJR Energy Holdings Corporation, an affiliate of New Jersey Natural Gas Company, Kubota Corporation of Japan, Soroof Trading Development Company Limited of Saudi Arabia and Vaillant GmbH of Remscheid, Germany, Europe's leading heating appliance manufacturer. Installation, Servicing and Maintenance Pursuant to our agreements with GEFCS, GEFCS is the exclusive provider of product support for our systems through its own service structure, sub-distributor service network and contracts with third party service providers. GEFCS' service program is expected to be closely coordinated with the commercial introduction through GEFCS of our fuel cell systems, so that a sufficient level of installation, maintenance and customer support service will be available in all areas where our systems are sold. We also expect that GEFCS will provide the warranty service for our products according to terms to be mutually agreed upon by us and GEFCS. We expect that GEFCS' service plan will be completed and the requisite service contracts will be in place prior to commercial sale of our units through GEFCS. With respect to systems that we sell directly, such as those that we deliver to governmental and quasi-governmental entities, we will provide, or enter into a subcontract to provide, these services directly. 4 Proprietary Rights Fuel cell technology has existed since the 19th century, and PEM fuel cells were first developed in the 1950s. Consequently, we believe that neither we nor our competitors can achieve a significant proprietary position on the basic technologies currently used in PEM fuel cell systems. However, we believe the design and integration of the system and system components, as well as some of the low-cost manufacturing processes that we have developed, can be protected. As of December 31, 2001, we had 38 issued patents and 94 patents pending in the United States, and abroad we had 3 issued patents and 42 patents pending. These patents cover, among other things, fuel cell components that reduce manufacturing part count, fuel cell system designs that lend themselves to mass manufacturing, improvements to fuel cell system efficiency, reliability, and longer system life, and control strategies, such as added safety protections and operation under extreme conditions. Each of our employees has agreed that all inventions made or conceived while an employee of Plug Power which are related to or result from work or research that Plug Power performs will remain the sole and exclusive property of Plug Power, whether patented or not. Competition There are a number of companies located in the United States, Canada and abroad that are developing PEM fuel cell technology, including Ballard Power Systems, Inc., H Power Corp., and UTC Fuel Cells Corporation. Additionally a number of major automotive and manufacturing companies have in-house PEM fuel cell development efforts. We also compete with companies that are developing other types of fuel cells, such as Global Thermoelectric Inc and Sulzer-Hexis. There are four types of fuel cells other than PEM fuel cells that are generally considered to have viable commercial applications: phosphoric acid fuel cells, molten carbonate fuel cells, solid oxide fuel cells and alkaline fuel cells. Each of these fuel cells differs in the component materials, as well as in its overall operating temperature. While all fuel cell types have environmental and efficiency advantages over traditional power sources, we believe that PEM fuel cells can be manufactured less expensively and are more efficient and more practical in small-scale applications. Our systems will also compete with other distributed generation technologies, including microturbines and reciprocating engines, available at prices competitive with existing forms of power generation. We believe that our fuel cell systems will have a competitive advantage in that they can be more easily scaled to a range of applications and will be more efficient in following the load profile of customers. We also believe that they will be quieter, environmentally cleaner, more efficient and less expensive to install, service and maintain. Our systems will also compete with solar and wind-powered systems. Government Regulation We do not believe that we will be subject to existing federal and state regulatory commissions governing traditional electric utilities and other regulated entities. We do believe, however, that our product and its installation will be subject to oversight and regulation at the local level in accordance with state and local ordinances relating to among others, building codes, public safety, electrical and gas pipeline connections and related matters. The level of regulation may depend, in part, upon whether a system is placed outside or inside a home. We have worked to modify pertinent codes and standards, such as the 2002 National Electrical Code, to address the installation of fuel cell systems. Product safety standards have been established covering the overall fuel cell system (CSA FC-1 formerly ANSI Z21.83), and the power conversion electronics (UL 1741). Our product has been certified by CSA International to be in compliance with the safety requirements of CSA FC-1 and our power conditioning system, an inverter, has been listed to UL1741 by Underwriter's Laboratories. At this time, we do not know the specific requirements, if any, each jurisdiction will impose on our product or its 5 installation. We also do not know the extent to which any new regulations may impact our ability to distribute, install and service our product. Once our product reaches the commercialization stage and we begin distributing our systems to our early target markets, the federal, state or local government entities or competitors may seek to impose regulations. Employees As of December 31, 2001, we had a total staff of 366, including 353 full- time employees, of which 218 were engineers, scientists, and other degreed professionals. We consider our relations with our employees to be good. We continuously monitor our workforce in an effort to identify specific areas of need or where there are job redundancies and inefficiencies based on our stage of development. Factors Affecting Future Results This Annual Report on Form 10-K contains statements which are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as "may," "could," "should," "would," "intend," "will," "expect," "anticipate," "believe," "estimate," "continue" or similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial condition, or state other forward-looking information. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward- looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including, but not limited to, those factors described below. Readers should not place undue reliance on our forward-looking statements. Except as may be required by applicable law, we do not undertake or intend to update any forward-looking statements after the date of this Annual Report on Form 10-K. We may never complete the research and development of commercially viable stationary fuel cell systems. We are a development stage company. We do not know when or whether we will successfully complete research and development of commercially viable stationary fuel cell systems. We have produced and are currently demonstrating a number of test and evaluation systems. We must decrease the costs of our components and subsystems, improve their overall reliability and efficiency, and ensure their safety. Although we have sold a limited number of our initial products, we must complete substantial additional research and development on our systems before we will have a large-scale commercially viable product. Because development of our fuel cell systems proceeded more slowly than we anticipated, we have amended our distribution agreement with GE Fuel Cell Systems on three occasions to revise the performance specifications and prices and to extend the delivery schedule for the products covered by that agreement. In addition, while we are conducting tests to predict the overall life of our systems, we will not have run our systems over their projected useful life prior to large-scale commercialization. As a result, we cannot be sure that our systems will last as long as predicted, resulting in possible warranty claims and commercial failures. We have only been in business for a short time, and your basis for evaluating us is limited. We were formed in June 1997 to further the research and development of stationary fuel cell systems. While we delivered our initial product in the third quarter of 2001, we do not expect to be profitable for at least the next several years. Accordingly, there is only a limited basis upon which you can evaluate our business and prospects. As an investor in our common stock, you should consider the challenges, expenses and difficulties that we will face as a development stage company seeking to develop and manufacture a new product. 6 We have incurred losses and anticipate continued losses for at least the next several years. As of December 31, 2001, we had an accumulated deficit of $208.3 million. We have not achieved profitability and expect to continue to incur net losses until we can produce sufficient revenue to cover our costs. The total cost to produce our initial products is currently higher than their sales price. Furthermore, we anticipate that we will continue to incur losses until we can produce and sell our fuel cell systems on a large- scale and cost-effective basis. Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future. A viable market for fuel cell systems may never develop or may take longer to develop than we anticipate. Fuel cell systems for residential, commercial and industrial applications represent an emerging market, and we do not know the extent to which our targeted distributors and resellers will want to purchase them and whether end-users will want to use them. If a viable market fails to develop or develops more slowly than we anticipate, we may be unable to recover the losses we will have incurred to develop our product and may be unable to achieve profitability. The development of a viable market for our systems may be impacted by many factors which are out of our control, including: . the cost competitiveness of fuel cell systems, . the future costs of natural gas, propane and other fuels expected to be used by our systems, . consumer reluctance to try a new product, . consumer perceptions of our systems' safety, . regulatory requirements, and . the emergence of newer, more competitive technologies and products. We have no experience manufacturing fuel cell systems on a large-scale commercial basis. To date, we have focused primarily on research and development and have no experience manufacturing fuel cell systems on a large-scale commercial basis. In 2000, we completed construction of our 50,000 square foot manufacturing facility, and we are continuing to develop our manufacturing capabilities and processes. We do not know whether or when we will be able to develop efficient, low-cost manufacturing capabilities and processes that will enable us to meet the quality, price, engineering, design and production standards or production volumes required to successfully market our fuel cell systems. Even if we are successful in developing our manufacturing capabilities and processes, we do not know whether we will do so in time to meet our product commercialization schedule or to satisfy the requirements of our distributors or customers. We are heavily dependent on our relationship with GE Fuel Cell Systems and its commitment to develop the fuel cell market. We believe that a substantial portion of our future revenue will be derived from sales of products to GE Fuel Cell Systems. Under the terms of our current distribution agreement, GE Fuel Cell Systems has worldwide rights to market, distribute, install and service our PEM fuel cell systems designed for stationary applications other than in the states of Illinois, Indiana, Michigan and Ohio. Under our distribution agreement, we will serve as GE Fuel Cell Systems' exclusive supplier of the PEM fuel cell systems and related components meeting the specifications set forth in the distribution agreement. We have not fully developed and produced the product that we have agreed to sell to GE Fuel Cell Systems. Our initial product does not meet the specifications required by our current agreement with GE Fuel Cell Systems. Economic and technical difficulties may prevent us from completing development of products meeting these specifications and delivering them on schedule to GE Fuel Cell Systems. 7 In addition, our ability to successfully sell our systems is heavily dependent upon GE Fuel Cell Systems' sales, distribution and service capabilities. Although we own a minority interest in GE Fuel Cell Systems, we cannot control the operations or business decisions of GE Fuel Cell Systems. Any change in our relationship with GE Fuel Cell Systems, whether as a result of market, economic or competitive pressures, including an inability to satisfy our contractual obligations to GE Fuel Cell Systems or any decision by General Electric to alter its commitment to GE Fuel Cell Systems or our fuel cell technology in favor of other fuel cell technologies, to develop fuel cell systems targeted at different markets than ours or to focus on different energy product solutions could harm our reputation and potential earnings by depriving us of the benefits of GE Fuel Cell Systems' sales and distribution network and service capabilities. Our distribution agreement with GE Fuel Cell Systems has been amended on three occasions. The most recent amendment in August 2001, further amended the distribution agreement to extend its term through 2014 and to replace the product specifications, prices and delivery schedule in the current agreement with a high-level, multi-generation product plan with subsequent modifications subject to mutual agreement. We have not met in the past and may not meet in the future product development and commercialization milestones. We have established both internally and in our distribution agreement with GE Fuel Cell Systems product development and commercialization milestones and dates for achieving development goals related to technology and design improvements. We use these milestones to assess our progress toward developing commercially viable fuel cell systems. For example, 2000 was a milestone year for delivering to GE Fuel Cell Systems 485 units meeting pre-commercial specifications set forth in our agreement with them on a take-or-pay basis for a total of $10.3 million in revenue. During the second quarter of 2000, we determined that the specifications of the then current pre-commercial units did not conform to the specifications originally agreed upon with GE Fuel Cell Systems and that we would not meet that milestone. Additionally, we set internal milestones of building 500 developmental and pre-commercial units in 2000, having commercial units available in 2001 and achieving profitability by 2003. During 2000, we produced a total of only 113 systems, delayed availability of our initial product and announced that we would not be profitable for at least the next several years. Delays in our product development will likely have a material impact on our commercialization schedule. If we do experience delays in meeting our development goals or if our systems exhibit technical defects or if we are unable to meet cost or performance goals, including power output, useful life and reliability, our commercialization schedule will be delayed. In this event, potential purchasers of our initial commercial systems may choose alternative technologies and any delays could allow potential competitors to gain market advantages. We cannot assure you that we will successfully achieve our milestones in the future. We depend on third parties for certain aspects of product development, manufacturing and the development and supply of key components for our products. While we have entered into relationships with suppliers of key components, we do not know when or whether we will secure supply relationships for all required components and subsystems for our fuel cell systems, or whether such relationships will be on terms that will allow us to achieve our objectives. Our business, prospects, results of operations or financial condition could be harmed if we fail to secure relationships with entities which can develop or supply the required components for our systems. Additionally, the agreements governing our current relationships allow for termination by our supply partners under a number of circumstances. 8 We will rely on our partners to develop and provide components for our fuel cell systems. A supplier's failure to develop and supply components in a timely manner, or to develop or supply components that meet our quality, quantity or cost requirements, or our inability to obtain substitute sources of these components on a timely basis or on terms acceptable to us, could harm our ability to manufacture our fuel cell systems. In addition, to the extent that our supply partners use technology or manufacturing processes that are proprietary, we may be unable to obtain comparable components from alternative sources. In addition, platinum is a key material in our PEM fuel cells. Platinum is a scarce natural resource and we are dependent upon a sufficient supply of this commodity. While we do not anticipate significant near or long term shortages in the supply of platinum, such shortages could adversely affect our ability to produce commercially viable fuel cell systems or significantly raise our cost of producing our fuel cell systems. We face intense competition and may be unable to compete successfully. The markets for electric power generators are intensely competitive. There are a number of companies located in the United States, Canada and abroad that are developing PEM and other fuel cell technologies, such as phosphoric acid fuel cells, molten carbonate fuel cells, solid oxide fuel cells and alkaline fuel cells. Some of our competitors are much larger than we are and may have the manufacturing, marketing and sales capabilities to complete research, development and commercialization of a commercially viable fuel cell system more quickly and effectively than we can. There are many companies engaged in all areas of traditional and alternative electric power generation in the United States, Canada and abroad, including, among others, major electric, oil, chemical, natural gas and specialized electronics firms, as well as universities, research institutions and foreign government-sponsored companies. These firms are engaged in forms of power generation such as solar and wind power, reciprocating engines and microturbines, as well as grid-supplied electric power. Many of these entities have substantially greater financial, research and development, manufacturing and marketing resources than we do. Changes in government regulations and electric utility industry restructuring may affect demand for our fuel cell systems. The market for electric power generation products is heavily influenced by federal and state governmental regulations and policies concerning the electric utility industry. The loosening of current regulatory policies could deter further investment in the research and development of alternative energy sources, including fuel cells, and could result in a significant reduction in the demand for our products. We cannot predict how the deregulation and restructuring of the industry will affect the market for stationary fuel cell systems. Our business may become subject to future government regulation which may impact our ability to market our products. We do not believe that our products will be subject to existing federal and state regulations governing traditional electric utilities and other regulated entities. We believe that our products and their installation will be subject to oversight and regulation at the local level in accordance with state and local ordinances relating to, among others, building codes, public safety and electrical and gas pipeline connections. Such regulation may depend, in part, upon whether a fuel cell system is placed outside or inside a home. At this time, we do not know what requirements, if any, each jurisdiction will impose upon our products or their installation. We also do not know the extent to which any new regulations may impact our ability to distribute, install and service our products. In the future, federal, state or local government entities or competitors may seek to impose regulations. Any new government regulation of our products, whether at the federal, state or local level, including any regulations relating to installation and servicing of our products, may increase our costs and the price of our systems. Utility companies could place barriers on our entry into the residential marketplace. 9 Utility companies commonly charge fees to industrial customers for disconnecting from the grid, for using less electricity or for having the capacity to use power from the grid for back-up purposes. Though these fees are not currently charged to residential users, it is possible that utility companies could in the future charge similar fees to residential customers. The imposition of such fees could increase the cost to residential customers of using our systems and could make our residential systems less desirable, thereby harming our revenue and profitability. Several states, including Texas, New York and California, have created and adopted or are in the process of creating or adopting their own interconnection regulations covering both technical and financial requirements for interconnection to utility grids. Depending on the complexities of the requirements, installation of our systems may become burdened with additional costs and have a negative impact on our ability to sell systems. There is also a burden in having to track the requirements of individual states and design equipment necessary to comply with the varying standards. Further, no universal standard has been adopted covering the connection of distributed generation devices to utility grids. Alternatives to our technology could render our systems obsolete prior to commercialization. Our systems are one of a number of alternative energy products being developed as supplements to the electric power grid that have potential residential, commercial and industrial applications, including microturbines, solar power, wind power and other types of fuel cell technologies. Improvements are also being made to the existing electric transmission system. Technological advances in alternative energy products, improvements in the electric power grid or other fuel cell technologies may render our systems obsolete. The hydrocarbon fuels and other raw materials on which our systems rely may not be readily available or available on a cost-effective basis. The ability of our systems to produce electric power depends largely on the availability of natural gas and propane. If these fuels are not readily available, or if their prices are such that electric power produced by our systems costs more than electric power provided through the grid, our systems would be less attractive to potential users. Our fuel cell systems use flammable fuels which are inherently dangerous substances. Our fuel cell systems use natural gas in a catalytic reaction which produces less heat than a typical gas furnace. While our fuel cell systems do not use this fuel in a combustion process, natural gas is a flammable fuel that could leak in a home or office and combust if ignited by another source. These dangers are present in any appliance that uses natural gas, such as a gas furnace, stove or dryer. Any accidents involving our products or other products using similar flammable fuels could materially suppress demand for, or heighten regulatory scrutiny of, our products. Any liability for damages resulting from malfunctions or design defects could be substantial and could materially adversely affect our business and results of operations. In addition, a well- publicized actual or perceived problem could adversely affect the market's perception of our products resulting in a decline in demand for our products and could divert the attention of our management, which may materially adversely affect our financial condition and results of operations. We must lower the cost of our fuel cell systems and demonstrate their reliability. The fuel cell systems we develop currently cost significantly more than the cost of many established competing technologies. If we are unable to produce fuel cell systems that are competitive with competing technologies in terms of price, reliability and longevity, consumers will be unlikely to buy products containing our fuel cell systems. The price of fuel cell systems depends largely on material and manufacturing costs. We cannot guarantee that we will be able to lower these costs to the level where we will be able to produce a competitive product or that any product produced using lower cost materials and manufacturing processes will not suffer from a reduction in performance, reliability and longevity. 10 Failure of our field tests could negatively impact demand for our products. We are currently field testing a number of our systems and we plan to conduct additional field tests in the future. We may encounter problems and delays during these field tests for a number of reasons, including the failure of our technology or the technology of third parties, as well as our failure to maintain and service our systems properly. Many of these potential problems and delays are beyond our control. Any problem or perceived problem with our field tests could materially harm our reputation and impair market acceptance of, and demand for, our products. We may be unable to raise additional capital to complete our product development and commercialization plans. Our cash requirements depend on numerous factors, including completion of our product development activities, ability to commercialize our fuel cell systems and market acceptance of our systems. We expect to devote substantial capital resources to continue development programs, establish a manufacturing infrastructure and develop manufacturing processes. We believe that we will need to raise additional funds to achieve commercialization of our products. However, we do not know whether we will be able to secure additional funding, or funding on acceptable terms, to pursue our commercialization plans. If additional funds are raised through the issuance of equity securities, the percentage ownership of our then current stockholders will be reduced. If adequate funds are not available to satisfy either short- or long-term capital requirements, we may be required to limit operations in a manner inconsistent with our development and commercialization plans, which could affect operations in future periods. We will need to establish additional strategic relationships to complete our product development and commercialization plans. We believe that we will need to enter into additional strategic relationships in order to complete our current product development and commercialization plans on schedule. In particular, we may require a partner to assist us in developing commercially viable fuel cell systems that produce in the range of 25 to 100 kW of electric power. If we are unable to identify or enter into a satisfactory agreement with potential partners, we may not be able to complete our product development and commercialization plans on schedule or at all. We may also need to scale back these plans in the absence of a partner, which would adversely affect our future prospects. In addition, any arrangement with a strategic partner may require us to issue a material amount of equity securities to the partner or commit significant financial resources to fund our product development efforts in exchange for their assistance or the contribution to us of intellectual property. Any such issuance of equity securities would reduce the percentage ownership of our then current stockholders. Future acquisitions may disrupt our business and distract our management. We may engage in acquisitions. We may not be able to identify suitable acquisition candidates. If we do identify suitable candidates, we may not be able to acquire them on commercially acceptable terms or at all. If we acquire another company, we may not be able to successfully integrate the acquired business into our existing business in a timely and non-disruptive manner. We may have to devote a significant amount of time and management and financial resources to do so. Even with this investment of management and financial resources, an acquisition may not produce the desired revenues, earnings or business synergies. If we fail to integrate the acquired business effectively or if key employees of that business leave, the anticipated benefits of the acquisition would be jeopardized. The time, capital and management and other resources spent on an acquisition that fails to meet our expectations could cause our business and financial condition to be materially and adversely affected. In addition, from an accounting perspective, acquisitions can involve non-recurring charges and amortization of significant amounts of intangible assets that could adversely affect our results of operations. 11 We may not be able to protect important intellectual property. PEM fuel cell technology was first developed in the 1950s, and we do not believe that we can achieve a significant proprietary position in the basic technologies currently used in PEM fuel cell systems. Similarly, fuel processing technology has been practiced on a large scale in the petrochemical industry for decades. However, our ability to compete effectively against other fuel cell companies will depend, in part, on our ability to protect our proprietary technology, systems designs and manufacturing processes. We do not know whether any of our pending patent applications will issue or, in the case of patents issued or to be issued, that the claims allowed are or will be sufficiently broad to protect our technology or processes. Even if all of our patent applications are issued and are sufficiently broad, they may be challenged or invalidated. We could incur substantial costs in prosecuting or defending patent infringement suits. While we have attempted to safeguard and maintain our proprietary rights, we do not know whether we have been or will be completely successful in doing so. Moreover, patent applications filed in foreign countries may be subject to laws, rules and procedures that are substantially different from those of the United States, and any resulting foreign patents may be difficult and expensive to enforce. We may have difficulty managing change in our operations. We are continue to undergo rapid change in the scope and breadth of our operations as we advance the development of our products. Such rapid change is likely to place a significant strain on our senior management team and other resources. We will be required to make significant investments in our engineering, logistics, financial and management information systems and to motivate and effectively manage our employees. Our business, prospects, results of operations or financial condition could be harmed if we encounter difficulties in effectively managing the budgeting, forecasting and other process control issues presented by such a rapid change. We face risks associated with our plans to market, distribute and service our products internationally. We intend to market, distribute and service our PEM fuel cell systems for stationary applications internationally through GE Fuel Cell Systems. We have limited experience developing, and no experience manufacturing our products to comply with the commercial and legal requirements of international markets. Our success in international markets will depend, in part, on GE Fuel Cell Systems' ability to secure relationships with foreign sub-distributors and our ability to manufacture products that meet foreign regulatory and commercial requirements. Additionally, our planned international operations are subject to other inherent risks, including potential difficulties in enforcing contractual obligations and intellectual property rights in foreign countries and fluctuations in currency exchange rates. Further, our competitors may independently develop or patent technologies or processes that are substantially equivalent or superior to ours. If we are found to be infringing third party patents, we could be required to pay substantial royalties and/or damages, and we do not know whether we will be able to obtain licenses to use such patents on acceptable terms, if at all. Failure to obtain needed licenses could delay or prevent the development, manufacture or sale of our fuel cell systems, and could necessitate the expenditure of significant resources to develop or acquire non-infringing intellectual property. We rely, in part, on contractual provisions to protect our trade secrets and proprietary knowledge. These agreements may be breached, and we may not have adequate remedies for any breach. Our trade secrets may also be known without breach of such agreements or may be independently developed by competitors. Our inability to maintain the proprietary nature of our technology and processes could allow our competitors to limit or eliminate any competitive advantages we may have and prevent us from being the first company to commercialize residential fuel cell systems. Our government contracts could restrict our ability to effectively commercialize our technology. 12 Some of our technology has been developed under government funding by the United States and by other countries. In some cases, government agencies in the United States can require us to obtain or produce components for our systems from sources located in the United States rather than foreign countries. Our contracts with government agencies are also subject to the risk of termination at the convenience of the contracting agency, potential disclosure of our confidential information to third parties and the exercise of "march-in" rights by the government. March-in rights refer to the right of the United States government or government agency to exercise its non-exclusive, royalty-free, irrevocable worldwide license to any technology developed under contracts funded by the government if the contractor fails to continue to develop the technology. The implementation of restrictions on our sourcing of components or the exercise of march-in rights could harm our business, prospects, results of operations or financial condition. In addition, under the Freedom of Information Act, any documents that we have submitted to the government or to a contractor under a government funding arrangement is subject to public disclosure that could compromise our intellectual property rights unless such documents are exempted as trade secrets or as confidential information and treated accordingly by such government agencies. Our future plans could be harmed if we are unable to attract or retain key personnel. We have attracted a highly skilled management team and specialized workforce, including scientists, engineers, researchers, manufacturing and marketing professionals. Our future success will depend, in part, on our ability to attract and retain qualified management and technical personnel. We do not know whether we will be successful in hiring or retaining qualified personnel. Our inability to hire qualified personnel on a timely basis, or the departure of key employees, could materially and adversely affect our development and commercialization plans and, therefore, our business, prospects, results of operations and financial condition. GE MicroGen and DTE Energy have representatives on our Board of Directors. Under our agreement with GE MicroGen we are required to use our best efforts to cause one individual nominated by GE Power Systems, an operating business of General Electric Company, to be elected to our Board of Directors for as long as our distribution agreement with GE Fuel Cell Systems remains in effect. Currently, John G. Rice serves on our Board of Directors as the GE Power Systems nominee to our Board. In addition, a current employee of DTE Energy, Anthony F. Earley, Jr., and a former employee of DTE Energy, Larry G. Garberding, currently serve on our Board of Directors. Both GE Fuel Cell Systems and DTE Energy have entered into distribution agreements with us. We are subject to a securities class action litigation. In September 2000, a shareholder class action complaint was filed in the federal district court for the Eastern District of New York alleging that we and various of our officers and directors violated certain federal securities laws by failing to disclose certain information concerning our products and future prospects. The action was brought on behalf of a class of purchasers of our stock who purchased the stock between February 14, 2000 and August 2, 2000. Subsequently, fourteen additional complaints with similar allegations and class periods were filed. By order dated October 30, 2000, the court consolidated the complaints into one action, entitled Plug Power Inc. Securities Litigation, CV- 00-5553(ERK)(RML). By order dated January 25, 2001, the Court appointed lead plaintiffs and lead plaintiffs' counsel. Subsequently, the plaintiffs served a consolidated amended complaint. The consolidated amended complaint extends the class period to begin on October 29, 1999 and alleges claims under the Securities Act of 1933 and the Exchange Act of 1934, and Rule 10b-5 promulgated under the Exchange Act of 1934. Subsequently, Plaintiffs withdrew their claims under the Securities Act of 1933. Plaintiffs allege that the defendants made misleading statements and omissions regarding the state of development of our technology in a registration statement issued in connection with our initial public offering and in subsequent press releases. We served our motion to dismiss the claims in May 2001. We believe that the allegations in the consolidated amended complaint are without merit and intend to vigorously defend against the claims. We do not believe that the outcome of these actions will have a material adverse effect upon our financial position, results of operations or liquidity. However, litigation is inherently uncertain and there can be no assurances as to the ultimate outcome or effect of these actions. If the plaintiffs were to prevail, such an outcome would have a material adverse effect on our financial condition, results of operations and liquidity. 13 Our stock price has been and could remain volatile. The market price of our common stock has historically experienced and may continue to experience significant volatility. Since our initial public offering in October 1999, the market price of our common stock has fluctuated from a high of $149.75 per share in the first quarter of 2000, to a low of $7.53 per share in the fourth quarter of 2001. Our progress in developing and commercializing our products, our quarterly operating results, changes in general conditions in the economy or the financial markets and other developments affecting us or our competitors could cause the market price of our common stock to fluctuate substantially. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has affected the market prices of securities issued by many companies for reasons unrelated to their operating performance and may adversely affect the price of our common stock. In addition, we may be the subject of additional securities class action litigation as a result of volatility in the price of our stock, which could result in substantial costs and diversion of management's attention and resources and could harm our stock price, business, prospects, results of operations and financial condition. Item 2. Properties Our principal executive offices are located in Latham, New York. At our 36 acre campus, we own a 56,000 square foot research and development center, a 32,000 square foot office building and a 50,000 square foot manufacturing facility and believe that these facilities are sufficient to accommodate our anticipated production volumes for at least the next two years. Item 3. Legal Proceedings On or about September 14, 2000, a shareholder class action complaint was filed in the federal district court for the Eastern District of New York alleging that we and various of our officers and a director violated certain federal securities laws by failing to disclose certain information concerning our products and future prospects. The action was brought on behalf of a class of purchasers of Plug Power stock who purchased the stock between February 14, 2000 and August 2, 2000. Subsequently, fourteen additional complaints with similar allegations and class periods were filed. By order dated October 30, 2000, the court consolidated the complaints into one action, entitled Plug Power Inc. Securities Litigation, CV-00-5553 (ERK) (RML). By order dated January 25, 2001, the Court appointed lead plaintiffs and lead plaintiffs' counsel. Subsequently the plaintiffs served a consolidated amended complaint, which extends the class period to begin on October 29, 1999, and alleges claims under Sections 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Exchange Act of 1934, and Rule 10b-5 promulgated thereunder by the Securities & Exchange Commission, 17 C.F.R. 240 10b-5. Subsequently, Plaintiffs withdrew their claims under the Securities Act of 1933. Plaintiffs allege that the defendants made misleading statements and omissions regarding the state of development of the Company's technology in a registration statement and proxy statement issued in connection with the Company's initial public offering and in subsequent press releases, and are seeking damages. The Company believes that the allegations in the consolidated amended complaint are without merit and intend to vigorously defend against the claims. The Company does not believe that the outcome of these actions will have a material adverse effect upon its financial position, results of operations or liquidity; however, litigation is inherently uncertain and there can be no assurances as to the ultimate outcome or effect of these actions. If Plaintiffs were to prevail, such an outcome would have a material adverse effect on our financial condition, results of operation and liquidity. Item 4. Submission of Matters to a Vote of Security Holders None. 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Market Information. Our common stock is traded on the Nasdaq National Market under the symbol "PLUG." As of December 31, 2001, there were 1,385 shareholders of record. However, management believes that a significant number of shares are held by brokers under a "nominee name" and that the actual number of beneficial shareholders exceeds 70,000. The following table sets forth high and low last reported sale prices for our Common Stock as reported by the Nasdaq National Market for the periods indicated:
Closing sales prices -------------------- High Low ------- ------ 2000 1st Quarter. $149.75 $25.75 2nd Quarter. $ 92.00 $39.44 3rd Quarter. $ 70.00 $36.02 4th Quarter. $ 36.50 $ 9.44 2001 1st Quarter. $ 31.38 $12.69 2nd Quarter. $ 35.40 $12.88 3rd Quarter. $ 21.43 $ 6.70 4th Quarter. $ 10.02 $ 7.53
Dividend Policy. We have never declared or paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. Any future determination as to the payment of dividends will depend upon capital requirements and limitations imposed by our credit agreements, if any, and such other factors as our board of directors may consider. Recent Sales of Unregistered Securities and Use of Proceeds. We issued securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act") in the following transactions. The securities issued in each of the transactions were offered and sold in reliance upon Section 4(2) of the Securities Act. On July 19, 2001, we issued and sold 416,666 shares of our common stock to GE Power Systems Equities, Inc., an indirect wholly-owned subsidiary of General Electric Company and an additional 416,666 shares of our common stock to Edison Development Corporation, an indirect wholly-owned subsidiary of DTE Energy Company for an aggregate offering price of $10,000,000. On August 21, 2001, we issued to GE Power Systems Equities, Inc., an indirect wholly-owned subsidiary of General Electric Company, an option to purchase up to 725,000 shares of our common stock at any time prior to August 21, 2006 at an exercise price of $15.00 per share. The option was issued in connection with and as consideration for an amendment to our agreements with GE MicroGen, Inc. and GE Fuel Cell Systems, LLC as well as the issuance to us of an additional 15% ownership interest in GE Fuel Cell Systems, LLC. 15 Item 6. Selected Financial Data The following tables set forth selected financial data and other operating information of the Company. The selected statement of operations and balance sheet data for 2001, 2000, 1999, 1998 and 1997 as set forth below are derived from the audited financial statements of the Company. The information is only a summary and you should read it in conjunction with the Company's audited financial statements and related notes and other financial information included herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Years Ended December 31, ----------------------------------------------- 2001 2000 1999 1998 1997 ** --------- --------- --------- -------- -------- (in thousands, except per share data) Statement Of Operations: Product and service revenue............... $ 2,574 $ -- $ -- $ -- $ -- Research and development contract Revenue. 3,168 8,378 11,000 6,541 1,194 --------- --------- --------- -------- -------- Total revenue............................. 5,742 8,378 11,000 6,541 1,194 Cost of revenues.......................... 11,291 13,055 15,498 8,864 1,226 In-process research and development....... -- 4,984 -- -- 4,043 Research and development expense: Noncash stock-based compensation....... 1,301 248 -- -- -- Other research and development......... 59,299 65,657 20,506 4,633 1,301 General and administrative expense: Noncash stock-based compensation....... 502 7,595 3,228 212 -- Other general and administrative....... 6,990 8,572 6,699 2,541 630 Interest expense.......................... 260 363 190 -- -- --------- --------- --------- -------- -------- Operating loss......................... (73,901) (92,096) (35,121) (9,709) (6,006) Interest income........................... 4,070 8,181 3,124 93 103 --------- --------- --------- -------- -------- Loss before equity in losses of affiliates (69,831) (83,915) (31,997) (9,616) (5,903) Equity in losses of affiliates............ (3,281) (2,327) (1,472) -- -- --------- --------- --------- -------- -------- Net loss.................................. $(73,112) $(86,242) $(33,469) $(9,616) $(5,903) ========= ========= ========= ======== ======== Loss per share: Basic and diluted...................... $ (1.56) $ (1.99) $ (1.27) $ (0.71) $ (0.62) ========= ========= ========= ======== ======== Weighted average number of common......... shares outstanding........................ 46,840 43,308 26,283 13,617 9,500 ========= ========= ========= ======== ======== Balance Sheet Data: (at end of the period) Working capital........................... $ 90,366 $ 83,352 $ 169,212 $ 2,692 $ 2,667 Total assets.............................. 151,374 150,829 216,126 8,093 4,846 Current portion of long-term obligations.. 530 577 553 -- -- Long-term obligations..................... 6,172 6,707 6,517 -- -- Stockholders' equity...................... 135,003 134,131 201,407 5,493 3,597
- -------- ** For the period June 27 (date of inception) to December 31. 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our accompanying Financial Statements and Notes thereto included within this Annual Report on Form 10-K. In addition to historical information, this Annual Report on Form 10-K and the following discussion contain statements which are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements contain projections of our future results of operations or of our financial position or state other forward-looking information. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will" and "would" or similar words. You should not rely on these forward-looking statements because our actual results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors. These factors include, but are not limited to, our ability to develop a commercially viable fuel cell system; the cost and timing of developing our fuel cell systems; market acceptance of our fuel cell systems; our reliance on our relationship with General Electric; competitive factors, such as price competition, competition from other power technologies and competition from other fuel cell companies; the cost and availability of components and parts for our fuel cell systems; the ability to raise and provide the necessary capital to develop, manufacture and market our fuel cell systems; the cost of complying with current and future governmental regulations; and other risks and uncertainties discussed under Item I--Business under the caption "Factors Affecting Future Results." Overview We design, develop and manufacture on-site electric power generation systems utilizing proton exchange membrane (PEM) fuel cells for stationary applications. We are a development stage company formed in June 1997 as a joint venture to further the development of fuel cells for electric power generation in stationary applications. During 2001, a substantial portion of our business activity was focused on the development, manufacture and delivery of our initial products pursuant to contracts with a select number of customers, including the Long Island Power Authority and the New York State Energy Research and Development Authority. We continue to advance the development of our product. Since inception, we have devoted substantially all of our resources toward the development of PEM fuel cell systems. Our research and development facility contains over 150 test stations where we conduct design optimization and verification testing, rapid-aging testing, failure mode and effects analysis, multiple technology evaluations, and endurance testing in our effort to accelerate the development and commercialization of our fuel cell systems. During 2001, we delivered 132 systems to a select number of customers, including 131 five kilowatt (kW) systems that operate on natural gas, and one 50 kW prototype system that operates on hydrogen. Further, we have significantly reduced the unit cost, size, weight and part count of our systems. Recent accomplishments include a 37% reduction in the direct material cost of our initial product since January 1, 2001. Through December 31, 2001, our stockholders in the aggregate have contributed $291.9 million in cash, including $93.0 million in net proceeds from our initial public offering and $51.6 million in net proceeds from our follow-on public offering of common stock, and $33.4 million in other contributions, consisting of in-process research and development, real estate, other in-kind contributions and equity interests in affiliates. From inception through December 31, 2001, we have incurred losses of $208.3 million and expect to continue to incur losses as we continue our product development and commercialization programs and prepare for the commencement of manufacturing operations. We expect that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial as a result of, among other factors, the number of systems we produce and install, the related service requirements necessary to monitor those systems and potential design changes required as a result of field testing. 17 Acquisitions, Strategic Relationships and Development Agreements Since our inception in June 1997, we have formed strategic relationships with suppliers of key components, developed distributor and customer relationships, and entered into development and demonstration programs with electric utilities, government agencies and other energy providers. GE Entities: In February 1999, we entered into a joint venture agreement with GE MicroGen, Inc. to form GE Fuel Cell Systems, LLC (GEFCS), to exclusively market, sell, install and service certain of our PEM fuel cell systems under 35 kW designed for use in residential, commercial and industrial stationary power applications on a global basis, with the exception of the states of Illinois, Indiana, Michigan and Ohio, in which DTE Energy Technologies, Inc., has exclusive distribution rights. GE MicroGen, Inc. is a wholly owned subsidiary of General Electric Company that operates within the GE Power Systems business. In August 2001, we amended our agreements with GE MicroGen, Inc. and GEFCS to expand GEFCS' exclusive worldwide distribution rights to include all of our stationary PEM fuel cell systems. Under the terms of our distribution agreement with GEFCS, we will serve as GEFCS' exclusive supplier of the PEM fuel cell systems and related components meeting the specifications set forth in the distribution agreement. Additionally, we increased our ownership interest in GEFCS from 25% to 40%. In return, we granted GE Power Systems Equities, Inc. an option to purchase 725,000 shares of our common stock at any time prior to August 21, 2006 at an exercise price of $15.00 per share. This option was recorded as an increase to our investment in GEFCS at a fair value of $5.0 million. We also replaced the product specifications, prices and delivery schedule in our distribution agreement with a high-level, multi-generation product plan, with subsequent modifications being subject to mutual agreement, and extended the term of the agreement to December 31, 2014. Under our agreements, we will sell our systems directly to GEFCS, which, in turn, will identify qualified resellers who can distribute and service these systems. However, under the amended distribution agreement, we may sell systems directly to governmental and quasi-governmental entities, under certain circumstances. For example, in 2001 we entered into an agreement directly with the Long Island Power Authority under which they purchased from us 75 of our initial products, together with installation, maintenance, training, engineering and other technical support services for an aggregate purchase price of $7.0 million. Plug Power systems sold through GEFCS will be co-branded with both the General Electric and Plug Power names and trademarks, and may also carry the brand of the local reseller. Currently, however, we expect to sell some of our initial products through GEFCS that do not carry the General Electric name and trademark. Potential GEFCS resellers include gas and electric utilities and new market entrants such as gas and power marketers, unregulated affiliates of utilities, appliance distributors and energy service companies. To date, GEFCS has entered into several distribution agreements, including agreements with Flint Energies, a Georgia-based rural electric cooperative, NJR Energy Holdings Corporation, an affiliate of New Jersey Natural Gas Company, Kubota Corporation of Japan, Soroof Trading Development Company Limited of Saudi Arabia and Vaillant GmbH of Remscheid, Germany, Europe's leading heating appliance manufacturer. Also pursuant to our agreements, GEFCS is the exclusive provider of product support for our systems through its own service structure, sub-distributor service network and contracts with third party service providers. GEFCS' service program is expected to be closely coordinated with the commercial introduction through GEFCS of our fuel cell systems, so that a sufficient level of installation, maintenance and customer support service will be available in all areas where our systems are sold. We also expect that GEFCS will provide the warranty service for our products according to terms to be mutually agreed upon by us and GEFCS. We expect that GEFCS' service plan will be completed and the requisite service contracts will be in place prior to commercial sale of our units through GEFCS. With respect to systems that we sell directly, such as those that we deliver under our agreements with governmental and quasi-governmental entities, we will provide, or enter into a subcontract to provide, these services directly. 18 Under a separate agreement, we have agreed to source, from General Electric, technical support services for our product development effort, including engineering, testing, manufacturing and quality control services. We have committed to purchase a minimum of $12.0 million of such services over a five year period, which began September 30, 1999. Through December 31, 2001, we have purchased approximately $5.0 million of such services. We have also entered into a separate agreement with General Electric Company under which General Electric acts as our agent in procuring certain equipment, parts and components. In addition, General Electric has agreed to provide training services to our employees regarding procurement activities. Gastec: In February 2000, we acquired from Gastec, NV, a Netherlands-based company, certain fixed assets and all of its intellectual property related to fuel processor development for fuel cell systems capable of producing up to 100 kW of electric power. The total purchase price was $14.8 million, paid in cash. In connection with the transaction, we recorded in-process research and development expense in the amount of $5.0 million, fixed assets in the amount of $192,000 and intangible assets in the amount of $9.6 million (including a trained work force). The amount attributable to in-process research and development was valued using an income approach which reflects the present value of future avoided costs we estimate that we would otherwise have spent if we were to acquire the exclusive rights to this technology, for its remaining useful life, from another entity. We then discounted the net avoided cost using a 40% discount rate which we believe is consistent with the risk associated with this early stage technology. This amount was further adjusted to reflect the technology's state of completion, of approximately 30%, in order to reflect the value of the in-process research and development attributable to the efforts of the seller up to the date of the transaction. The fixed assets were capitalized at their fair value and are being depreciated over their useful life and the intangible assets have been capitalized and are being amortized over 36 months. Through December 31, 2001, we have expensed $6.2 million related to the intangible assets. Vaillant: In March 2000, we finalized a development agreement with Vaillant GmbH (Vaillant), to develop a combination furnace, hot water heater and fuel cell system that will provide both heat and electricity for the home. Under the agreement, Vaillant will obtain fuel cells and gas-processing components from GEFCS and then will produce the fuel cell heating appliances for its customers in Germany, Austria, Switzerland and the Netherlands, and for GEFCS customers throughout Europe. Celanese: In April 2000, we finalized a joint development agreement with Celanese GmbH, to develop a high temperature membrane electrode unit. Under the agreement, we and Celanese will exclusively work together on the development of a high temperature membrane electrode unit for our stationary fuel cell system applications. As part of the agreement we will contribute an estimated $4.1 million (not to exceed $4.5 million) to fund our share of the development efforts over the course of the agreement. As of December 31, 2001, we have contributed $1.5 million under the terms of the agreement and have accrued an additional $1.8 million. These amounts have been expensed and represent our estimated share of the development efforts performed to date. We are in the process of negotiating extension and revision of the terms of our agreement with Celanese. Engelhard: In June 2000, we finalized a joint development agreement and a supply agreement with Engelhard Corporation for development and supply of advanced catalysts to increase the overall performance and efficiency of our fuel processor. Over the course of the agreements we will contribute $10.0 million to fund Engelhard's development efforts, and Engelhard will acquire $10.0 million of our common stock. The agreements also specify rights and obligations for Engelhard to supply products to us over the next 10 years. Through December 31, 2001, we have contributed a total of $8.0 million under the terms of the agreement while Engelhard has acquired $8.0 million of our common stock. Of this amount, $6.2 million has been expensed with the remaining $1.8 million being recorded under the balance sheet caption "Prepaid development costs" as of December 31, 2001. Advanced Energy Incorporated: In March 2000, we acquired a 28% ownership interest in Advanced Energy Incorporated, in exchange for a combination of $1.5 million in cash and our common stock valued at approximately $828,000. We account for our interest in Advanced Energy Incorporated on the equity method of 19 accounting and adjust our investment by our proportionate share of income or losses. During the year ended December 31, 2001, Advanced Energy Incorporated had sales of approximately $3.3 million and an operating and net loss of approximately $941,000. Results of Operations Comparison of the Years Ended December 31, 2001 and December 31, 2000. Product and service revenue. Product and service revenue was $2.6 million in the year ended December 31, 2001. There was no product and service revenue during the same period last year. In the third quarter of 2001 we began delivering fuel cell systems under our initial commercial agreements to a select number of customers in order to demonstrate, test and evaluate these systems. During 2001, we delivered 132 systems to these select customers, including 131 five kilowatt (kW) systems that operate on natural gas, and one 50 kW prototype system that operates on hydrogen. Under these initial commercial agreements, we are recognizing revenue over the period of underlying service and other contractual obligations. For the year ended December 31, 2001, we recognized product and service revenue in the amount of $2.6 million and deferred recognition of product and service revenue in the amount of $5.5 million. The costs associated with the product, service and other obligations are expensed as they are incurred. Research and development contract revenue. Research and development contract revenue primarily relates to cost reimbursement government contracts related to the development of PEM fuel cell technology. Research and development contract revenue decreased to $3.2 million for the year ended December 31, 2001 from $8.4 million for the year ended December 31, 2000. The decrease is the result of completion of government contracts with the U.S. Department of Energy and New York State Energy Research and Development Authority. Although we intend to continue certain government contract work, we expect future contract revenue will continue to decrease on a comparable basis with prior periods, as we focus on bringing our product to the commercial marketplace. Cost of revenues. Cost of revenues for the year ended December 31, 2001, decreased to $11.3 million from $13.1 million during the same period last year. Cost of revenues includes the direct costs incurred in the manufacture of our products as well as costs incurred for product maintenance, replacement parts and service under our contractual obligations. These costs consist primarily of productive materials and fees paid to outside suppliers for subcontracted components and services. Cost of revenues also includes costs associated with research and development contracts including: compensation and benefits for engineering and related support staff, fees paid to outside suppliers for subcontracted components and services, fees paid to consultants for services provided, materials and supplies used and other directly allocable general overhead costs allocated to specific government contracts. Noncash research and development expense. Noncash research and development expense increased to $1.3 million for the year ended December 31, 2001 from $248,000 for the year ended December 31, 2000. Noncash research and development expense represents the fair value of stock grants and vested stock options to employees, consultants and others in exchange for services provided. Other Research and development expense. Other research and development expense decreased to $59.3 million for the year ended December 31, 2001 from $65.7 million for the year ended December 31, 2000. Research and development expense includes: materials to build development and prototype units, compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to outside suppliers for subcontracted components and services, fees paid to consultants for services provided, materials and supplies consumed, facility related costs such as computer and network services and other general overhead costs. 20 Research and development expenses also include amortization of prepaid development expenses in the amount of $5.8 million under our joint development programs with Engelhard and Celanese, recorded on our balance sheet under the caption "Prepaid development costs" and amortization in the amount of $3.4 million related to the portion of the Gastec purchase price which has been capitalized and recorded on our balance sheet under the caption "Intangible assets". The decrease in other research and development expense of $6.4 million was primarily attributable to the commencement of sales activity in the third quarter of 2001. The costs associated with the product, service and other obligations of these agreements are expensed as they are incurred and are recorded under the caption "Cost of revenues". The year ended December 31, 2000 also included $5.0 million expensed as in-process research and development at the time of our acquisition of intellectual property related to fuel processor development, from Gastec, in the first quarter of 2000. Noncash general and administrative expense. Noncash general and administrative expense represents the fair value of stock grants and vested stock options to employees, consultants and others in exchange for services provided. Noncash general and administrative expense, consisting of stock-based compensation, decreased to approximately $502,000 for the year ended December 31, 2001 from $7.6 million for the year ended December 31, 2000. During the year ended December 31, 2000, we recorded a noncash charge in the amount of $7.4 million related to stock-based compensation for our former President and Chief Executive Officer. Other general and administrative expense. Other general and administrative expense includes compensation, benefits and related costs in support of our general corporate functions including general management, finance and accounting, human resources, marketing, information technology and legal services. Other general and administrative expense decreased to $7.0 million for the year ended December 31, 2001 from $8.6 million for the year ended December 31, 2000. The decrease is primarily the result of a charge to operations in year 2000 in the amount of $840,000 related to a payment in-kind for services provided by Southern California Gas Company combined with more efficient spending in support of operations. Interest expense. Interest expense consists of interest on a long-term obligation assumed from MTI in June 1999 as part of a real estate purchase agreement and interest paid on capital lease obligations. Interest expense was $260,000 for the year ended December 31, 2001, compared to $363,000 for the year ended December 31, 2000. Interest income. Interest income consists of interest earned on our cash and cash equivalents and marketable securities and decreased to $4.1 million for the year ended December 31, 2001, from $8.2 million for 2000. The decrease was due to lower interest rates in 2001 compared to 2000 on lower average monthly balances. Equity in losses of affiliates. Equity in losses of affiliates increased to $3.3 million for the year ended December 31, 2001 from $2.3 million in 2000. Equity in losses of affiliates, which we account for under the equity method of accounting, is our proportionate share of the losses of GE Fuel Cell Systems (including our pro-rata share of increased ownership in GEFCS from 25% to 40%) and Advanced Energy Incorporated in the amount of $548,000 and amortization of intangible assets in the amount of $2.7 million. Income taxes. We did not report a benefit for federal and state income taxes in the consolidated financial statements as the deferred tax asset generated from our net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carryforward may not be realized. 21 Comparison of the Years Ended December 31, 2000 and December 31, 1999. Research and development contract revenue. Research and development contract revenue decreased to $8.4 million for the year ended December 31, 2000 from $11.0 million for the year ended December 31, 1999. The decrease is the result of completion of government contracts with the U.S. Department of Energy. Although we intend to continue certain government contract work, we expect future contract revenue will continue to decrease on a comparable basis with prior periods, as we focus on bringing our initial product to the commercial marketplace. During 2000, we produced a total of 113 systems for both onsite and offsite testing, including four developmental and 18 prototype units of our initial product. Cost of revenues. Cost of revenues were $13.1 million for the year ended December 31, 2000, as compared to $15.5 million for the year ended December 31, 1999. While contract costs decreased as a result of our reduced government contract activity, the percentage of contract cost compared to contract revenue increased due to greater cost sharing requirements on those contracts. The result was a loss on contracts of $4.7 million for the year ended December 31, 2000 compared to a loss on contracts of $4.5 million for the year ended December 31, 1999. Research and development expense. Research and development expense, including $248,000 of noncash stock-based compensation representing the fair value of stock grants and vested stock options to employees, consultants and others in exchange for services provided, increased to $65.9 million for the year ended December 31, 2000 from $20.5 million for the year ended December 31, 1999. The increase of $45.4 million was primarily attributable to the growth of our research and development activities which included a 60% increase in the labor base to approximately 500 employees, production of 113 test and evaluation residential PEM fuel cell systems (an increase of 61 systems), amortization of capitalized development expense in the amount of $1.9 million under our joint development programs with Engelhard and Celanese, recorded on our balance sheet under the caption "Prepaid development costs," and amortization in the amount of $2.8 million related to the portion of the Gastec purchase price which was capitalized and recorded on our balance sheet under the caption "Intangible assets". The year ended December 31, 2000 also included $5.0 million expensed as in-process research and development at the time of our acquisition of intellectual property related to fuel processor development, from Gastec, in the first quarter of 2000. Noncash general and administrative expense. Noncash general and administrative expense, consisting of stock-based compensation, increased to $7.6 million for the year ended December 31, 2000 from $3.2 million for the year ended December 31, 1999. During the year ended December 31, 2000, we recorded a noncash charge in the amount of $7.4 million related to stock-based compensation for our former President and Chief Executive Officer. Additionally, we recorded $169,000 related to performance-based options issued to employees. During the year ended December 31, 1999, we recognized $2.3 million in noncash stock-based compensation expense in connection with our original formation agreements which provided Mechanical Technology Incorporated the right to earn noncash credits relating to services it rendered prior to our formation in connection with securing future government contracts. Upon our formation, Mechanical Technology Incorporated contributed its fuel cell operations to us and we received the right to these government contracts if ever awarded in the future. When these contracts were awarded to us, Mechanical Technology Incorporated earned the noncash credits, entitling it to receive 2,250,000 shares of common stock with a fair value at the time of grant of $2.3 million. Additionally, we recorded $144,000 related to performance-based options issued to employees and consultants and an $835,000 charge to operations for the modification of a stock option agreement. Other general and administrative expense. Other general and administrative expense increased to $8.6 million for the year ended December 31, 2000 from $6.7 million, which includes a $1.9 million charge for the write-off of deferred rent, for the year ended December 31, 1999. The increase is the result of a charge to 22 operations in the amount of $840,000 related to a payment in-kind for services provided by Southern California Gas Company combined with increased personnel cost and general expenses associated with expanding operations. In June 1999, we entered into a real estate purchase agreement with Mechanical Technology Incorporated to acquire our current facility, a portion of which we previously leased from them. As a result, we wrote off deferred rent expense in the amount of $1.9 million for the year ended December 31, 1999. Interest expense. Interest expense was $363,000 for the year ended December 31, 2000, compared to $190,000 for the year ended December 31, 1999. Interest income. Interest income increased to $8.2 million for the year ended December 31, 2000, from $3.1 million for the year ended December 31, 1999. The increase was due to interest earned on higher balances of cash and cash equivalents available throughout 2000, which resulted from our initial public offering of common stock and the exercise of warrants and stock purchase commitments by our existing stockholders during the fourth quarter of 1999. Equity in losses of affiliates. Equity in losses of affiliates increased to $2.3 million for the year ended December 31, 2000 from $1.5 million for the year ended December 31, 1999. Equity in losses of affiliates consists of our proportionate share of the losses of GE Fuel Cell Systems and Advanced Energy Incorporated combined with goodwill amortization on those investments, which we account for under the equity method of accounting. During the year ended December 31, 2000 we recorded $759,000 as our proportionate share of the losses of GE Fuel Cell Systems and Advanced Energy Incorporated and $1.6 million related to amortization of intangibles on those investments. Income taxes. We did not report a benefit for federal and state income taxes in the consolidated financial statements as the deferred tax asset generated from our net operating loss has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carryforward may not be realized. We were taxed as a partnership prior to November 3, 1999, the effective date of our merger into a C corporation, and the federal and state income tax benefits of our losses were recorded by our stockholders. Effective on November 3, 1999, we began accounting for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes". Critical Accounting Policies and Estimates The preparation of financial statements in conformity with generally accepted accounting principles and related disclosure requires management to make estimates and assumptions that affect: . the amounts reported for assets and liabilities; . the disclosure of contingent assets and liabilities at the date of the financial statements; and . the amounts reported for revenues and expenses during the reporting period. Specifically, management must use estimates in determining the economic useful lives of assets, including identifiable intangibles, and various other recorded or disclosed amounts. Therefore, the Company's financial statements and related disclosure are necessarily affected by these estimates. Management evaluates these estimates on an ongoing basis, utilizing historical experience and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from estimates. To the extent that actual outcomes differ from estimates, or additional facts and circumstances cause management to revise estimates, the Company's financial position as reflected in its financial statements will be affected. Any effects on business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. 23 Management believes that the following are the Company's most critical accounting policies affected by the estimates and assumptions the Company must make in the preparation of its financial statements and related disclosure: Revenue recognition: We are a development stage enterprise in the beginning stages of field testing and marketing our initial commercial products to a limited number of customers, including utilities, government entities and our distribution partners. This initial product is a limited edition fuel cell system ("System" or "Unit") that is intended to offer complimentary, quality power while demonstrating the market value of fuel cells as a preferred form of alternative distributed power generation. Subsequent enhancements to our Systems are expected to expand the market opportunity for fuel cells by lowering the installed cost, decreasing operating and maintenance costs, increasing efficiency, improving reliability, and adding features such as grid independence and co-generation and uninterruptible power supply (UPS) applications. We apply the guidance within Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101) to our initial sales contracts to determine when to properly recognize revenue. Our initial commercial sales are contract specific arrangements containing multiple obligations, that may include a combination of continued service, maintenance and other support, as well as cancellation privileges. Presently, we defer recognition of product and service revenue where all of the criteria for revenue recognition have not yet been achieved. For the year ended December 31, 2001, we recognized product and service revenue in the amount of $2.6 million and deferred recognition of product and service revenue in the amount of $5.5 million. The deferred revenue is being recognized over the contractual period of the underlying service and other contractual obligations. The costs associated with the product, service and other obligations are expensed as they are incurred. As we gain commercial experience, including field experience relative to service and warranty based on the sales of our initial products, the fair values for the multiple elements within our future contracts may become determinable and we may, in future periods, recognize revenue upon delivery of the Unit or we may continue to defer recognition, based on application of appropriate guidance within the existing authoritative literature. Valuation of long-lived and intangible assets and goodwill: We assess the impairment of identifiable intangible and long-lived assets and related goodwill, if any, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include, but are not limited to, the following: . significant underperformance relative to expected historical or projected future operating results; . significant changes in the manner of our use of the acquired assets or the strategy for our overall business; . significant negative industry or economic trends; . significant decline in our stock price for a sustained period; and . our market capitalization relative to net book value. When we determine that the varying value of intangibles, long-lived assets and related goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we would measure any impairment based upon the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". On January 1, 2002, we implemented SFAS No. 142 and, as a result, we are required to perform an initial impairment review in 2002 and an annual impairment review thereafter. We expect to complete our initial review during the first quarter of 2002. We currently do not expect to record an impairment charge upon completion of the initial impairment review. However, there can be no assurance that at the time the review is completed a material impairment charge will not be recorded. 24 Accounting for income taxes: As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves the estimation of our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. Included in this assessment is the determination of the net operating loss carryforward that has resulted from our cumulative net operating loss since inception. These differences result in a net deferred tax asset. We must assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent that we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the consolidated statement of operations. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance of $88.9 million as of December 31, 2001, due to uncertainties related to our ability to utilize the net deferred tax assets, primarily consisting of net operating losses and credits which may be carried forward, before they expire. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust the recorded valuation allowance which could materially impact our financial position and results of operations. At December 31, 2001, our net deferred tax assets have been offset in full by a valuation allowance. As a result, the net provision for income taxes is zero at December 31, 2001. Recent Accounting Pronouncements In June 2001, the FASB issued SFAS No. 141, Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. SFAS No. 141 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121 and subsequently, SFAS No. 144 after its adoption. The Company adopted the provisions of SFAS No. 141 as of July 1, 2001, and SFAS No. 142 is effective January 1, 2002. Goodwill and intangible assets determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001, but before SFAS No. 142 is adopted in full, are not amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 continued to be amortized and tested for impairment prior to the full adoption of SFAS No. 142. Upon adoption of SFAS No. 142, the Company is required to evaluate its existing intangible assets and goodwill that were acquired in purchase business combinations, and to make any necessary reclassifications in order to conform with the new classification criteria in SFAS No. 141 for recognition separate from goodwill. The Company will be required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. If an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142 within the first interim period. Impairment is measured as the excess of carrying value over the fair value of an intangible asset with an indefinite life. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. In connection with SFAS No. 142's transitional goodwill impairment evaluation, the Statement requires the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this, the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. The Company will then have up to six months from January 1, 2002 25 to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an indication exists that the reporting unit goodwill may be impaired and the Company must perform the second step of the transitional impairment test. The second step is required to be completed as soon as possible, but no later than the end of the year of adoption. In the second step, the Company must compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which would be measured as of the date of adoption. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's consolidated statements of operations. As of the date of adoption of SFAS No. 142, January 1, 2002, the Company expects to have unamortized identifiable intangible assets in the amount of $14.9 million, all of which will be subject to the transition provisions of SFAS No. 142. Amortization expense related to these identifiable intangible assets was $4.8 million, $3.9 million and $1.0 million for the years ended December 31, 2001, 2000 and 1999, respectively and amortization expense related to goodwill was $1.3, $443,000 and $0 for the years ended December 31, 2001, 2000 and 1999, respectively. Because of the extensive effort needed to comply with adopting SFAS No. 141 and No. 142, it is not practicable to reasonably estimate the impact of adopting the Statements on the Company's consolidated financial statements at the date of this report, including whether it will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The Company also records a corresponding asset which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company is required to adopt SFAS No. 144 on January 1, 2002. Management anticipates that the adoption of this Statement will not have a material effect on the Company's consolidated financial statements. Liquidity and Capital Resources Summary Our cash requirements depend on numerous factors, including completion of our product development activities, ability to commercialize our fuel cell systems, market acceptance of our systems and other factors. 26 We expect to devote substantial capital resources to continue our development programs directed at commercializing our fuel cell systems for worldwide use, hire and train our production staff, develop and expand our manufacturing capacity, begin production activities and expand our research and development activities. We expect to pursue the expansion of our operations through internal growth and strategic acquisitions and expect that such activities will be funded from existing cash and cash equivalents, issuance of additional equity or debt securities or additional borrowings subject to market and other conditions. The failure to raise the funds necessary to finance our future cash requirements or consummate future acquisitions could adversely affect our ability to pursue our strategy and could negatively affect our operations in future periods. We anticipate incurring substantial additional losses over at least the next several years and believe that our current cash, cash equivalents and marketable securities balances will provide sufficient capital to funds operations for at least the next twelve months. We have financed our operations through December 31, 2001 primarily from the sale of equity, which has provided cash in the amount of $291.9 million. As of December 31, 2001, we had unrestricted cash and cash equivalents and marketable securities totaling $92.7 million and working capital of $90.4 million. As a result of our purchase of real estate from Mechanical Technology Incorporated, we have escrowed an additional $5.3 million in cash to collateralize the debt assumed on the purchase. Since inception, net cash used in operating activities has been $153.6 million and cash used in investing activities has been $78.3 million. Public Offerings In November 1999, we completed an initial public offering of 6,782,900 shares of common stock which includes additional shares purchased pursuant to exercise of the underwriters' overallotment option. We received proceeds of $93.0 million, which was net of $8.7 million of expenses and underwriting discounts relating to the issuance and distribution of the securities. In July 2001, we completed a follow-on public offering of 4,575,000 shares of common stock which includes additional shares purchased pursuant to exercise of the underwriters' overallotment option. We received proceeds of $51.6 million, which was net of $3.3 million of expenses and underwriting discounts relating to the issuance and distribution of the securities. Private Placements In July 2001, simultaneous with the closing of the follow-on public offering, we closed a private equity financing of 416,666 shares of common stock to GE Power Systems Equities, Inc., an indirect wholly-owned subsidiary of General Electric Company, and 416,666 shares of common stock to Edison Development Corporation, an indirect wholly-owned subsidiary of DTE Energy Company, raising an additional $9.6 million in net proceeds. Capital Contributions We were formed in June 1997 as a joint venture between Mechanical Technology Incorporated and Edison Development Corporation, an indirect wholly-owned subsidiary of DTE Energy Company. At formation, Mechanical Technology Incorporated contributed assets related to its fuel cell program, including intellectual property, 22 employees, equipment and the right to receive government contracts for research and development of PEM fuel cell systems, if awarded. Edison Development Corporation contributed or committed to contribute $9.0 million in cash, expertise in distributed power generation and marketplace presence to distribute and sell stationary fuel cell systems. In January 1999, we entered into an agreement with Mechanical Technology Incorporated and Edison Development Corporation pursuant to which we had the right to require Edison Development Corporation and Mechanical Technology Incorporated to make capital contributions of $22.5 million each, an aggregate of $45.0 million, through December 31, 2000. In September 1999, we made a capital call of $4.0 million, and Mechanical 27 Technology Incorporated and Edison Development Corporation each contributed $2.0 million in cash in exchange for 266,667 shares of common stock. Both Mechanical Technology Incorporated and Edison Development Corporation contributed the remaining $41.0 million immediately prior to our initial public offering in exchange for an aggregate of 5,466,666 shares of common stock. In June 1999, we entered into a real estate purchase agreement with Mechanical Technology Incorporated to acquire approximately 36 acres of land, two commercial buildings and a residential building located in Latham, New York. This property is the location of our current facilities, including a newly constructed production facility. As part of the real estate transaction we assumed a $6.2 million letter of credit issued by KeyBank National Association for the express purpose of servicing $6.2 million of debt related to Industrial Development Revenue Bonds issued by the Town of Colonie Industrial Development Agency. As consideration for the purchase, we issued 704,315 shares of common stock to Mechanical Technology Incorporated, valued at $6.67 per share. In connection with this transaction we wrote off deferred rent expense, in the amount of $1.9 million, related to a 10-year facilities lease on one of the purchased buildings, at a favorable lease rate. Also in June 1999, Edison Development Corporation purchased 704,315 shares of common stock for $4.7 million in cash under provisions of our original formation documents that allowed Edison Development Corporation and Mechanical Technology Incorporated to maintain equal ownership percentages in us. As of December 31, 2001, Mechanical Technology Incorporated had made aggregate cash contributions of $27.0 million plus noncash contributions of $14.2 million, while Edison Development Corporation had made aggregate cash contributions of $46.2 million, including $5.0 million in connection with the closing of a private placement of 416,666 shares of our common stock in July, 2001. GE Fuel Cell Systems In February 1999, we entered into a joint venture agreement with GE MicroGen, Inc. to form GE Fuel Cell Systems, LLC (GEFCS), to exclusively market, sell, install and service certain of our PEM fuel cell systems under 35 kW designed for use in residential, commercial and industrial stationary power applications on a global basis, with the exception of the states of Illinois, Indiana, Michigan and Ohio, in which DTE Energy Technologies, Inc., has exclusive distribution rights. GE MicroGen, Inc. is a wholly owned subsidiary of General Electric Company that operates within the GE Power Systems business. In connection with the original formation of GEFCS, we issued 2,250,000 shares of our common stock to GE MicroGen, Inc. in exchange for a 25% interest in GEFCS. We capitalized $11.3 million, the fair value of the shares issued, under the caption "Investment in affiliates" in our consolidated financial statements. We also issued a warrant to GE MicroGen, Inc. to purchase 3,000,000 additional shares of common stock at a price of $12.50 per share. GEFCS exercised this option immediately prior to our initial public offering for a total exercise price of $37.5 million in cash. In August 2001, we amended our agreements with GE Microgen, Inc. and GEFCS to expand GEFCS' exclusive worldwide distribution rights to include all of our stationary PEM fuel cell systems. In addition, we increased our ownership interest in GEFCS from 25% to 40%. In return, we granted GE Power Systems Equities, Inc. an option to purchase 725,000 shares of our common stock at any time prior to August 21, 2006 at an exercise price of $15.00 per share. We also replaced the product specifications, prices and delivery schedule in our distribution agreement with a high-level, multi-generation product plan, with subsequent modifications being subject to mutual agreement, and extended the term of the agreement to December 31, 2014. In connection with the amendment, we capitalized $5 million, the fair value of the option to purchase 725,000 shares of Plug Power common stock, under the caption "Investment in affiliates" in our consolidated financial statements. Under a separate agreement, we have agreed to source, from General Electric, technical support services for our product development effort, including engineering, testing, manufacturing and quality control services. We have committed to purchase a minimum of $12.0 million of such services over a five year period, which began September 30, 1999. We have also entered into a separate agreement with General Electric Company under which General Electric acts as our agent in procuring certain equipment, parts and components. In addition, General Electric has agreed to provide training services to our employees regarding procurement activities. 28 Southern California Gas Company In April 1999, Southern California Gas Company purchased 1,000,000 shares of common stock for $6.7 million and agreed to provide $840,000 of market research and services related to distributed power generation technologies, including PEM fuel cell systems. Additionally, Southern California Gas Company received a warrant to purchase an additional 350,000 shares of common stock at an exercise price of $8.50 per share which was exercised by Southern California Gas Company immediately prior to our initial public offering for a total exercise price of $3.0 million in cash. During the year ended December 31, 2000, Southern California Gas Company fulfilled its obligation to provide market research and services and we recorded a charge to operations in the amount of $840,000. Private Investors In February 1999, two investors, including Michael J. Cudahy, one of our former directors, purchased 1,500,000 shares of common stock for a total of $10.0 million. In addition, Mr. Cudahy received a warrant to purchase 400,000 shares of common stock at a price of $8.50 per share, which was exercised by Mr. Cudahy immediately prior to our initial public offering for a total exercise price of $3.4 million in cash. In April 1999, an unrelated investor purchased 299,850 common shares for $2.0 million. Grant Agreement We were awarded and received $1.0 million under a grant from the State of New York. The grant is for the express purpose of promoting employment. Terms of the grant require us to meet certain employment criteria, as defined, over a five year period. If we fail to meet the specified criteria, we must repay the unearned portion of the grant. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We invest our excess cash in interest-bearing, investment-grade securities that we hold for the duration of the term of the respective instrument. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion. Accordingly, we believe that, while the investment-grade securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments. Item 8. Financial Statements and Supplementary Data The Company's Consolidated Financial Statements included in this Report beginning at page F-1 are incorporated in this Item 8 by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On November 20, 2001, the Company dismissed PricewaterhouseCoopers LLP as the Company's independent accountants. On December 3, 2001, the Company engaged KPMG LLP as its independent auditors for the year ended December 31, 2001. The Company filed reports on Form 8-K with the Securities and Exchange Commission with respect to this matter. 29 PART III Item 10. Directors and Executive Officers of the Registrant (a) Directors Incorporated herein by reference is the information appearing under the caption "Information about our Directors" in the Company's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders. (b) Executive Officers Incorporated herein by reference is the information appearing under the caption "Executive Officers" in the Company's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders. Item 11. Executive Compensation Incorporated herein by reference is the information appearing under the caption "Executive Compensation" in the Company's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference is the information appearing under the caption "Principal Stockholders" in the Company's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference is the information appearing under the caption "Certain Relationships and Related Transactions" in the Company's definitive Proxy Statement for its 2002 Annual Meeting of Stockholders. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14(a)(1) Financial Statements The financial statements and notes are listed in the Index to Consolidated Financial Statements on page F-1 of this Report. 14(a)(2) Financial Statement Schedules Consolidated financial statement schedules not filed herein have been omitted as they are not applicable or the required information or equivalent information has been included in the consolidated financial statements or the notes thereto. 14(a)(3) Exhibits Exhibits are as set forth in the "List of Exhibits" which immediately precedes the Index to Consolidated Financial Statements on page F-1 of this Report. 14(b) Reports on Form 8-K The Company filed the following reports on Form 8-K during the quarterly period ended December 31, 2001: On November 28, 2001, the Company filed a report on Form 8-K disclosing that on November 20, 2001, the Company had dismissed PricewaterhouseCoopers LLP as its independent accountants. 30 On December 6, 2001, the Company filed a report Form 8-K report with the Securities and Exchange Commission disclosing that, on November 20, 2001, the Company dismissed PricewaterhouseCoopers LLP as its independent accountants and that the Company engaged KPMG LLP as the Company's independent public accountants effective December 3, 2001. 14(c) Exhibits Exhibits are as set forth in the "List of Exhibits" which immediately precedes the Index to the Consolidated Financial Statements on page F-1 of this report. 14(d) Other Financial Statements Not applicable. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PLUG POWER INC. By: /s/ ROGER SAILLANT ------------------------------------ Roger Saillant, President Date: March 29, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ ROGER SAILLANT - ----------------------------- President, Chief Executive Officer Roger Saillant and Director Principal Executive Officer) March 29, 2002 /s/ W. MARK SCHMITZ - ----------------------------- Chief Financial Officer (Principal W. Mark Schmitz Financial Officer and Accounting Officer) March 29, 2002 /s/ ANTHONY F. EARLEY, JR. - ----------------------------- Anthony F. Earley, Jr. Director March 29, 2002 /s/ LARRY G. GARBERDING - ----------------------------- Larry G. Garberding Director March 29, 2002 /s/ DOUGLAS T. HICKEY - ----------------------------- Douglas T. Hickey Director March 29, 2002 /s/ GEORGE C. MCNAMEE - ----------------------------- George C. McNamee Director March 29, 2002 /s/ JOHN G. RICE - ----------------------------- John G. Rice Director March 29, 2002 /s/ WALTER L. ROBB - ----------------------------- Walter L. Robb Director March 29, 2002 /s/ JOHN M. SHALIKASHVILI - ----------------------------- John M. Shalikashvili Director March 29, 2002 /s/ ANASTASIA M. SONG - ----------------------------- Anastasia M. Song Director March 29, 2002
32 List of Exhibits Certain exhibits indicated below are incorporated by reference to documents of Plug Power on file with the Commission. Exhibits nos. 10.25, 10.28, 10.29, 10.30, 10.31, 10.32, 10.33, 10.34, 10.38, 10.41, 10.42 and 10.43 represent the management contracts or compensation plans filed pursuant to Item 14(c) of the Form 10-K.
Exhibit No. and Description - --------------- 2.1 Agreement and Plan of Merger by and between Plug Power and Plug Power, LLC, a Delaware limited liability company, dated as of October 7, 1999. (1) 3.1 Amended and Restated Certificate of Incorporation of Plug Power. (2) 3.2 Amended and Restated By-laws of Plug Power. (2) 3.3 Certificate of Amendment to Amended and Restated Certificate of Incorporation of Plug Power (3) 4.1 Specimen certificate for shares of common stock, $.01 par value, of Plug Power. (1) 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. (1) 10.2 Contribution Agreement, dated as of February 3, 1999, by and between GE On-Site Power, Inc. and Plug Power, LLC. (1) 10.3 Trademark and Trade Name Agreement, dated as of February 2, 1999, between General Electric Company and GE Fuel Cell Systems, LLC. (1) 10.4 Trademark Agreement, dated as of February 2, 1999, between Plug Power LLC and GE Fuel Cell Systems, LLC. (1) 10.5 Distributor Agreement, dated as of February 2, 1999, between GE Fuel Cell Systems, LLC and Plug Power, LLC. (1) 10.6 Side letter agreement, dated February 3, 1999, between General Electric Company and Plug Power LLC. (1) 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. (1) 10.8 LLC Interest Purchase Agreement, dated as of February 16, 1999, between Plug Power, LLC and Michael J. Cudahy. (1) 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. (1) 10.10 LLC Interest Purchase Agreement, dated as of February 16, 1999, between Plug Power, LLC and Kevin Lindsey. (1) 10.11 LLC Interest Purchase Agreement, dated as of April 1, 1999, between Plug Power, LLC and Antaeus Enterprises, Inc. (1) 10.12 LLC Interest Purchase Agreement, dated as of April 9, 1999, between Plug Power, LLC and Southern California Gas Company. (1) 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. (1) 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. (1)
33
Exhibit No. and Description - --------------- 10.15 Agreement, dated as of January 25, 1999, between the New York State Energy Research and Development Authority and Plug Power, LLC. (1) 10.16 Agreement, dated as of September 30, 1997, between Plug Power, LLC and the U.S. Department of Energy. (1) 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. (1) 10.18 Joint venture agreement, dated as of June 14, 1999 between Plug Power, LLC, Polyfuel, Inc., and SRI International. (1) 10.19 Cooperative Research and Development Agreement, dated as of February 12, 1999, between Plug Power, LLC and U.S. Army Benet Laboratories. (1) 10.20 Nonexclusive License Agreement, dated as of April 30, 1993, between Mechanical Technology Incorporated and the Regents of the University of California. (1) 10.21 Development Collaboration Agreement, dated as of July 30, 1999, by and between Joh. Vaillant GMBH. U. CO. and Plug Power, LLC. (1) 10.22 Agreement of Sale, dated as of June 23, 1999, between Mechanical Technology, Incorporated and Plug Power, LLC. (1) 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. (1) 10.24 Replacement Reimbursement Agreement, dated as of July 1, 1999, between Plug Power, LLC and KeyBank, N.A. (1) 10.25 1997 Membership Option Plan and amendment thereto dated September 27, 1999. (1) 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. (1) 10.27 Distribution Agreement, dated as of June 27, 1997, between Plug Power, LLC and Edison Development Corporation and amendment thereto dated September 27, 1999. (1) 10.28 Agreement, dated as of June 27, 1999, between Plug Power, LLC and Gary Mittleman. (1) 10.29 Agreement, dated as of June 8, 1999, between Plug Power, LLC and Louis R. Tomson. (1) 10.30 Agreement, dated as of August 6, 1999, between Plug Power, LLC and Gregory A. Silvestri. (1) 10.31 Agreement, dated as of August 12, 1999, between Plug Power, LLC and William H. Largent. (1) 10.32 Agreement, dated as of August 20, 1999, between Plug Power, LLC and Dr. Manmohan Dhar. (1) 10.33 1999 Stock Option and Incentive Plan. (1) 10.34 Employee Stock Purchase Plan. (1) 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. (1) 10.36 Registration Rights Agreement to be entered into by the Registrant and the stockholders of the Registrant. (2)
34
Exhibit No. and Description - --------------- 10.37 Registration Rights Agreement to be entered into by Plug Power, L.L.C. and GE On-Site Power, Inc. (2) 10.38 Agreement dated September 11, 2000, between Plug Power Inc. and Gary Mittleman. (3) 10.39 Amendment No. 1 to Distributor Agreement dated February 2, 1999, between GE Fuel Cell Systems L.L.C. and Plug Power Inc. (3) 10.40 Amendment to Distributor Agreement dated February 2, 1999, made as of July 31, 2000, between GE Fuel Cell Systems L.L.C. and Plug Power Inc. (3) 10.41 Agreement, dated as of December 15, 2000, between Plug Power Inc. and Roger Saillant. (3) 10.42 Agreement dated February 13, 2001, between Plug Power Inc. and William H. Largent. (3) 10.43 Amendment dated September 19, 2000 to agreement, dated as of August 6, 1999, between Plug Power Inc. and Gregory A. Silvestri. (3) 10.44 Joint Development Agreement, dated as of June 2, 2000, between Plug Power Inc. and Engelhard Corporation (3) 10.45 Amended and Restated Limited Liability Company Agreement of GE Fuel Cell Systems, L.L.C. dated August 21, 2001, between GE MicroGen, Inc. and Plug Power Inc. (4) 10.46 Side Letter, dated August 21, 2001, to Amended and Restated Limited Liability Company Agreement of GE Fuel Cell Systems, L.L.C. between GE MicroGen, Inc. and Plug Power Inc. (4) 10.47 First Amendment, dated July 25, 2001, to Registration Rights Agreement entered into by Plug Power, L.L.C. and GE On-Site Power, Inc. (4) 10.48 Amended and Restated Distribution Agreement, dated as of August 21, 2001, between GE Fuel Cell Systems, LLC and Plug Power, LLC (4)(5) 10.49 Investment Agreement dated July 25, 2001, by and between Plug Power Inc. GE Power Systems Equities Inc. (4) 10.50 Option to Purchase Common Stock of Plug Power Inc. by GE Power Systems Equities, Inc., dated August 21, 2001 (4) 10.51 Services Agreement, dated March 17, 2000, between Plug Power Inc. and General Electric Company (4)(5) 10.52 Amendment, dated September 18, 2000, to the Services Agreement between Plug Power Inc. and General Electric Company (4) 10.53 Amendment, dated December 31, 2000, to the Services Agreement between Plug Power Inc. and General Electric Company (4) 10.54 Amendment, dated March 31, 2001, to the Services Agreement between Plug Power Inc. and General Electric Company (4) 10.55 Amendment No.1, dated February 27, 2002, to Services Agreement, between Plug Power Inc. and GE Microgen (f/k/a GE On-Site Power) (4) 23.1 Consent of KPMG LLP (4) 23.2 Consent of PricewaterhouseCoopers LLP (4)
- -------- (1) Incorporated by reference to the Company's Registration Statement on Form S-1 (File Number 333-86089). (2) Incorporated by reference to the Company's Form 10-K for the period ended December 31, 1999. (3) Incorporated by reference to the Company's Form 10-K for the period ended December 31, 2000. (4) Filed herewith. (5) Portions of this exhibit have been omitted pursuant to a request for confidential treatment. 35 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report.................................................... F-2 Report of Independent Accountants............................................... F-3 Consolidated balance sheets as of December 31, 2001 and 2000.................... F-4 Consolidated statements of operations for the years ended December 31, 2001 2000 and 1999 and cumulative amounts from inception........................... F-5 Consolidated statements of cash flows for the years ended December 31, 2001, 2000 and 1999 and cumulative amounts from inception........................... F-6 Consolidated statements of stockholders' equity for the years ended December 31, 2001, 2000 and 1999........................................................... F-7 Notes to consolidated financial statements...................................... F-8
F-1 Independent Auditors' Report The Board of Directors and Stockholders Plug Power Inc.: We have audited the accompanying consolidated balance sheet of Plug Power Inc. and subsidiary (a development stage enterprise) as of December 31, 2001, and the related consolidated statement of operations, stockholders' equity, and cash flows for the year ended December 31, 2001 and for the period June 27, 1997 (inception) to December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The cumulative consolidated statements of operations, stockholders' equity, and cash flows for the period June 27, 1997 (inception) to December 31, 2001 include amounts for the period from June 27, 1997 (inception) to December 31, 1997 and for each of the years in the three-year period ending December 31, 2000, which were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the period June 27, 1997 through December 31, 2000 is based solely on the report of other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Plug Power Inc. and subsidiary (a development stage enterprise) as of December 31, 2001, and the results of their operations and their cash flows for the year ended December 31, 2001 and for the period June 27, 1997 (inception) to December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Albany, New York February 8, 2002 F-2 Report of Independent Accountants To the Board of Directors and Stockholders of Plug Power Inc. and Subsidiary: In our opinion, the 2000 and 1999 consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Plug Power Inc. and its subsidiary at December 31, 2000, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Albany, New York February 9, 2001 F-3 PLUG POWER INC. and Subsidiary (A Development Stage Enterprise) Consolidated Balance Sheets
December 31, December 31, 2001 2000 ------------- ------------- Assets Current assets: Cash and cash equivalents................................................ $ 53,648,145 $ 58,511,563 Restricted cash.......................................................... 310,000 290,000 Marketable securities.................................................... 39,034,314 28,221,852 Accounts receivable...................................................... 2,608,321 1,415,049 Inventory................................................................ 2,271,278 2,168,006 Prepaid development costs................................................ 1,760,131 2,041,668 Prepaid expenses and other current assets................................ 932,719 694,178 ------------- ------------- Total current assets................................................. 100,564,908 93,342,316 Restricted cash............................................................. 5,000,274 5,310,274 Property, plant and equipment, net.......................................... 30,240,631 32,290,492 Intangible asset............................................................ 3,470,139 6,827,066 Investment in affiliates.................................................... 11,498,000 9,778,784 Prepaid development costs................................................... -- 2,513,093 Other assets................................................................ 600,055 767,193 ------------- ------------- Total assets......................................................... $ 151,374,007 $ 150,829,218 ============= ============= Liabilities and Stockholders' Equity Current liabilities: Accounts payable......................................................... $ 762,972 $ 3,479,031 Accrued expenses......................................................... 3,421,106 5,934,529 Deferred revenue......................................................... 5,684,793 200,000 Current portion of capital lease obligation and long-term debt........... 330,072 377,201 ------------- ------------- Total current liabilities............................................ 10,198,943 9,990,761 Long-term debt........................................................... 5,000,274 5,310,274 Deferred revenue......................................................... 400,000 600,000 Capital lease obligation................................................. 4,706 30,346 Other liabilities........................................................ 767,193 767,193 ------------- ------------- Total liabilities.................................................... 16,371,116 16,698,574 ------------- ------------- Commitments and contingencies (see footnote 13) Stockholders' equity: Preferred stock, $0.01 par value per share; 5,000,000 shares authorized; none issued and outstanding............................................ -- -- Common stock, $0.01 par value per share; 245,000,000 shares authorized at December 31, 2001 and December 31, 2000; 50,322,928 shares issued and outstanding, December 31, 2001 and 43,795,513 shares issued and outstanding, December 31, 2000........ 503,229 437,955 Paid-in capital.......................................................... 342,842,203 268,923,203 Deficit accumulated during the development stage......................... (208,342,541) (135,230,514) ------------- ------------- Total stockholders' equity........................................... 135,002,891 134,130,644 ------------- ------------- Total liabilities and stockholders' equity........................... $ 151,374,007 $ 150,829,218 ============= =============
The accompanying notes are an integral part of the consolidated financial statements. F-4 PLUG POWER INC. and Subsidiary (A Development Stage Enterprise) CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 2001 , 2000 and 1999 and Cumulative Amounts from Inception
Cumulative December 31, December 31, December 31, Amounts 2001 2000 1999 from Inception ------------- ------------- ------------- -------------- Product and service revenue................... $ 2,573,434 $ -- $ -- $ 2,573,434 Research and development contract revenue..... 3,168,091 8,378,200 11,000,344 30,281,205 ------------- ------------- ------------- ------------- Total revenue................................. 5,741,525 8,378,200 11,000,344 32,854,639 Cost of revenues.............................. 11,290,891 13,055,437 15,497,837 49,934,453 In-process research and development........... -- 4,984,000 -- 9,026,640 Research and development expense: Noncash stock-based compensation........... 1,300,807 247,782 -- 1,548,589 Other research and development............. 59,299,042 65,656,604 20,506,156 151,395,408 General and administrative expense: Noncash stock-based compensation........... 502,370 7,595,073 3,228,800 11,538,243 Other general and administrative........... 6,990,119 8,572,256 6,699,482 25,433,535 Interest expense.............................. 259,958 362,996 189,586 812,540 ------------- ------------- ------------- ------------- Operating loss............................. (73,901,662) (92,095,948) (35,121,517) (216,834,769) Interest income............................... 4,070,419 8,181,265 3,123,955 15,571,978 ------------- ------------- ------------- ------------- Loss before equity in losses of affiliates. (69,831,243) (83,914,683) (31,997,562) (201,262,791) Equity in losses of affiliates................ (3,280,784) (2,327,216) (1,471,750) (7,079,750) ------------- ------------- ------------- ------------- Net loss................................... $(73,112,027) $(86,241,899) $(33,469,312) $(208,342,541) ============= ============= ============= ============= Loss per share: Basic and diluted.......................... ($ 1.56) ($ 1.99) ($ 1.27) ============= ============= ============= Weighted average number of common shares outstanding........................... 46,840,091 43,308,158 26,282,705 ============= ============= =============
The accompanying notes are an integral part on the consolidated financial statements. F-5 PLUG POWER INC. and Subsidiary (A Development Stage Enterprise) CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2001 , 2000 and 1999 and cumulative amounts from inception
December 31, December 31, December 31, 2001 2000 1999 ------------ ------------- ------------ Cash Flows From Operating Activities: Net loss.................................................... $(73,112,027) $ (86,241,899) $(33,469,312) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 4,750,510 3,037,818 1,352,186 Equity in losses of affiliates.......................... 3,280,784 2,327,216 1,471,750 Amortization of intangible asset........................ 3,356,927 2,797,434 -- Noncash prepaid development costs....................... 5,419,630 820,239 -- Loss on disposal of property, plant and equipment....... 108,625 -- -- In-kind services........................................ -- 840,000 -- Stock-based compensation................................ 2,013,177 8,096,779 3,228,800 Amortization of deferred grant revenue.................. (200,000) (200,000) -- Amortization of deferred rent........................... -- -- 100,000 Write-off of deferred rent.............................. -- -- 1,850,000 In-process research and development..................... -- -- -- Changes in assets and liabilities :..................... Accounts receivable.................................. (1,193,272) 3,797,894 (4,612,988) Inventory............................................ (103,272) (1,863,295) (290,064) Due from investor.................................... -- -- 685,306 Prepaid development costs............................ 375,000 (375,000) -- Prepaid expenses and other current assets............ (238,541) (569,798) (102,466) Accounts payable and accrued expenses................ (5,229,482) 1,764,938 5,334,376 Deferred revenue..................................... 5,484,793 -- 1,000,000 Due to investor...................................... -- -- (286,492) ------------ ------------- ------------ Net cash used in operating activities............. (55,287,148) (65,767,674) (23,738,904) ------------ ------------- ------------ Cash Flows From Investing Activities: Purchase of property, plant and equipment............... (2,678,802) (11,994,519) (10,788,262) Proceeds from disposal of property, plant and equipment.............................................. 36,666 -- -- Purchase of intangible asset............................ -- (9,624,500) -- Investment in affiliate................................. -- (1,500,000) -- Marketable securities................................... (10,812,462) (28,221,852) -- ------------ ------------- ------------ Net cash used in investing activities............. (13,454,598) (51,340,871) (10,788,262) ------------ ------------- ------------ Cash Flows From Financing Activities: Proceeds from issuance of common stock.................. 9,600,000 -- 115,242,782 Proceeds from initial public offering, net.............. -- -- 94,611,455 Proceeds from secondary public offering, net............ 52,017,750 -- -- Stock issuance costs.................................... (429,199) -- (1,639,577) Proceeds from stock option exercises.................... 2,782,546 4,201,480 41,907 Cash placed in escrow................................... 290,000 275,000 (5,875,274) Principal payments on capital lease obligations......... (92,769).. (77,658) (65,963) Principal payments on long-term debt.................... (290,000) (275,000) (285,000) ------------ ------------- ------------ Net cash provided by financing activities......... 63,878,328 4,123,822 202,030,330 ------------ ------------- ------------ (Decrease) increase in cash and cash equivalents............ (4,863,418) (112,984,723) 167,503,164 Cash and cash equivalents, beginning of period.............. 58,511,563 171,496,286 3,993,122 ------------ ------------- ------------ Cash and cash equivalents, end of period.................... $ 53,648,145 $ 58,511,563 $171,496,286 ============ ============= ============
Cumulative Amounts from Inception -------------- Cash Flows From Operating Activities: Net loss.................................................... $(208,342,541) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 9,827,364 Equity in losses of affiliates.......................... 7,079,750 Amortization of intangible asset........................ 6,154,361 Noncash prepaid development costs....................... 6,239,869 Loss on disposal of property, plant and equipment....... 108,625 In-kind services........................................ 1,340,000 Stock-based compensation................................ 13,550,756 Amortization of deferred grant revenue.................. (400,000) Amortization of deferred rent........................... 150,000 Write-off of deferred rent.............................. 1,850,000 In-process research and development..................... 4,042,640 Changes in assets and liabilities :..................... Accounts receivable.................................. (2,608,321) Inventory............................................ (2,271,278) Due from investor.................................... 286,492 Prepaid development costs............................ -- Prepaid expenses and other current assets............ (910,805) Accounts payable and accrued expenses................ 4,135,970 Deferred revenue..................................... 6,484,793 Due to investor...................................... (286,492) ------------- Net cash used in operating activities............. (153,568,817) ------------- Cash Flows From Investing Activities: Purchase of property, plant and equipment............... (28,193,370) Proceeds from disposal of property, plant and equipment.............................................. 36,666 Purchase of intangible asset............................ (9,624,500) Investment in affiliate................................. (1,500,000) Marketable securities................................... (39,034,314) ------------- Net cash used in investing activities............. (78,315,518) ------------- Cash Flows From Financing Activities: Proceeds from issuance of common stock.................. 140,342,782 Proceeds from initial public offering, net.............. 94,611,455 Proceeds from secondary public offering, net............ 52,017,750 Stock issuance costs.................................... (2,068,776) Proceeds from stock option exercises.................... 7,025,933 Cash placed in escrow................................... (5,310,274) Principal payments on capital lease obligations......... (236,390) Principal payments on long-term debt.................... (850,000) ------------- Net cash provided by financing activities......... 285,532,480 ------------- (Decrease) increase in cash and cash equivalents............ 53,648,145 Cash and cash equivalents, beginning of period.............. -- ------------- Cash and cash equivalents, end of period.................... $ 53,648,145 =============
The accompanying notes are an integral part of the consolidated financial statements. F-6 PLUG POWER INC. and Subsidiary (A Development Stage Enterprise) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the years ended December 31, 2001 , 2000 and 1999
Deficit Accumulated Common stock Additional During the Total ------------------- Paid-in Development Stockholders' Shares Amount Capital Stage Equity ---------- -------- ------------ ------------- ------------- Balance, January 1, 1999............. 17,150,000 $171,500 $ 20,840,500 $ (15,519,303) $ 5,492,697 Initial public offering--net......... 6,782,900 67,829 92,904,049 92,971,878 Capital contributions................ 19,058,480 190,585 119,749,979 119,940,564 Stock issued for equity in affiliate. 11,250,000 11,250,000 Stock based compensation............. 3,228,800 3,228,800 Amortization of deferred rent expense 100,000 100,000 Write-off deferred rent expense...... 1,850,000 1,850,000 Stock option exercises............... 24,128 241 41,666 41,907 Net loss............................. (33,469,312) (33,469,312) ---------- -------- ------------ ------------- ------------ Balance, December 31, 1999........... 43,015,508 430,155 249,964,994 (48,988,615) 201,406,534 Stock issued for equity in affiliate. 7,000 70 827,680 827,750 Stock issued for development agreement.......................... 104,869 1,048 4,998,952 5,000,000 Stock issued to employees............ 3,041 31 253,893 253,924 Stock based compensation............. 7,842,855 7,842,855 Stock option exercises............... 632,378 6,324 3,786,704 3,793,028 Stock issued under employee stock purchase plan...................... 32,717 327 408,125 408,452 In-kind services..................... 840,000 840,000 Net loss............................. (86,241,899) (86,241,899) ---------- -------- ------------ ------------- ------------ Balance, December 31, 2000........... 43,795,513 437,955 268,923,203 (135,230,514) 134,130,644 Public offering, net................. 4,575,000 45,750 51,542,801 51,588,551 Private placement proceeds, net...... 833,332 8,333 9,591,667 9,600,000 Stock issued for development agreement.......................... 96,336 963 2,999,037 3,000,000 Stock based compensation............. 189,084 1,891 7,011,286 7,013,177 Stock option exercises............... 760,531 7,606 2,044,348 2,051,954 Stock issued under employee stock purchase plan...................... 73,132 731 729,861 730,592 Net loss............................. (73,112,027) (73,112,027) ---------- -------- ------------ ------------- ------------ Balance, December 31, 2001........... 50,322,928 $503,229 $342,842,203 $(208,342,541) $135,002,891 ========== ======== ============ ============= ============
The accompanying notes are an integral part of the consolidated financial statements. F-7 PLUG POWER INC. AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations Description of Business Plug Power Inc. and subsidiary (Company), was originally formed as a joint venture between Edison Development Corporation (EDC) and Mechanical Technology Incorporated (MTI) in the State of Delaware on June 27, 1997 and succeeded by merger to all of the assets, liabilities and equity of Plug Power, L.L.C. in November 1999. The Company is a development stage enterprise formed to research, develop, manufacture and distribute on-site electric power generation systems utilizing proton exchange membrane (PEM) fuel cells for stationary applications and is in the preliminary stages of field testing and marketing its initial commercial product to a limited number of customers, including utilities, government entities and the Company's distribution partners, GE Fuel Cell Systems, LLC and DTE Energy Technologies, Inc. This initial product is a limited edition fuel cell system that is intended to offer complimentary, quality power while demonstrating the market value of fuel cells as a preferred form of alternative distributed power generation. Subsequent enhancements to its fuel cell systems are expected to expand the market opportunity for fuel cells by lowering the installed cost, decreasing operating and maintenance costs, increasing efficiency, improving reliability, and adding features such as grid independence and co-generation of heat and electric power. Liquidity The Company's cash requirements depend on numerous factors, including but not limited to product development activities, ability to commercialize its fuel cell systems, market acceptance of its systems and other factors. The Company expects to continue to devote substantial capital resources to its development programs directed at commercializing fuel cell systems worldwide, to hire and train production staff, develop and expand manufacturing capacity and continue research and development activities. The Company will pursue expansion of its operations through internal growth and strategic alliances and expects such activities will be funded from existing cash and cash equivalents, issuance of additional equity or debt securities or additional borrowings subject to market and other conditions. In July 2001, the Company completed a follow-on public offering of 4,575,000 shares of common stock which includes additional shares purchased pursuant to exercise of the underwriters' overallotment option. The Company received proceeds of $51.6 million, net of $3.3 million of expenses and underwriting discounts relating to the issuance and distribution of the securities. Simultaneous with the closing of the follow-on public offering, the Company closed a private equity financing of 416,666 shares of common stock to GEPS Equities, Inc., an indirect wholly-owned subsidiary of General Electric Company, and 416,666 shares of common stock to Edison Development Corporation, an indirect wholly-owned subsidiary of DTE Energy Company, raising an additional $9.6 million in net proceeds. At December 31, 2001, the Company had unrestricted cash, cash equivalents and marketable securities in the amount of $92.7 million and working capital of $90.4 million. Management believes that the Company's current available cash, cash equivalents and marketable securities will provide sufficient capital to fund operations for at least the next twelve months. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the financial statements of Plug Power Inc. and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. F-8 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Reclassifications Certain prior year amounts have been reclassified to conform to the 2001 presentation. Cash Equivalents and Restricted Cash Cash equivalents consist of money market accounts, overnight repurchase agreements and certificates of deposit with an initial term of less than three months. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. At December 31, 2001 and 2000, the Company has restricted cash in the amount of $5,310,274 and $5,600,274, respectively, that is required to be placed in escrow to collateralize debt related to the purchase of real estate. The escrowed amounts are recorded under the captions, "Restricted cash" in the accompanying consolidated balance sheets. Marketable Securities Marketable securities includes investments in corporate debt securities and US Treasury obligations which are carried at fair value. These investments are considered available for sale, and the difference between the cost and the fair value of these securities would be reflected in other comprehensive income (loss) and as a separate component of stockholders' equity. There was no significant difference between cost and fair value of these investments at December 31, 2001, 2000 or 1999. Inventory Inventory is stated at the lower of average cost or market and consists of raw materials. Product and Service Revenue Generally, product and service revenue is recorded when products are shipped, customer acceptance has occurred and as other significant contractual obligations are met. The Company applies the guidance within Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101) in the evaluation of its contracts to determine when to properly recognize revenue. The Company's initial commercial sales for the delivery of limited edition fuel cell systems are contract specific arrangements containing multiple obligations, that may include a combination of continued service, maintenance and other support, as well as certain cancellation privileges. The Company defers recognition of product and service revenue where all of the criteria for revenue recognition have not yet been achieved. Product and service revenue excludes revenue which has been deferred and is being recognized over the period of the underlying service and other contractual obligations within the Company's initial commercial agreements for the delivery of fuel cell systems. At December 31, 2001, the Company has deferred product and service revenue in the amount of $5.5 million. Government contract revenue The Company enters into research and development contracts with government agencies under various pricing arrangements. Government contracting revenue is classified as research and development contract revenue in the accompanying consolidated statements of operations. Revenue from "time and material" contracts is recognized on the basis of hours utilized, plus other reimbursable contract costs incurred during the period. Revenue from "cost-plus-fixed-fee" contracts is recognized on the basis of reimbursable contract costs incurred during the period, plus a percentage of the fixed fee. F-9 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Property, plant and equipment are stated at cost or fair value at the date of purchase under purchase accounting. Machinery and equipment under capital leases are stated at the present value of minimum lease payments. Expenditures for maintenance and repairs are expensed as costs are incurred. Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Machinery and equipment held under capital leases are amortized straight line over the shorter of the lease term or estimated useful life of the asset. The Company provides for depreciation and amortization of buildings, building improvements and machinery and equipment over the following estimated useful lives: Buildings.............. 20 years Building improvements.. 5-20 years Machinery and equipment 3-15 years
Investments in Affiliated Companies Investments in two affiliated companies, GE Fuel Cell Systems LLC (GEFCS) and Advanced Energy Incorporated, are accounted for by the equity method. The Company would recognize a loss when there is a loss in value in the investment which is other than a temporary decline. Intangible Assets Intangible assets, including purchased technology and other intangible assets, are carried at cost less accumulated amortization. The Company amortizes intangible assets on a straight-line basis over their estimated useful lives. The range of estimated useful lives on the Company's identifiable intangibles is three to ten years. Impairment of Intangibles and Long-Lived Assets The Company assesses the impairment of identifiable intangibles, goodwill and fixed assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important which could trigger an impairment review include, but are not limited to, significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for the Company's overall business and significant negative industry or economic trends. When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company measures any impairment based on a projected discounted cash flow method using a discount rate commensurate with the risk inherent in the Company's current business model. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Research and Development Costs incurred in the research and development of the Company's fuel cell systems are expensed as incurred. F-10 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Stock-Based Compensation The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations including Financial Accounting Standards Board ("FASB") Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation an interpretation of APB Opinion No. 25", to account for its fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure requirements of SFAS No. 123. Per Share Amounts Basic earnings per share excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company (such as stock options and warrants). The following table provides calculations of basic and diluted earnings per share:
Year Ended December 31, ---------------------------------------- 2001 2000 1999 ------------ ------------ ------------ Numerator: Net loss................... $(73,112,027) $(86,241,899) $(33,469,312) ============ ============ ============ Denominator: Weighted average number of common shares............ 46,840,091 43,308,158 26,282,705 ============ ============ ============
No options or warrants outstanding were included in the calculation of diluted loss per share because their impact would have been anti-dilutive. Use of Estimates The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recent Accounting Pronouncements In June 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. SFAS No. 141 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121 and subsequently, SFAS No. 144 after its adoption. F-11 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company adopted the provisions of SFAS No. 141 as of July 1, 2001, and SFAS No. 142 is effective January 1, 2002. Goodwill and intangible assets determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001, but before SFAS No. 142 is adopted in full, are not amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 continued to be amortized and tested for impairment prior to the full adoption of SFAS No. 142. Upon adoption of SFAS No. 142, the Company is required to evaluate its existing intangible assets and goodwill that were acquired in purchase business combinations, and to make any necessary reclassifications in order to conform with the new classification criteria in SFAS No. 141 for recognition separate from goodwill. The Company will be required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. If an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142 within the first interim period. Impairment is measured as the excess of carrying value over the fair value of an intangible asset with an indefinite life. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. In connection with SFAS No. 142's transitional goodwill impairment evaluation, the Statement requires the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this, the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of January 1, 2002. The Company will then have up to six months from January 1, 2002 to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an indication exists that the reporting unit goodwill may be impaired and the Company must perform the second step of the transitional impairment test. The second step is required to be completed as soon as possible, but no later than the end of the year of adoption. In the second step, the Company must compare the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill, both of which would be measured as of the date of adoption. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's consolidated statements of operations. As of the date of adoption of SFAS No. 142, January 1, 2002, the Company expects to have unamortized identifiable intangible assets in the amount of $14.9 million, all of which will be subject to the transition provisions of SFAS No. 142. Amortization expense related to these identifiable intangible assets was $4.8 million, $3.9 million and $1.0 million for the years ended December 31, 2001, 2000 and 1999, respectively and amortization expense related to goodwill was $1.3, $443,000 and $0 for the years ended December 31, 2001, 2000 and 1999, respectively. Because of the extensive effort needed to comply with adopting SFAS No. 141 and No. 142, it is not practicable to reasonably estimate the impact of adopting the Statements on the Company's consolidated financial statements at the date of this report, including whether it will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle. In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the F-12 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) acquisition, construction, development and/or normal use of the assets. The Company also records a corresponding asset which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company is required to adopt SFAS No. 144 on January 1, 2002. Management anticipates that the adoption of this Statement will not have a material effect on the Company's consolidated financial statements. 3. Investment in Affiliates GE Fuel Cell Systems, LLC In February 1999, the Company entered into a joint venture agreement with GE MicroGen, Inc. to form GE Fuel Cell Systems, LLC (GEFCS), to exclusively market, sell, install and service certain of their PEM fuel cell systems under 35 kW designed for use in residential, commercial and industrial stationary power applications on a global basis, with the exception of the states of Illinois, Indiana, Michigan and Ohio, in which DTE Energy Technologies, Inc., has exclusive distribution rights. GE MicroGen, Inc. is an indirect wholly owned subsidiary of General Electric Company that operates within the GE Power Systems Business. In connection with the formation of GEFCS, the Company issued 2,250,000 shares of its common stock to GE MicroGen, Inc. As of the date of issuance of such shares, the Company capitalized $11.3 million, the fair value of the shares issued. The difference between the amount capitalized and the amount of the underlying equity in net assets of GEFCS is being amortized on a straight line basis over a ten year period, the term of the original distribution agreement. In accordance with the terms of the agreement, General Electric will provide capital, in the form of a loan not to exceed $8.0 million, to fund the operations of GEFCS. In August 2001, the Company amended their agreements with GE MicroGen and GEFCS to expand GEFCS' exclusive worldwide distribution rights to include all of their stationary PEM fuel cell systems. In addition, the Company increased their ownership interest in GEFCS from 25% to 40%. In return, the Company granted GE Power Systems Equities, Inc. an option to purchase 725,000 shares of their common stock. The Company also replaced the product specifications, prices and delivery schedule in their distribution agreement with a high-level, multi-generation product plan, with subsequent modifications being subject to mutual agreement, and extended the term of the agreement to December 31, 2014. In connection with these transactions, the Company capitalized $5.0 million, the fair value of the option to purchase 725,000 shares of Plug Power common stock, under the caption "Investment in affiliates" in the accompanying consolidated balance sheets, and is amortizing this amount over the remaining term of the original distribution agreement. The Company accounts for its interest in GEFCS on the equity method of accounting and adjusts its investment by its proportionate share of income or losses under the caption "Equity in losses of affiliates" in the accompanying consolidated statements of operations. GEFCS had an operating and net loss of $901,510 for the F-13 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) year ended December 31, 2001. For the years ended December 31, 2001, 2000 and 1999, equity in losses of affiliates, related to GEFCS, was $1,687,627, $1,690,146 and $1,471,750 including goodwill amortization of $1,402,750, $1,125,000 and $1,031,250, respectively. Accumulated amortization at December 31, 2001 and 2000 was $3,559,000 and 2,156,250, respectively. Under a separate agreement, the Company has agreed to source, from GE, technical support services for its product development effort, including engineering, testing, manufacturing and quality control services. The Company has committed to purchase a minimum of $12.0 million of such services over a five year period, which began September 30, 1999. Through December 31, 2001, the Company has purchased approximately $5.0 million of such services. In addition, the Company has also entered into a separate agreement with General Electric Company under which General Electric acts as the agent in procuring certain equipment, parts and components. In addition, General Electric has agreed to provide training services to the Company's employees regarding procurement activities. Advanced Energy Incorporated In March 2000, the Company acquired a 28% ownership interest in Advanced Energy Incorporated (AEI), (formerly Advanced Energy Systems, Inc.), in exchange for a combination of $1.5 million cash and Plug Power common stock valued at approximately $828,000. The Company accounts for its interest in AEI on the equity method of accounting and adjusts its investment by its proportionate share of income or losses. The excess of the cost of the stock of AEI exceeded the Company's underlying equity in net assets by approximately $1,773,000 at the acquisition date and is being amortized straight line over 20 months. For the year ended December 31, 2001, AEI had sales of approximately $3.3 million and an operating and net loss of approximately $941,000. The Company has recorded equity in losses of affiliates, related to AEI, of $1,593,159 and $637,070, including goodwill amortization of $1,329,585 and $443,194, for the years ended December 31, 2001 and 2000, respectively. Accumulated amortization at December 31, 2001 and 2000 was $1,772,779 and $443,194, respectively. As AEI is privately held, the market value of this investment is not readily determinable. 4. Property, Plant and Equipment Property, plant and equipment at December 31, 2001 and 2000 consists of the following;
December 31, December 31, 2000 2001 ------------ ------------ Land.......................................... $ 90,000 $ 90,000 Buildings..................................... 14,757,080 14,757,080 Building improvements......................... 6,020,212 5,525,306 Machinery and equipment....................... 18,698,355 16,732,395 ----------- ----------- 39,565,647 37,104,781 Less accumulated depreciation and amortization (9,325,016) (4,814,289) ----------- ----------- Property, plant, and equipment, net........... $30,240,631 $32,290,492 =========== ===========
Depreciation expense was $4,583,372, $3,037,818 and $1,327,187 for the years ended December 31, 2001, 2000 and 1999, respectively. 5. Debt In connection with the Company's purchase of real estate in July, 1999, the Company assumed a $6.2 million letter of credit issued by KeyBank National Association for the express purpose of servicing $6.2 million F-14 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of debt related to Industrial Development Revenue Bonds issued by the Town of Colonie Industrial Development Agency in favor of the acquired property. The debt matures in 2013 and accrues interest at a variable rate of interest which was approximately 2.2% at December 31, 2001. Simultaneous with the assumption, the Company was required to escrow $6.2 million to collateralize the debt. This debt also contains a subjective acceleration clause based on adverse financial conditions. The bank has provided the Company with a waiver through January 1, 2003 for any adverse changes in financial condition occurring prior to December 31, 2001. The outstanding balance of the debt as of December 31, 2001 was $5.3 million and the amount of the corresponding escrow requirement as of December 31, 2001 was $5.3 million and is recorded under the balance sheet captions, "Restricted cash." Principal payments due on long-term debt are: 2002, $310,000; 2003, $325,000; 2004, $345,000; 2005, $365,000; 2006, $385,000 and thereafter, $3,580,274. 6. Accrued Expenses Accrued expenses at December 31, 2001 and 2000 consisted of:
2001 2000 ---------- ---------- Accrued payroll and compensation related costs $ 343,936 $ 813,122 Accrual for Celanese development agreement.... 1,750,000 -- Other accrued liabilities..................... 1,327,170 5,121,407 ---------- ---------- $3,421,106 $5,934,529 ========== ==========
7. Income Taxes There was no current income tax expense for the years ended December 31, 2001, 2000 and 1999. The Company was a Limited Liability Company (LLC) until its merger into Plug Power Inc. effective November 3, 1999. From inception through November 3, 1999, the Company was treated as a partnership for federal and state income tax purposes and accordingly the Company's income taxes or credits resulting from earnings or losses were payable by, or accrued to its members. Therefore, no provision for income taxes has been made prior to November 3, 1999. Effective November 3, 1999, the Company is taxed as a corporation for Federal and State income tax purposes and the effect of deferred taxes recognized as a result of the change in tax status of the Company have been included in operations. Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates. The significant components of deferred income tax expense (benefit) for the years ended December 31, 2001, 2000 and 1999 are as follows:
Years ended December 31, --------------------------------------- 2001 2000 1999 ------------ ------------ ----------- Deferred tax expense recognized as a result of change in tax status......................... $ -- $ -- $ 1,739,000 Deferred tax benefit.......................... (13,405,600) (6,695,100) (584,400) Net operating loss carryforward............... (25,373,800) (28,476,400) (1,601,600) Valuation allowance........................... 38,779,400 35,171,500 447,000 ------------ ------------ ----------- Provision for income taxes.................... $ -- $ -- $ -- ============ ============ ===========
F-15 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company's effective income tax rate differed from the Federal statutory rate as follows:
Years ended December 31, ---------------------- 2001 2000 1999 ----- ----- ----- Federal statutory tax rate.................. (35.0)% (35.0)% (35.0)% Deferred state taxes, net of federal benefit (4.5) (5.0) -- Adjustment to opening deferred tax balances. (2.1) -- -- Other, net.................................. (1.7) 1.0 (1.0) Tax credits................................. (9.7) (2.0) -- Change in valuation allowances.............. 53.0 41.0 1.0 Effect of LLC losses........................ -- -- 33.0 Effect of change in tax status.............. -- -- 2.0 ----- ----- ----- Net effective tax rate...................... 0.0% 0.0% 0.0% ===== ===== =====
The deferred tax assets and liabilities as of December 31, 2001 and 2000 consist of the following tax effects relating to temporary differences and carryforwards:
Years ended December 31, -------------------------- 2001 2000 ------------ ------------ Deferred tax assets: Intangible assets...................... $ 7,074,900 $ 905,100 Stock-based compensation............... 334,000 3,384,700 Deferred income........................ 2,193,900 -- Investment in affiliates............... 678,600 254,800 Other reserves and accruals............ 1,189,200 464,200 Inventory valuation.................... -- 920,000 Tax credit carryforwards............... 9,686,500 1,479,100 Net operating loss..................... 69,915,500 41,491,700 ------------ ------------ Total deferred tax assets....... 91,072,600 48,899,600 Less valuation allowance............ (88,861,600) (47,032,200) Deferred tax liability: Property, plant and equipment....... (2,211,000) (1,867,400) ------------ ------------ Net deferred tax assets and liabilities $ -- $ -- ============ ============
The Company has recorded a valuation allowance, as a result of uncertainties related to the realization of its net deferred tax asset, for the years ended December 31, 2001, 2000 and 1999 of approximately $88.9 million, $47.0 million and $447,000, respectively. The increase of approximately $41.8 million and $46.6 million during 2001 and 2000, respectively, relates primarily to the net operating losses incurred during each year. The deferred tax asset has been offset by a full valuation allowance because it is more likely than not that the tax benefits of the net operating loss carryforward may not be realized. Included in the valuation allowance as of December 31, 2001 and 2000 are $14.5 million and $11.4 million, respectively, of deferred tax assets resulting from the exercise of employee stock options, which upon subsequent realization of the tax benefits will be allocated directly to paid-in capital. At December 31, 2001, the Company has unused Federal and State net operating loss carryforwards of approximately $174.8 million. The net operating loss carryforwards if unused will expire as follows: $3.9 million on December 31, 2019, $93.2 million on December 31, 2020, and $77.7 million on December 31, 2021. F-16 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 8. Stockholders' Equity Common Stock The Company has one class of common stock, par value $.01 per share. Each share of the Company's common stock is entitled to one vote on all matters submitted to stockholders. As of December 31, 2001 there were 50,322,928 shares of common stock issued and outstanding. Through December 31, 2001, our stockholders in the aggregate have contributed $291.9 million in cash, including $93.0 million in net proceeds from our initial public offering and $51.6 million in net proceeds from our follow-on public offering of common stock, and $33.4 million in other contributions, consisting of in-process research and development, real estate, other in-kind contributions and equity interests in affiliates. The following represents a summary of the issuances of shares of common stock since inception.
No. of Common Cash Noncash Total Capital Shares Contribution Contribution Contribution ---------- ------------ ------------ ------------- 1997 DTE Energy Company............................. 4,750,000 $ 4,750,000 $ -- $ 4,750,000 Mechanical Technology Incorporated............. 4,750,000 -- 4,750,000(a) 4,750,000 ---------- ------------ ----------- ------------ 9,500,000 4,750,000 4,750,000 9,500,000 ---------- ------------ ----------- ------------ 1998 DTE Energy Company............................. 4,950,000 7,750,000 -- 7,750,000 Mechanical Technology Incorporated............. 2,700,000 3,000,000 550,000(a) 5,500,000 Stock based compensation and other noncash transactions.................... -- -- 212,000(c) (1,738,000) ---------- ------------ ----------- ------------ 7,650,000 10,750,000 762,000 11,512,000 ---------- ------------ ----------- ------------ 1999 Edison Development Corporation................. 4,004,315 28,697,782 -- 28,697,782 Mechanical Technology Incorporated............. 6,254,315 24,000,000 8,897,782(a) 30,947,782 General Electric Company....................... 5,250,000 37,500,000 11,250,000(b) 48,750,000 Other private investors........................ 3,549,850 25,045,000 -- 25,045,000 Initial public offering-net.................... 6,782,900 92,971,878 -- 92,971,878 Stock option exercises......................... 24,128 41,907 -- 41,907 Stock based compensation and other noncash transactions.................... -- -- 978,800(c) 2,928,800 ---------- ------------ ----------- ------------ 25,865,508 208,256,567 21,126,582 229,383,149 ---------- ------------ ----------- ------------ 2000 Stock option exercises......................... 632,378 3,793,028 -- 3,793,028 Stock issued under employee stock purchase plan........................... 32,717 408,452 -- 408,452 Stock issued for development agreement......... 104,869 -- 5,000,000(d) 5,000,000 Stock issued for equity in affiliate........... 7,000 -- 827,750(e) 827,750 Stock based compensation and other noncash transactions.................... 3,041 -- 8,936,779(c) 8,936,779 ---------- ------------ ----------- ------------ 780,005 4,201,480 14,764,529 18,966,009 ---------- ------------ ----------- ------------ 2001 Edison Development Corporation................. 416,666 4,800,000 -- 4,800,000 General Electric Company....................... 416,666 4,800,000 -- 4,800,000 Public offering-net............................ 4,575,000 51,588,551 -- 51,588,551 Stock option exercises......................... 760,531 2,051,954 -- 2,051,954 Stock issued under employee stock purchase plan 73,132 730,592 -- 730,592 Stock issued for development agreement......... 96,336 -- 3,000,000 (d) 3,000,000 Stock based compensation and other noncash transactions......................... 189,084 -- 7,013,177(f) 7,013,177 ---------- ------------ ----------- ------------ 6,527,415 63,971,097 10,013,177 73,984,274 ---------- ------------ ----------- ------------ Total as of December 31, 2001.................. 50,322,928 $291,929,144 $51,416,288 $343,345,432 ========== ============ =========== ============
F-17 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) - -------- a. Since inception, MTI has contributed in-process research and development of $4,042,640; certain net assets at inception of $707,360; $2,000,000 of deferred rent related to a below market lease for office and manufacturing facilities; $500,000 of in-kind services; land and buildings valued at approximately $4,697,782; and research contracts valued at approximately $2,250,000. b. In February 1999, the Company issued 2,250,000 shares of common stock to GE MicroGen, Inc. in exchange for a 25% interest in GE Fuel Cell Systems, LLC. The fair value of the shares issued of $11,250,000 was recorded under the balance sheet caption "Investment in affiliates". See note 3. c. These issuances primarily represent stock based compensation issued to employees, consultants and others for services performed. These amounts are recorded at the fair value of the issuance on the date the compensation is awarded. d. Represents shares issued to Engelhard Corporation for the development and supply of advanced catalysts as part of a development agreement discussed in note 13. e. Represents shares issued along with cash for a 28% ownership interest in Advanced Energy Incorporated as described in note 3. f. Amount is partially comprised of $5,000,000 representing the fair value of an option to purchase 725,000 shares of the Company's common stock issued to GE Power Systems Equities, Inc. as part of the amendment to the GE Fuel Cell Systems LLC distribution agreement. See note 3. The remainder of the amount represents stock based compensation issued to employees, consultants and others for services performed and is recorded at the fair value of the issuance on the date the compensation is awarded. Preferred Stock: The Company has authorized 5.0 million shares of preferred stock, par value $.01 per share. Our certificate of incorporation provides that shares of preferred stock may be issued from time to time in one or more series. Our Board of Directors is authorized to fix the voting rights, if any, designations, powers, preferences, qualifications, limitations and restrictions thereof, applicable to the shares of each series. As of December 31, 2001, there was no preferred stock outstanding. 9. Employee Benefit Plans Stock Option Plans (the Plans): Effective July 1, 1997, the Company established a stock option plan to provide employees, consultants, and members of the Board of Directors the ability to acquire an ownership interest in the Company. Options for employees generally vest 20% per year and expire ten years after issuance. Options granted to members of the Board generally vest 50% upon grant and 25% per year thereafter. Options granted to consultants vest one-third on the expiration of the consultant's initial contract term, with an additional one-third vesting on each anniversary thereafter. At December 31, 2001, there were a total of 1,517,953 options granted and outstanding under this plan. Although no further options will be granted under this plan, the options previously granted will continue to vest in accordance with this plan and vested options will be exercisable for shares of common stock. In August 1999, the Board of Directors and stockholders adopted the 1999 Stock Option and Incentive Plan. At December 31, 2001 there were 4,490,979 options granted and outstanding, and an additional 2,591,804 options available to be issued under the plan. Additionally, the number of shares of common stock available for issuance under the plan will increase by the amount of any forfeitures under the 1999 Stock Option and Incentive Plan and under the 1997 Stock Option Plan. The number of shares of common stock under the plan will further increase January 1 and July 1 of each year by an amount equal to 16.4% of any net increase in the total number of shares of stock outstanding. The 1999 Stock Option and Incentive Plan permits the Company to: F-18 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) grant incentive stock options; grant non-qualified stock options; grant stock appreciation rights; issue or sell common stock with vesting or other restrictions, or without restrictions; grant rights to receive common stock in the future with or without vesting; grant common stock upon the attainment of specified performance goals; and grant dividend rights in respect of common stock. To date, options granted under the 1999 Stock Option and Incentive Plan have vesting provisions ranging from one year to five years in duration and expire ten years after issuance. These grants may be made to officers, employees, non-employee directors, consultants, advisors and other key persons of the Company. The following table summarizes information about the stock options outstanding under the Plans at December 31, 2001:
Options Outstanding Options Exercisable ---------------------------- ------------------- Weighted Weighted Average Average Average Exercise Remaining Exercise Exercise Price range Shares Life Price Shares Price ----------- --------- --------- -------- --------- -------- $ 0.00 - 1.00 574,236 6.0 $ 0.90 499,487 $ 1.00 1.01 - 8.50 649,856 7.2 6.00 348,023 5.93 8.51 - 9.00 914,002 9.9 8.53 0 0.00 9.01 - 11.00 370,300 7.8 10.80 192,040 10.87 11.01 - 15.00 1,070,960 8.7 12.12 524,280 12.82 15.01 - 18.00 909,550 9.0 17.92 106,540 17.81 18.01 - 25.00 539,338 9.2 22.26 58,788 19.29 25.01 - 70.00 237,600 8.4 51.19 153,200 50.17 70.01 - 85.00 577,390 8.1 83.39 228,865 83.39 85.01 - 140.00 165,700 8.2 100.06 66,280 100.06 --------- --------- 6,008,932 8.4 $ 22.36 2,177,503 $ 21.95 ========= =========
The following table summarizes activity under the Plans:
Weighted Average Number of Shares Exercise Price Option Activity Subject to Option per Share --------------- ----------------- ---------------- Balance January 1, 1999.. 1,675,200 $ 1.57 Granted at fair value.... 2,047,039 9.39 Forfeited or terminated.. (17,396) 7.24 Exercised................ (24,128) 1.74 --------- Balance December 31, 1999 3,680,715 5.90 Granted at fair value.... 2,488,813 49.73 Forfeited or terminated.. (457,700) 6.00 Exercised................ (632,378) 26.24 --------- Balance December 31, 2000 5,079,450 25.53 Granted at fair value.... 2,382,628 14.54 Forfeited or terminated.. (692,615) 40.06 Exercised................ (760,531) 2.71 --------- Balance December 31, 2001 6,008,932 $22.36 =========
At December 31, 2001, 2,591,804 shares of common stock were reserved for issuance under future stock option exercises. F-19 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Accounting for Stock Based Compensation: The per share weighted average fair value of the options granted during 2001, 2000 and 1999 was $11.78, $41.65 and $7.19, respectively, using the minimum value method of valuing stock options, for the options granted prior to the Company's initial public offering and the Black-Scholes pricing model subsequent to the offering. The dividend yield was assumed to be zero for all periods. The risk free interest rate ranged from 3.9% to 5.0% in 2001, 5.0% to 6.7% in 2000 and 5.1% to 6.3% in 1999. An expected life of 5 years was assumed for each year. Expected volatility of 124% in 2001, 127% in 2000 and 114% in 1999 was used in determining fair value under the Black-Scholes pricing model and was excluded using the minimum value method. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for its stock options plans and does not record compensation cost for options granted at fair value. Had the Company determined compensation cost based on fair value in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," net loss would have increased to the pro forma amounts indicated below:
Year Ended December 31, ------------------------------------------ 2001 2000 1999 ------------- ------------- ------------ Net loss, as reported..................... $ (73,112,027) $ (86,241,899) $(33,469,312) Proforma net loss......................... (101,799,881) (122,667,062) (34,716,991) Proforma loss per share, basic and diluted $ (2.17) $ (2.83) $ (1.32)
During 1998 the Company awarded 197,000 options to key employees for which issuance was contingent upon the attainment of specified performance objectives. Of those awarded, 87,500 have been forfeited prior to becoming fully vested. The Company recorded a charge to operations for the difference between the exercise price and the fair value of the options at the measurement date in the amount of $168,740 and $126,800 for the years ended December 31, 2000 and 1999 respectively. Additionally, in 1999 the Company modified the terms of certain options, and the impact of this modification resulted in a charge to operations of $835,000. 1999 Employee Stock Purchase Plan: In 1999, the Company adopted the 1999 Employee Stock Purchase Plan (the Plan) under which employees will be eligible to purchase shares of the Company's common stock at a discount through periodic payroll deductions. The Plan is intended to meet the requirements of Section 423 of the Internal Revenue Code. Purchases occur at the end of six month offering periods at a purchase price equal to 85% of the market value of the Company's common stock at either the beginning of the offering period or the end of the offering period, whichever is lower. Participants may elect to have from 1% to 10% of their pay withheld for purchase of common stock at the end of the offering period, up to a maximum of $12,500 within any offering period. The Company has reserved 1,000,000 shares of common stock for issuance under the Plan. The Company issued 73,132 and 32,717 shares of stock under the Plan during 2001 and 2000, respectively. 401(k) Savings & Retirement Plan: The Company offers a 401(k) Savings & Retirement Plan to eligible employees meeting certain age and service requirements. This plan permits participants to contribute up to 15% of their salary, up to the maximum allowable by the Internal Revenue Service regulations. Participants are immediately vested in their voluntary contributions plus actual earnings thereon. Participants are vested in the Company's matching contribution based on the years of service completed. Participants are fully vested upon completion of three years of service. The Company's expense for this plan was $774,000, $517,000 and $224,000 for years ended December 31, 2001, 2000 and 1999, respectively. F-20 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 10. Other Related Party Transactions On June 27, 1997, the Company entered into a distribution agreement with the EDC. Under the agreement, EDC was appointed the Company's exclusive independent distributor in Michigan, Ohio, Indiana and Illinois to promote and assist in the sale of products developed by the Company, subject to certain terms and conditions. On August 30, 2001, the Company finalized an amendment to the distribution agreement with DTE Energy Technologies, Inc. (an affiliate of EDC and a DTE Energy Company) expanding their exclusive distribution rights within the states of Michigan, Illinois, Ohio and Indiana. Under the agreement, they will market and distribute all sizes of Plug Power's stationary PEM fuel cell systems for use in any power application, except for propulsion. 11. Fair Value of Financial Instruments The following disclosure of the estimated fair value of financial instruments is made in accordance with the provision of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments". Although the estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies, the estimates presented are not necessarily indicative of the amounts that the Company could realize in current market exchanges. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents, restricted cash, accounts receivables, accounts payables, and accrued expenses: The carrying amounts reported in the consolidated balance sheets approximate fair value because of the short maturities of these instruments./ / Marketable securities: The carrying amounts of available-for-sale debt securities reported in the consolidated balance sheets approximate fair values as both amounts are based on quoted market prices at the reporting date for those or similar investments. Long-term debt: The fair value of the Company's long-term debt in the consolidated balance sheets approximates the carrying value at December 31, 2001 and 2000. The debt accrues interest at a variable rate of interest which was approximately 2.2% and 6.75% at December 31, 2001 and 2000, respectively. 12. Supplemental Disclosures of Cash Flows Information The following represents required supplemental disclosures of cash flows information and noncash financing and investing activities which occurred during the years ended December 31, 2001, 2000 and 1999:
2001 2000 1999 ---------- ---------- ----------- Cash paid for interest............................................. $ 239,715 $ 372,369 $ 189,586 Cash paid for income taxes......................................... -- -- -- Issuance of shares under Engelhard Corporation development agreement........................................................ 3,000,000 5,000,000 -- Issuance of stock option/shares for increased investment in GE Fuel Cell Systems, LLC................................................ 5,000,000 -- 11,250,000 Issuance of shares for acquisition of 28% share of Advanced Energy Systems, Inc..................................................... -- 827,750 -- Issuance of shares for land, buildings, and research contracts contributed by MTI............................................... -- -- 6,947,782
F-21 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 13. Commitments and Contingencies Litigation: On or about September 14, 2000, a shareholder class action complaint was filed in the federal district court for the Eastern District of New York alleging that we and various of our officers and a director violated certain federal securities laws by failing to disclose certain information concerning our products and future prospects. The action was brought on behalf of a class of purchasers of Plug Power stock who purchased the stock between February 14, 2000 and August 2, 2000. Subsequently, fourteen additional complaints with similar allegations and class periods were filed. By order dated October 30, 2000, the court consolidated the complaints into one action, entitled Plug Power Inc. Securities Litigation, CV-00-5553 (ERK) (RML). By order dated January 25, 2001, the Court appointed lead plaintiffs and lead plaintiffs' counsel. Subsequently the plaintiffs served a consolidated amended complaint, which extends the class period to begin on October 29, 1999, and alleges claims under Sections 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Exchange Act of 1934, and Rule 10b-5 promulgated thereunder by the Securities & Exchange Commission, 17 C.F.R. 240 10b-5. Subsequently, Plaintiffs withdrew their claims under the Securities Act of 1933. Plaintiffs allege that the defendants made misleading statements and omissions regarding the state of development of the Company's technology in a registration statement and proxy statement issued in connection with the Company's initial public offering and in subsequent press releases, and are seeking damages. The Company believes that the allegations in the consolidated amended complaint are without merit and intend to vigorously defend against the claims. The Company does not believe that the outcome of these actions will have a material adverse effect upon its financial position, results of operations or liquidity; however, litigation is inherently uncertain and there can be no assurances as to the ultimate outcome or effect of these actions. If Plaintiffs were to prevail, such an outcome would have a material adverse effect on our financial condition, results of operation and liquidity. Alliances and development agreements: Gastec: In February 2000, the Company acquired from Gastec, NV, a Netherlands-based company, certain fixed assets and all of its intellectual property related to fuel processor development for fuel cell systems capable of producing up to 100 kW of electric power. The total purchase price was $14.8 million, paid in cash. In connection with the transaction, the Company recorded in-process research and development expense in the amount of $5.0 million, fixed assets in the amount of $192,000 and intangible assets in the amount of $9.6 million (including a trained work force). The amount attributable to in-process research and development was valued using an income approach which reflects the present value of future avoided costs the Company estimates it would otherwise have spent if it were to acquire the exclusive rights to this technology, for its remaining useful life, from another entity. The Company then discounted the net avoided cost using a 40% discount rate which the Company believes to be consistent with the risk associated with this early stage technology. This amount was further adjusted to reflect the technology's state of completion, of approximately 30%, in order to reflect the value of the in-process research and development attributable to the efforts of the seller up to the date of the transaction. The fixed assets were capitalized at their fair value and are being depreciated over their useful life and the intangible assets have been capitalized and are being amortized over 36 months. For the years ended December 31, 2001 and 2000, the Company has recorded amortization of the related intangibles in the amounts of $3,356,926 and $2,796,934, respectively. Accumulated amortization at December 31, 2001 and 2000 was $6,153,860 and $2,796,934, respectively. Vaillant: In March 2000, the Company finalized a development agreement with Vaillant GmbH (Vaillant), to develop a combination furnace, hot water heater and fuel cell system that will provide both heat and electricity for the home. Under the agreement, Vaillant will obtain fuel cells and gas-processing components from GEFCS and then will produce the fuel cell heating appliances for its customers in Germany, Austria, Switzerland and the Netherlands, and for GEFCS customers throughout Europe. F-22 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Celanese: In April 2000, the Company finalized a joint development agreement with Celanese (formerly AXIVA GmbH), to develop a high temperature membrane electrode unit (MEU). Under the agreement, the Company and Celanese will exclusively work together on the development of a high temperature MEU for the Company's stationary fuel cell system applications. As part of the agreement the Company will contribute an estimated $4.1 million (not to exceed $4.5 million) to fund its share of the development efforts. As of December 31, 2001, the Company has contributed $1.5 million under the terms of the agreement and has accrued an additional $1.8 million. Through December 31, 2001, the Company has expensed a total of $3.3 million related to the agreement, based upon the estimated share of Celanese's development efforts performed to date. The Company is in the process of negotiating extension and revision of the terms of our agreement with Celanese. Engelhard: In June 2000, the Company finalized a joint development agreement with Engelhard Corporation for development and supply of advanced catalysts to increase the overall performance and efficiency of the Company's fuel processor--the front end of the fuel cell system. As part of the agreement, over the next three years, the Company will contribute $10 million to fund Engelhard's development efforts and Engelhard will acquire $10 million of the Company's common stock. The agreements also specify rights and obligations for Engelhard to supply product to the Company over the next 10 years. Through December 31, 2001, the Company has contributed $8.0 million under the terms of the agreement while Engelhard has acquired $8.0 million of the Company's common stock. Of this amount, $6.2 million has been expensed with the remaining $1.8 million being recorded under the balance sheet caption "Prepaid development costs" as of December 31, 2001. Leases: The Company leases certain equipment under capital lease transactions with an original cost of $261,168, which had a net book value at December 31, 2001 and 2000 of $58,515 and $135,830 respectively, and which is included in machinery and equipment. The Company also has several noncancelable operating leases, primarily for warehouse facilities and office space, that expire over the next five years. Rental expense for operating leases (except those with lease terms of a month or less that were not renewed) during 2001, 2000, and 1999 was $288,327, $152,954 and $275,674, respectively. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2001 are:
Capital Operating Year ending December 31 leases leases ----------------------- ------- ---------- 2002........................................ $21,163 $ 387,491 2003........................................ 4,921 301,005 2004........................................ -- 226,168 2005........................................ -- 188,417 2006........................................ -- 53,125 ------- ---------- Total minimum lease payments....................... 26,084 $1,156,206 ========== Less amount representing interest.................. (1,306) ------- Present value of net minimum capital lease payments $24,778 =======
F-23 PLUG POWER INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Concentrations of credit risk: The Company has cash deposits in excess of federally insured limits. The amount of such deposits is approximately $29.5 million at December 31, 2001. Employment Agreements: The Company is party to employment agreements with certain executives which provide for compensation and certain other benefits. The agreements also provide for severance payments under certain circumstances. 14. Quarterly Financial Data (unaudited)
Quarters Ended --------------------------------------------- March 31, June 30, September 30, December 31, 2001 2001 2001 2001 --------- -------- ------------- ------------ Product and service revenue $ -- $ -- $ 437 $ 2,136 Contract revenue........... 1,027 1,289 483 369 Net loss................... (19,014) (18,320) (18,708) (17,070) Loss per share: Basic and diluted....... (0.43) (0.41) (0.38) (0.34) Quarters Ended --------------------------------------------- March 31, June 30, September 30, December 31, 2000 2000 2000 2000 --------- -------- ------------- ------------ Product and service revenue $ -- $ -- $ -- $ -- Contract revenue........... 2,933 2,418 1,548 1,479 Net loss................... (17,246) (18,033) (28,650) (22,313) Loss per share: Basic and diluted....... (0.40) (0.42) (0.66) (0.51)
F-24 EX-10.45 3 dex1045.txt AMENDED AND RESTATED LIMITED LIABILITY COMPANY Exhibit 10.45 AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF GE FUEL CELL SYSTEMS, L.L.C. between GE MICROGEN, INC. and PLUG POWER INC. Dated as of August 21, 2001 TABLE OF CONTENTS
Page ---- ANNEX A Definitions ANNEX B Representations and Warranties of the Members ANNEX C Intentionally Omitted EXHIBIT 1 Members and Membership Interests EXHIBIT 2 Allocation and Capital Account Provisions EXHIBIT 3 Intentionally Omitted 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
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") of GE Fuel Cell Systems L.L.C. (the "Company") is made and entered into as of the 21 day of August, 2001, by and between GE MICROGEN, INC. (f/k/a GE ON-SITE POWER, INC.), a Delaware corporation ("GEMG") and a wholly owned subsidiary of GENERAL ELECTRIC COMPANY ("GE"), which is controlled by the GE POWER SYSTEMS ("GEPS") division of GE, having offices at One River Road, Schenectady, New York 12345, and PLUG POWER, INC., (f/k/a PLUG POWER, L.L.C.), a Delaware corporation ("PP"), having offices at 968 Albany-Shaker Road, Latham, New York 12110 (GEMG and PP, collectively, the "Members" and each individually, a "Member"). BACKGROUND STATEMENTS WHEREAS, GEMG and PP entered into a Limited Liability Company Agreement which was subsequently amended and restated by an Amended and Restated Limited Liability Company Agreement dated as of February 3, 1999, pursuant to which GEMG and PP agreed 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 such agreement, with GEMG owning 75% of the Membership Interest of the Company and PP owning 25% of such Membership Interest; WHEREAS, (i) PP and GEMG have agreed to amend and restate the LLC Agreement to shift an additional 15% of the Membership Interest of the Company from GEMG to PP, (ii) PP has agreed to issue to GE Power Systems Equities, Inc., an Affiliate of GEMG, an Option to Purchase Common Stock of PP, dated the date hereof, subject to the terms set forth therein, and (ii) the Company and PP have agreed to an expansion of the Company's distribution rights with respect to PP's Products, pursuant to an Amended and Restated Distributor Agreement (the "Distributor Agreement") dated the date hereof and between PP and the Company ; WHEREAS, immediately following the amendment and restatement of this LLC Agreement, GEMG and PP will have Membership Interests in the Company of 60% and 40%, respectively. NOW THEREFORE, in consideration of the mutual covenants and agreements hereinunder set forth, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: 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 amending 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. GEMG 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 [sec] 18-201 of the Act. GEMG 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. 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), Products in the Territory 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 3 granted to a limited liability company under the laws of the State of Delaware, including, without limitation, the powers specifically enumerated in [sec] 18-106 of the Act. Section 3.2. Scope. The Company shall, in accordance with the terms of ----- the Distributor Agreement, purchase, from PP, Products and such other PP products that the Members mutually agree to be marketed and sold ("Other Products"), and may purchase Services from PP, GE and third parties as needed, in order to provide high quality Products, Other Products and Services in the Territory. The Company shall hire or contract necessary manpower for distributing Products and Other Products and for providing Services, in accordance with the Distributor Agreement. Section 3.3. Term. The Company 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. As of the close of business on August __, 2001, ------- the Members' ownership of the Membership Interest of the Company shall be modified such that GEMG has 60% of the Membership Interests of the Company and PP has 40% of the Membership Interests of the Company. The Members and their respective Membership Interests immediately following such modification shall be as set forth on Exhibit 1. 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 Members, 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, 4 provided that such Affiliate is not a GEPS Competitor, (ii) by GEMG to the purchaser, directly or indirectly, of GEMG or GEPS (or substantially all of the assets of GEMG or GEPS), or (iii) subject to the provisions of clause (c) below, by PP to the purchaser, directly or indirectly, of PP (or substantially all of the assets of 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). GEMG 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) GEMG Option to Purchase. ----------------------- (i) Notwithstanding the provisions of Section 4.4(b), if there is either (a) a Change of Control with respect to PP or (b) a proposal to Dispose, directly or indirectly, of all or any portion of PP's interest in the Company (in either case, a "PP Transfer"), then PP shall provide prompt written notice (the "Transfer Notice") to GEMG. The Transfer Notice shall identify the nature of the Change of Control or the Person with which the PP Transfer is proposed to be consummated and all other material terms of the proposed transaction, including the consideration to be paid in connection with the PP Transfer, and, in the case of an offer in which the consideration payable in connection with the PP Transfer consists in whole or in part of consideration other than cash, such information relating to such other consideration as is reasonably necessary for GEMG to be informed of all material facts relating to such consideration. (ii) GEMG shall have the right and option, for a period of 30 days after the date on which all information required to be provided to GEMG has been so provided (the "Notice Period"), to deliver a notice to PP (the "Purchase Notice") of GEMG's intention to purchase that portion of PP's interest in the Company that PP proposes to transfer (the "PP Interest"). The consideration to be paid by GEMG for the PP Interest shall be (a) in the case of a Change of Control, the Fair Market Value of the PP Interest, or (b) in the case of a PP Transfer, 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 GEMG 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 GEMG shall constitute an irrevocable election by GEMG 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 GEMG shall be consummated as soon as practicable following the giving of the Purchase Notice by GEMG, 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 GEMG shall not have given a Purchase Notice with respect to the PP Interest, GEMG shall be deemed to have waived its rights under this Section 4.4(c) with respect to the Disposition contemplated by the Transfer Notice. If GEMG 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 5 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). (iv) The provisions of this Section 4.4(c) shall not apply in the case of a public offering of securities of PP. (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, 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. GEMG 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. 6 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 Membership 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. Section 5.5. Member Affiliate Loans. ---------------------- (a) GEMG shall arrange for its Affiliate, GE, to provide, during the period ending 12/31/2005, in the form of loans to the Company, capital as required to fund the Company's operations, in accordance with the Distributor Agreement, in an amount not to exceed $8,000,000. 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 (a) shall be conditioned upon (A) PP meeting all of its obligations as set forth in the Distributor Agreement, and (B) PP providing Company with Products which are, in the reasonable judgment of GEMG, materially competitive with alternative PEM Fuel Cell-Powered Generator Sets on the basis of cost of energy, output, fuel flexibility, combined heat and power capability, first cost, lifecycle cost, reliability, emissions and application, when viewed in the aggregate. (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 7 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 transferred Membership Interest and such Capital Account shall not be adjusted to reflect any basis adjustment under Section 743 of the Code. 8 (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 attached hereto. 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. GEMG 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, GEMG 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 debts, 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. ARTICLE VII MANAGEMENT; CONDUCT OF BUSINESS Section 7.1. Management by Committee. ----------------------- 9 (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) any amendment to the Company's Certificate of Formation, this LLC Agreement, or any of the Ancillary Agreements; (iv) the entering into of any contract valued at more than $10 million; and (v) 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) GEMG and PP hereby establish the Committee. The Committee shall consist of seven members, three appointed by each of GEMG and PP and a seventh member, who shall be the 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 GEMG. At any time the Company does not have a President, GEMG 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 GEMG from among the members of the Committee appointed by GEMG, 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 shall require majority approval of a quorum of the Committee members. 10 (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 GEMG in the case of GEMG. Section 7.3. Officers. -------- (a) The Company shall hire its President in the following manner: GEMG shall present to PP a slate of 3 qualified nominees for President, unless the parties mutually agree to a slate of less nominees. PP shall have the right to select from GEMG's slate of nominees one individual to serve as President for the compensation and on the other terms and conditions designated by GEMG. 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 GEMG with or without cause at any time. Except as otherwise agreed to by GEMG 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. In the case of a Chief Financial Officer, a Chief Operating Officer and/or a Chief Marketing Officer, as those offices may exist from time to time, GEMG shall present to PP a slate of 3 qualified nominees for such office, as the case may be, unless the parties mutually agree to a slate of less nominees for a particular office. PP shall have the right to select from GEMG's slate of nominees one individual to serve for each office in accordance with this Section 7.3. 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 goals established by the Committee. The Committee shall review the goals not less frequently than annually and shall establish goals for the next Fiscal Year not later than three months prior to the commencement of each Fiscal Year. 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, 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 11 agents, provided the terms of those transactions are substantially comparable to those the Company could obtain from unrelated third parties. 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 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 12 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. (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 shall expire three (3) years after the date that such Confidential Information first 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 shall 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. 13 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, the Members hereby covenant and agree that during the term of the Distributor Agreement: (a) PP and its Affiliates shall not market, distribute, sell, lease or finance Products or PEM Fuel Cell-Powered Generator Sets, components, replacement parts, upgrades, accessories or improvements that compete with the Products, market or sell the output of PEM Fuel Cell-Powered Generator Sets that compete with the Products, or provide Services to Customers in the Territory, directly or indirectly, except that (i) PP may, for the sole purpose of Product testing and research and development, deal directly with and provide Product and Services to governmental entities (e.g., State of New York, NYSERDA, U.S. Department of Energy), (ii) PP may, for the sole purpose of Product testing and research and development, deal directly with, sell Product to, and provide Services to, quasi-public entities (e.g., Long Island Power Authority, Los Angeles Department of Water and Power) provided that PP and the Company mutually agree to allow PP to enter into such transactions and PP and the Company agree on appropriate compensation to GEMG or its Affiliate, and (iii) if PP and the Company mutually agree that a specific market opportunity (e.g., applications, geographic market) may be better served by a distributor (including PP) other than the Company, PP and the Company will negotiate in good faith to determine the compensation that should be paid to GEMG or its Affiliate for the Company forgoing its exclusive distribution rights to that opportunity. (b) GEMG (i) shall utilize PP as its sole supplier of PEM Fuel Cell-Powered Generator Sets, components, replacement parts, upgrades, accessories, and improvements therefor (in each case, except as designed for use in propulsion applications), and (ii) will not, directly or indirectly, Sell PEM Fuel Cell-Powered Generator Sets manufactured by or on behalf of any Person other than Supplier, nor the output thereof, nor any components, replacement parts, upgrades, accessories or improvements therefor (in each case, except as designed for use in propulsion applications). Section 9.4. Promotion of the Company. GEMG and PP shall use all ------------------------ reasonable efforts to (a) promote the use of the Products 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. GEMG 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 14 as to have a significant impact on either of the Members or the Company, the Members agree 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, GEMG and GEMG'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 shall use its best efforts to hire marketing, sales, and service personnel and/or contract with third parties to market and sell Products 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 . (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), GEMG 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 shall 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 shall 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. 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 15 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 eitherparty within 10 days thereafter, the Members shall submit the matter in dispute to the chief executive officer of GEMG 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 GEMG or PP by giving 30 days' notice if the other party is in Material Breach. (b) This LLC Agreement shall automatically be terminated upon: (i) the written consent of all Members; (ii) the sale, exchange or other disposition of all or substantially all of the assets of the Company; or (iii) the Distributor Agreement or any other Ancillary Agreement being terminated and not replaced. (c) This LLC Agreement may be terminated in accordance with the provisions of Section 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 GEMG, 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 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: 16 (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 agrees 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 by 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 Agreements 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. (d) 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 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 17 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 [sec] 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 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 18 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. [sec] 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. [sec] 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 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. 19 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 GEMG: GE Microgen, 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 if to PP: Plug Power, Inc. 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 20 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 GEMG 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. 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 Memoranda of Understanding of the Members dated June 26, 2001 and 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. 21 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 MICROGEN, INC. By:_______________________________________ Barry Glickman, President PLUG POWER, INC. By:_______________________________________ Roger Saillant, President and CEO 22 ANNEX A ------- DEFINITIONS 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. [sec][sec] 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 officers, directors, employee's, consultants 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 pert 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 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. "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. "Change of Control" shall mean any of the following with respect to PP: (i) the purchase or other acquisition by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of either the outstanding common stock or the combined voting power of PP's then outstanding voting securities entitled to vote generally; (ii) a reorganization, merger or consolidation of PP, in each case, with respect to which persons who were shareholders of PP immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote generally of PP or the surviving or resulting entity (as the case may be); (iii) a complete liquidation or dissolution of PP; or (iv) a sale of all or substantially all of PP's assets. "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, 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, (1) 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 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. "GEPS Competitor" means any of the following Persons, provided that GEMG 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; 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. "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 GEMG 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 GEMG 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. "MGPP" shall have the meaning ascribed to such term in the Distributor Agreement. "Other Products" has the meaning ascribed to such term in Section 3.2 of this LLC Agreement. "PEM Fuel Cell-Powered Generator Set" means a proton exchange membrane ("PEM") fuel cell stack, of any power output, with (in the case of a hydrocarbon fuel) or without (in the case of hydrogen fuel) a fuel processor, packaged with 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. "Products" shall have the meaning ascribed to such term in the Distributor Agreement. "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. "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 . "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 (b) 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 DTE Energy Technologies ("DTE") has exclusive rights to market and sell products similar to Products and provide services similar to Services therein. In the event that DTE shall cease to have exclusive rights to market and sell similar products and provide similar services in the States of Michigan, Indiana, Ohio and Illinois (the "DTE Territory"), this definition of "Territory" shall be expanded to include the DTE Territory and the Company will have the rights to market and sell Products and provide Services in the DTE Territory on a non-exclusive basis. "To the best of an entity's knowledge" or "to the knowledge of an entity" (or any similar phrase) means (I) with respect to GEMG, to the best of the knowledge of (or to the knowledge of, as the case may be) the President of GEMG, 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. 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 GEMG and the Company, and the representations and warranties which relate to GEMG, its assets and businesses are made solely by GEMG to and in favor of PP and the Company. Neither GEMG nor PP makes any representation with respect to representations of the other party: 1. Existence and Power. Each of GEMG 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 to any right of termination, cancellation or acceleration of any right or obligation of GEMG or PP, as the case may be, or to a loss of any benefit to which GEMG or PP is entitled under, any agreement, contract or other instrument binding upon GEMG 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 GEMG 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 GEMG 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 GEMG 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 GEMG, PP has not entered into any distributor or sales representative agreements with respect to the Products. 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. GEMG 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 GEMG'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. 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. EXHIBIT 1 --------- MEMBERSHIP INTERESTS -------------------- NAME AND MEMBERSHIP NOTICE ADDRESS INTEREST -------------- ---------- GE Microgen, Inc. 60% One River Road Schenectady, NY 12345 Plug Power, Inc. 40% 968 Albany-Shaker Road Albany, NY 12110 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) or for any payment or deemed payment to a Member for Services provided pursuant to Section 3.2 of the LLC Agreement, 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 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 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 corresponding amounts. 10. Any special allocations of income in the 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: (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. 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 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. EXHIBIT 3 --------- INTENTIONALLY OMITTED EXHIBIT 4 --------- GE COMPANY POLICIES ------------------- (See Attached) EXHIBIT 5 --------- FORM OF CONTRIBUTION AGREEMENT ------------------------------ INTENTIONALLY OMITTED EXHIBIT 6 --------- FORM OF PROMISSORY NOTE AND SECURITY AGREEMENT ---------------------------------------------- (See Attached) EXHIBIT 7 --------- FORM OF GE TRADEMARK AND TRADE NAME AGREEMENT --------------------------------------------- (See Attached) EXHIBIT 8 --------- FORM OF PLUG POWER TRADEMARK AGREEMENT -------------------------------------- (See Attached) EXHIBIT 9 --------- FORM OF DISTRIBUTOR AGREEMENT ----------------------------- See Tab 1. EX-10.46 4 dex1046.txt SIDE LETTER TO LIMITED LIABILITY COMPANY Exhibit 10.46 GE POWER SYSTEMS 1 RIVER ROAD SCHENECTADY, NEW YORK 12345 August 21, 2001 Plug Power Inc. 968 Albany-Shaker Road Latham, New York 12110 Attn.: Mr. Roger Saillant Re: GE Fuel Cell Systems, L.L.C. (the "Company") Dear Mr. Saillant: 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 Microgen, Inc. (f/k/a GE On-Site Power, Inc.), a Delaware corporation ("GEMG"). GEMG and Plug Power Inc. (f/k/a Plug Power, L.L.C.), a Delaware corporation ("PP"), are the members of GE Fuel Cell Systems, L.L.C., a Delaware limited liability company (the "Company"), with GEMG and PP holding 75% and 25%, respectively of the Company's Membership Interest. GEMG has agreed to shift to PP an additional 15% of the Membership Interest of the Company to PP, thereby reducing its Membership Interest to 60% and increasing PP's Membership Interest of the Company to 40%. Such transfer is to be effected pursuant to the terms and conditions set forth in that certain Amended and Restated Limited Liability Company Agreement (the "LLC Agreement") of even date herewith, between GEMG and PP. Unless otherwise specified, capitalized terms in this letter shall have the meanings ascribed to them in the LLC Agreement. In addition, in connection with and in consideration of the shift in Membership Interests described above, PP has agreed to issue to GE Power Systems Equities, Inc. ("GEPS Equities"), an affiliate of GEMG, an Option to Purchase Common Stock of PP, whereby GEPS Equities has the right to purchase from PP, at any time and from time to time during the next five years, up to 725,000 shares of PP common stock for a purchase price of $15.00 per share. Section 5.5(a) of the LLC Agreement obligates GEMG to arrange for loans to the Company, which are to be provided by GE. In consideration of the benefits to be derived by GEMG 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, subject to the terms and conditions set forth therein. Such loans shall be provided to the Company in accordance with the terms of the Promissory Note and Security Agreement executed February 3, 1999. 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 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: Plug Power Inc. August __, 2001 Page 2 - --------------------- (a) GEPS will not Sell (as that term is defined in the Distributor Agreement of even date herewith (the"Distributor Agreement")) PEM Fuel Cell-Powered Generator Sets, replacement parts, upgrades, accessories, and improvements, (in each case, except as designed for use in propulsion applications) in the Territory, directly or through any entity other than the Company, provided that the Products are competitive, as determined pursuant to Section 4.2(b) of the Distributor Agreement, with non-PP manufactured PEM Fuel Cell-Powered Generator Sets. However, paragraph (a) shall not (b) apply, with respect to GE, to any division or entity other than GEPS, and, within GEPS, such restrictions shall not apply to the fuel processing activities of GE Energy and Environmental Research Corp., a GEPS subsidiary; however, in the event that GE sells a non-PP manufactured PEM Fuel Cell-Powered Generator Set, except as designed for use in propulsion applications, 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 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 fundsin 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 Plug Power Inc. August __, 2001 Page 3 - --------------------- 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:_________________________________ Name:_______________________________ Title:______________________________ Agreed and accepted this ____ day of August, 2001. PLUG POWER INC. By:_______________________________ Roger Saillant President and CEO EX-10.47 5 dex1047.txt FIRST AMENDMENT TO REGISTRATION RIGHTS Exhibit 10.47 Execution Copy FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (the "Amendment"), dated as of July 25, 2001, is entered into by and among PLUG POWER, INC., a Delaware corporation ("Plug Power"), and GE POWER SYSTEMS EQUITIES, INC., a Delaware Corporation ("GEPS Equities"), with respect to the Registration Rights Agreement, dated as of November 3, 1999, by and among Plug Power and GE On-Site Power, Inc. (now known as GE MicroGen, Inc. ("GE MicroGen")) (the "Agreement"). RECITALS -------- WHEREAS, GEPS Equities is the current holder of 5,250,000 shares (the "Shares") of common stock, par value $.01 per share, of Plug Power (the "Common Stock"), which Shares were transferred to GEPS Equities by GE MicroGen; WHEREAS, in connection with the transfer of the Shares to GEPS Equities, GE MicroGen assigned to GEPS Equities all of its rights under the Agreement, and GEPS Equities assumed all of the obligations of GE MicroGen under the Agreement; WHEREAS, the parties hereto contemplate entering into a transaction involving, among other things, (i) the restructuring of the Operating Agreement of GE Fuel Cell Systems, L.L.C. ("GEFCS"); (ii) further amendments to the Distributor Agreement dated as of February 2, 1999, as amended, between Plug Power and GEFCS to expand the distribution scope and rights of GEFCS with respect to Plug Power product; and, in connection with these changes, (iii) the issuance to GEPS Equities by Plug Power of certain shares of Common Stock (the "GEFCS Shares"); WHEREAS, GEPS Equities has agreed to purchase from Plug Power 416,666 shares of Common Stock at a purchase price of $12.00 per share (the "Investment Shares"); WHEREAS, Plug Power and GEPS Equities have agreed to amend the Agreement to include the GEFCS Shares and the Investment Shares in the definition of Registrable Securities under the Agreement and to increase the maximum number of shares of Registrable Securities that Plug Power is obligated to register in a Demand Registration by the number of GEFCS Shares and Investment Shares; and WHEREAS, pursuant to Section 10 of the Agreement, the Agreement may be amended only with the written consent of Plug Power and GEPS Equities; NOW, THEREFORE, for and in consideration of the premises, the agreements and the covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Definitions. All capitalized terms used herein without definition ----------- shall have the same meanings ascribed to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: ---------- (a) Section 1 of the Agreement is hereby amended by adding the following two definitions: "'GEFCS Shares' shall have the meaning set forth in the third recital of the First Amendment to Registration Rights Agreement dated as of July 25, 2001." "'Investment Shares' means the 416,666 shares of Common Stock issued to GEPS Equities on July 25, 2001." (b) Section 1 is further amended by deleting the definition of "Registrable Securities" in its entirety and substituting the following in lieu thereof: "'Registrable Securities' means that number of shares of Common Stock equal to the aggregate number of (A) the Shares, (B) the GEFCS Shares, (C) the Investment Shares, and (D) any Common Stock issued or issuable with respect to Registrable Securities by reason of a stock dividend or stock split or in connection with a confirmation of shares, recapitalization, merger, consolidation or other reorganization." (c) Section 2(a)(ii) of the Agreement is hereby amended by deleting that subsection in its entirety and substituting the following in lieu thereof: "(i) Upon receipt of a request pursuant to Section 2(a)(i) above, Plug Power shall give prompt written notice thereof to all other Investors who hold Registrable Securities. Upon receipt of such request, Plug Power shall use its best efforts to promptly effect the registration under the 1933 Act of all shares of Registrable Securities specified in the requests of the Initiating Holders and the written requests (stating the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares) of other holders of shares of Registrable Securities given within 20 days after receipt of such notice from Plug Power, all to the extent requisite to permit the disposition (in accordance with the intended methods of disposition) of the Registrable Securities to be registered; provided that in no event will Plug Power be obligated to (A) register a number of shares of Registrable Securities pursuant to this Section 2(a) in excess of (x) 3,416,666 shares plus the aggregate number of GEFCS Shares (in each case as appropriately adjusted for stock splits, stock dividends, merger recapitalizations and similar transactions) less (y) the aggregate number of shares of Registrable Securities included in Registration Statements pursuant to Section 2(c) below (the "Registration Limit") or (B) effect more than one registration pursuant to this Section 2(a). In the event that the aggregate number of shares of Registrable Securities for which registration is requested in accordance with this Section 2(a) exceeds the Registration Limit, such aggregate number will be reduced to the Registration Limit and will be allocated among the 2 holders requesting registration on a pro rata basis in proportion to the number of Registrable Securities requested to be registered by such holders." (d) Section 2(c) of the Agreement is hereby amended by deleting the second paragraph thereof in its entirety and substituting the following in lieu thereof: "In addition to the Demand Registration provided in Section 2(a) hereof, GEOSP and each Investor shall have the right on three occasions to request inclusion of the Registrable Securities in Registration Statements (excluding for purposes of determining such number of Registration Statements any Disqualified Registration Statement (as defined below)) pursuant to this Section 2(c). The rights of GEOSP and each other holder of Registrable Securities under this Section 2(c) will terminate on the date on which the third Registration Statement (excluding any Disqualified Registration Statement) in which their Registrable Securities have been so included has been declared effective by the SEC. The term "Disqualified Registration Statement" means any Registration Statement with respect to which Registrable Securities are requested to be included pursuant to this Section 2(c) where the aggregate number of shares of Registrable Securities actually included in the Registration Statement is reduced pursuant to a Cutback Registration to a number of shares which is less than the lower of (x) 900,000 or (y) 80% of the aggregate number of shares of Registrable Securities requested to be included in such Registration Statement." 3. Obligations of GEPS Equities. GEPS Equities hereby affirms its ---------------------------- agreement to be bound by all of the obligations of GE MicroGen under the Agreement, as amended by this Amendment. 4. Effect of Amendment. Except as set forth above, the Agreement shall ------------------- continue in full force and effect. 5. Counterparts. This Amendment may be signed in multiple counterparts, ------------ each of which shall be deemed an original or a facsimile or photocopy of an original and all of which, taken together, shall be deemed one and the same Amendment. (Signatures on following page) 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first written above. PLUG POWER, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ GE POWER SYSTEMS EQUITIES, INC. By:____________________________________ Name:__________________________________ Title:_________________________________ 4 EX-10.48 6 dex1048.txt AMENDED AND RESTATED DISTRIBUTOR AGREEMENT Exhibit 10.48 CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 246-2 UNDER THE SECURITIES EXCHANGE ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH AN "*". AMENDED AND RESTATED DISTRIBUTOR AGREEMENT THIS AMENDED AND RESTATED DISTRIBUTOR AGREEMENT is made and entered into as of this 21st day of August, 2001 (herein referred to as the "Effective Date"), between GE FUEL CELL SYSTEMS, L.L.C. ("GEFCS"), a Delaware limited liability company located at 1 River Road, Schenectady, New York 12345 (hereinafter referred to as "DISTRIBUTOR"), and PLUG POWER, INC., a Delaware corporation located at 968 Albany-Shaker Road, Latham, New York 12110 (hereinafter referred to as "PP" or "SUPPLIER"). DISTRIBUTOR and SUPPLIER are referred to individually herein as a "Party", and collectively as the "Parties". W I T N E S S E T H: ------------------- WHEREAS, DISTRIBUTOR and SUPPLIER entered into a distributor agreement dated February 2, 1999 (the "Original Agreement"), in order to set forth, among other items, DISTRIBUTOR's obligation to market, sell, and provide services for "Product" and "Pre-Commercial Units," both of which are defined in the Original Agreement; WHEREAS, GEFCS and other General Electric Company affiliates have entered into various agreements with PP related to the Original Agreement, including, without limitation, the letter agreement from GE Power Systems to PP dated February 3, 1999, the Agreement between PP, GE On-Site Power, Inc., and GEFCS dated August 27, 1999 ("August 27 Agreement"), and amendments to the Original Agreement between PP and GEFCS dated July 31, 2000 ("July 31 Amendment"), and March 27, 2001 the ("March 27 Amendment"); and WHEREAS, DISTRIBUTOR and SUPPLIER now desire to enter into a new Distributor Agreement ("Agreement") that reflects PP's and GEFCS's current understanding with respect to, among other matters, GEFCS's distribution rights and obligations, PP's supply obligations, the manner in which prices for Product (hereinafter defined) supplied to GEFCS are to be established, the Parties' ability to terminate this Agreement and the rights of DISTRIBUTOR and SUPPLIER upon termination of this Agreement; WHEREAS, DISTRIBUTOR and SUPPLIER intend this Agreement to replace and supercede, except to the extent provided herein and except to the extent either party may have liability to the other resulting from conduct, or its consequences, undertaken in good faith, relying on the provisions of those agreements during the periods of their effectiveness, the Original Agreement, the July 31 Amendment and the March 27 Amendment; 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 are 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 Business Plan. The term "Business Plan" shall mean SUPPLIER's ------------- Business Plan, as duly adopted and ratified by SUPPLIER. 1.4 Commercial Period. The term "Commercial Period" shall be defined as ----------------- follows. In the event that (i) one or more Products meets the specifications as outlined in the MGPP, (ii) a "Launch Readiness Demonstration Test" (as such term is defined in the NPD) has been successfully completed with respect to such Product(s), and (iii) the prices to be charged to DISTRIBUTOR for such Product(s) have been established in accordance with Section 3.3 hereof, then SUPPLIER shall deliver a notice to DISTRIBUTOR regarding such developments. Unless DISTRIBUTOR delivers an objection disputing the information in such notice within 15 days of its receipt thereof, the "Commercial Period" with respect to such Product or Products shall be deemed to have commenced on the date that DISTRIBUTOR received such notice. 1.5 Confidential Information. The term "Confidential Information" when ------------------------ used herein shall have the meaning ascribed in Section 7.1 hereof. 1.6 Customer. The term "Customer(s)" when used herein shall mean any purchaser or potential purchaser of the Products or Services from DISTRIBUTOR, directly or indirectly through third parties. 1.7 GE MicroGen. The term "GE MicroGen" or "GEMG" when used herein shall ----------- mean GE MicroGen, Inc., a corporation wholly-owned by General Electric Company. 1.8 GEPS. The term "GEPS" when used herein shall mean the GE Power ---- Systems business of General Electric Company. 1.9 MGPP. A high level, multi-generation product plan which is ---- incorporated as a part of the Business Plan and which includes a table delineating high-level product specification and cost of electricity targets, a schedule reflecting the calendarization of development and launch of products, and a product strategy statement that includes, for each product type, a description of the product's target customers, target applications and value proposition. 1.10 NPD. SUPPLIER's New Product Delivery Process, as amended by SUPPLIER --- from time to time. 1.11 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, of any power output, with (in the case of a hydrocarbon fuel) or without (in the case of hydrogen fuel) a fuel processor, packaged with 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. 1.12 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. 1.13 Product Quality and Safety Assurance Program. The term "Product -------------------------------------------- Quality and Safety Assurance Program" when used herein shall have the meaning ascribed in Section 6.9 of this Agreement. 1.14 Products. The term "Products" when used herein shall have the -------- meaning described in Schedule A-1, attached hereto. ------------ 1.15 Services. The term "Services" when used herein shall mean those -------- services listed on Schedule A-2 of this Agreement, attached hereto. ------------ 1.16 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. 1.17 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 cease to have exclusive 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 and DISTRIBUTOR shall have the rights to market and sell Products and provide Services in the EDC Territory on a non-exclusive basis. ARTICLE II -- APPOINTMENT AND SCOPE 2.1 Appointment. Subject to the terms and conditions and for the Term of ----------- this Agreement, SUPPLIER hereby appoints DISTRIBUTOR, and DISTRIBUTOR accepts such appointment, as SUPPLIER's distributor in the Territory to exclusively market, distribute, sell, lease, and finance (collectively referred to herein as "Sell" or "Sale") Products and the output of Products (e.g., capacity, energy, heat) to Customers for their own use or resale, and to exclusively provide Services to Customers. 2.2 SUPPLIER's Non-Compete. During the term of this Agreement and except ---------------------- as otherwise provided herein, SUPPLIER and its Affiliates shall not, directly or indirectly, Sell Products or PEM Fuel Cell-Powered Generator Sets, components, replacement parts, upgrades, accessories, or improvements that compete with Products, Sell the output of PEM Fuel Cell-Powered Generator Sets that compete with the Products, or provide Services to Customers in the Territory, except that (i) SUPPLIER may, for the sole purpose of Product testing and research and development, deal directly with and provide Product and Services to governmental entities (e.g., State of New York, NYSERDA, U.S. Department of Energy), (ii) SUPPLIER may, for the sole purpose of Product testing and research and development, deal directly with, sell Product to, and provide Services to, quasi-public entities (e.g., Long Island Power Authority, Los Angeles Department of Water and Power) provided that SUPPLIER and DISTRIBUTOR mutually agree to allow SUPPLIER to enter into such transactions and SUPPLIER and DISTRIBUTOR agree on appropriate compensation to GE MicroGen or its Affiliate, and (iii) if the Parties mutually agree that a specific market opportunity (e.g., applications, geographic market) may be better served by a distributor (including SUPPLIER) other than DISTRIBUTOR, the Parties will negotiate in good faith to determine the compensation that should be paid to GE MicroGen or its Affiliate for DISTRIBUTOR forgoing its exclusive distribution rights to that opportunity. 2.3 DISTRIBUTOR's Non-Compete. During the term of this Agreement and ------------------------- except as otherwise provided herein, DISTRIBUTOR will (i) utilize SUPPLIER as its sole supplier of PEM Fuel Cell-Powered Generator Sets, components, replacement parts, upgrades, accessories, and improvements therefor, and (ii) will not, directly or indirectly, Sell PEM Fuel Cell-Powered Generator Sets manufactured by or on behalf of any Person other than Supplier, nor the output thereof, nor any components, replacement parts, upgrades, accessories or improvements therefor. 2.4 Third Parties. DISTRIBUTOR may appoint or contract with third ------------- parties (e.g., agents, distributors, sub-distributors) in connection with the Sale of Products, 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. 2.5 Independent Contractor Status. DISTRIBUTOR is an independent ----------------------------- purchaser and seller of the Products. 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. 2.6 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. 2.7 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 acquired pursuant to this Agreement, including restrictions as to the price at which they elect to resell any such Product. 2.8 Modifications to MGPP. --------------------- (a) DISTRIBUTOR and SUPPLIER have agreed to the MGPP dated August ____ , 2001. Subsequent to the date of this Agreement, DISTRIBUTOR and SUPPLIER shall review the MGPP from time to time as necessary but no less often than every 6 months, and, in the context of such reviews, DISTRIBUTOR and SUPPLIER may consider modifications to the MGPP. Modifications may be made to the MGPP by mutual agreement of DISTRIBUTOR and SUPPLIER and shall result in a new MGPP effective the date of its modification. (b) If at any time after the date of this Agreement, either Party determines that there has occurred a significant deviation from the MGPP when considered in its entirety, then such Party has the right to require that the Parties promptly meet in good faith to discuss the deviation and consider potential remedies therefor and/or any necessary modifications to the MGPP. 2.9 Observance of the Territory. --------------------------- (a) Company shall include in any other agreements with distributors of the Products a provision for the benefit of DISTRIBUTOR that any such distributor shall not sell or deliver Products to any other party outside of the Territory if such distributor has knowledge that the Products to be sold or delivered are to be sold or distributed by or through another party in the Territory. (b) DISTRIBUTOR shall not sell or deliver Products to any other party in the Territory if DISTRIBUTOR has knowledge that the Products to be sold or delivered are to be sold or distributed by or through another party outside of the Territory. ARTICLE III -- TERMS AND CONDITIONS OF SALE OF THE PRODUCTS 3.1 Product Purchase Orders; Terms and Conditions. The terms and --------------------------------------------- conditions for all Product orders shall be subject to all of the provisions set forth in this Article III and in Schedules B and C, 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 as established pursuant to Schedule C, attached hereto. With ---------- respect to each Product and during the Term, unless and until the price for such Product is established pursuant to Schedule C, SUPPLIER and DISTRIBUTOR ---------- shall each be prohibited from Selling such Product, except pursuant to Section 2.2 hereof. (b) The prices charged to DISTRIBUTOR for all Services ordered hereunder shall be the lower of (i) the prices charged by SUPPLIER to any other person or entity for the same such Services in similar quantities during the four months preceding an order, or (ii) SUPPLIER's actual, fully loaded cost to provide such Services; provided, however, in the event ----------------- that any Services are included in the price of a Product 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 and Services shall be expressed in United States Dollars. All payments for Products and Services shall be made in United States Dollars. ARTICLE IV -- TERM AND TERMINATION 4.1 Term. Except as otherwise provided in this Agreement, the term of ---- this Agreement began on February 2, 1999 upon the execution of the Original Agreement and shall continue until December 31, 2014. On or before June 30, 2013, SUPPLIER or DISTRIBUTOR may give notice, in writing, that it will terminate the Agreement on December 31, 2014; otherwise, the Agreement will be automatically renewed for an additional year (e.g., through December 31, 2015). Automatic renewals will occur annually thereafter unless either SUPPLIER or DISTRIBUTOR provides notice, in writing, no less than 180 days prior to the termination date, of its decision to terminate the Agreement at the end of the term. 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 Term by furnishing prior written notice to the other Party, as follows: (a) Termination by SUPPLIER if (i) DISTRIBUTOR does not achieve an annual total dollar value of purchases from SUPPLIER sufficient to make DISTRIBUTOR one of the three largest (based on revenues) wholesalers of PEM Fuel Cell-Powered Generator Sets comparable to the Products (e.g., based on output, cost of energy, fuel type, application) in the Territory, and (ii) SUPPLIER has met all of its obligations as set forth in the Agreement; provided, that no such termination shall be effective unless DISTRIBUTOR shall - -------- fail to remedy any such nonperformance within 120 days after receiving written demand therefor. (b) Termination by DISTRIBUTOR if (i) after the conclusion of the process described in Section 2.8(b) hereof, a mutually agreeable remedy and/or modification to the MGPP has not been agreed to by the Parties, and DISTRIBUTOR determines, in its good faith judgment, that there has been a material deviation from the MGPP when considered in its entirety, or (ii) SUPPLIER fails to provide DISTRIBUTOR with Products which are, in the reasonable judgment of GEMG, materially competitive with alternative PEM Fuel Cell-Powered Generator Sets on the basis of cost of energy, output, fuel flexibility, combined heat and power capability, first cost, lifecycle cost, reliability, emissions and application, when viewed in the aggregate, provided that no such termination -------- shall be effective unless SUPPLIER shall fail to remedy any such nonperformance within 120 days after receiving written demand therefor. (c) Termination by a Party, in the event (i) the other Party should fail to perform any of its material obligations hereunder and such failure results in a material adverse effect to the terminating Party, (ii) the terminating Party provides written notice of such nonperformance to the other Party, and (iii) such other Party shall fail to remedy any such nonperformance within 120 days after receiving written demand therefor. (d) 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. (e) 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 foregoing, (i) SUPPLIER shall fulfill any and all orders for Products 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 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. (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 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 Sell Products 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. 5.2 Purchase Forecast. After the commencement of the Commercial Period ----------------- with respect to such Product or Products, DISTRIBUTOR shall provide SUPPLIER with a 12-month rolling forecast of monthly purchases in accordance with Schedule D. - ---------- 5.3 Expenses. Except as otherwise provided in this Agreement, -------- DISTRIBUTOR shall bear all expenses associated with DISTRIBUTOR's Sale of Products 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 available to SUPPLIER. 5.5 ECAT Units. DISTRIBUTOR will make reasonable efforts to have its ---------- Customers for Early Customer Acceptance Test ("ECAT") 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 ECAT 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 Sale of the Products, 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, as requested by DISTRIBUTOR from time to time. All such information and materials will be furnished in the English language. 6.2 Training. SUPPLIER shall develop Product training -------- programs and materials, provide such training programs and materials to DISTRIBUTOR and its Customers (e.g. sub-distributors), and qualify DISTRIBUTOR's Services personnel to conduct such training, on SUPPLIER's behalf, for DISTRIBUTOR's and its Customers' field personnel (i.e., SUPPLIER will offer "train-the-trainer" programs). SUPPLIER will conduct training for DISTRIBUTOR's Customers for the first 500 of each Product type, as outlined in the MGPP (e.g. SU1, SU2, SU3) purchased by DISTRIBUTOR hereunder. 6.3 Notification of Changes. SUPPLIER shall notify DISTRIBUTOR of any ----------------------- material changes in, or affecting, the Products, including changes to projected delivery dates, regulatory approvals, performance, and SUPPLIER's Product costs, 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. 6.4 Assistance. SUPPLIER shall, if required by DISTRIBUTOR, provide ---------- DISTRIBUTOR with reasonable access to and assistance of its technical support personnel (e.g., to enable DISTRIBUTOR to respond to Customer and Service provider technical questions). Such assistance shall be without charge to DISTRIBUTOR except as may be otherwise mutually agreed. 6.5 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. 6.6 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 refer such persons to DISTRIBUTOR, provided that SUPPLIER has not named any additional distributors to the relevant market area in accordance with this Agreement. 6.7 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 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. To the extent compliance with this Section 6.7 requires SUPPLIER to incur cost specific to a particular market within the Territory, SUPPLIER will incur such cost only if the Parties mutually agree that it is commercially reasonable to do so. Such determination for any Product shall be made by the end of NPD Phase 3.0. 6.8 Production Capability; Minimum Volume. SUPPLIER will use best ------------------------------------- efforts to maintain a minimum annual Product supply necessary to fill all of DISTRIBUTOR'S firm purchase orders in a commercially reasonable delivery period. 6.9 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 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 (the "Product Quality and Safety Assurance Program"). 6.10 Replacement Parts. SUPPLIER shall sell replacement parts to ----------------- DISTRIBUTOR for those prices established pursuant to Schedule C, attached ---------- hereto. SUPPLIER shall maintain a reasonable supply of replacement parts for the Products throughout the design life of the Products, as set forth in SUPPLIER's Product specifications. 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 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 first disclosed to the receiving Party. (c) When one Party no longer desires to use the Confidential Information of the other 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 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 - ---------- 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 ---------- that also bears the trademark of SUPPLIER) each of the Products 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 for display, promotional, or advertising purposes in connection with solicitation of orders for Products from 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 are subject to and protected by United States trademark law, applications for registration of trademarks pertaining to the Products 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 in such country or other jurisdiction without SUPPLIER's trademark affixed, (ii) sell the Products 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 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 7.5 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 as of February 3, 1999 and 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") in existence as of February 3, 1999 and in existence as of the date hereof, or, in either case, thereafter 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, 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 the General Electric Company trademark licensed to DISTRIBUTOR ("DISTRIBUTOR's Trademark") as directed by DISTRIBUTOR for the purpose of co-branding Products sold by DISTRIBUTOR (i.e., affixing DISTRIBUTOR's Trademark to a Product that also bears the trademark of SUPPLIER), and (c) permit DISTRIBUTOR's Sale of co-branded Products. In the event that DISTRIBUTOR elects not to have SUPPLIER affix DISTRIBUTOR's Trademark to the Products, DISTRIBUTOR will affix DISTRIBUTOR's Trademark to the Products. DISTRIBUTOR shall use DISTRIBUTOR's Trademarks for display, promotional, or advertising purposes in connection with solicitation of orders for Products from Customers in the Territory. The only Products 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. 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, or any part thereof (except for DISTRIBUTOR's Trademark, as such trademark was affixed to such Product, 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 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 MGPP 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 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 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, part, device, or process; (b) replace same with a non-infringing equivalent; or (c) remove said Product, 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 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, INC. 968 Albany-Shaker Road Latham, New York 12110 Attn: Mr. Roger Saillant 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 and Articles VII, VIII and IX of this -------- Agreement shall continue and survive the termination hereof. 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 replaces and supercedes all prior agreements and understandings, oral and written, among the Parties hereto with respect to the subject matter hereof, except to the extent provided herein and except to the extent either Party may have liability to the other resulting from conduct, or its consequences, undertaken in good faith, relying on the provisions of the Original Agreement, the July 31 Amendment and the March 27 Amendment during the periods of their effectiveness. 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 both 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 the Parties hereto unless expressly provided herein or in writing and signed by both 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. 9.11 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 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. 9.12 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, Sale, or supplying of the Products or Services. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. SUPPLIER: PLUG POWER, INC. By:_________________________________ Roger Saillant, President & CEO DISTRIBUTOR: GE FUEL CELL SYSTEMS, L.L.C. By:_________________________________ Barry Glickman, President TABLE OF SCHEDULES ------------------ Schedule A-1 - Products ------------ Schedule A-2 - Services ------------ Schedule B - Terms and Conditions of Purchase/Sale ---------- Schedule C - Product Prices ---------- Schedule D - DISTRIBUTOR's Purchase Forecast ---------- Schedule E - SUPPLIER's Insurance ---------- Schedule F - Trademark Registrations ---------- SCHEDULE A-1 ------------ DEFINITION OF PRODUCTS The term "Products" (or "Product") shall mean 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 any power output, for use in any stationary power applications (e.g., base load power, peaking power, emergency back-up power, enhanced power quality, uninterruptible power, cogeneration, trailer-mounted units for temporary stationary power and/or rental power use for residential, commercial, industrial, and/or utility customers). "Products" includes commercial and pre-commercial (i.e., Early Customer Acceptance Test or "ECAT") versions of PEM Fuel Cell-Powered Generator Sets, components, replacement parts, upgrades, accessories, and improvements, manufactured by or on behalf of SUPPLIER. "Products" excludes the following, regardless of their manufacturer: PEM Fuel Cell-Powered Generator Sets and/or components designed for use in propulsion applications (e.g., a fuel cell-powered electric drive motor for automobile propulsion). SCHEDULE A-2 ------------ DEFINITION OF SERVICES The term "Services" shall include the following activities associated with the Products: Installation Permitting Application Engineering Operation Routine Maintenance Unscheduled Maintenance Repair Overhaul (e.g., stack replacement) Upgrade Services Remote Monitoring, Diagnostics, and/or Control (i.e., dispatch) Service Provider, Operator, and Customer Training Customer Service Customer Support Extended Warranty (e.g., sale of, performance of) Long-Term Service Agreement (e.g., sale of, performance of) Replacement Parts (e.g., sale of, installation of) SCHEDULE B ---------- TERMS AND CONDITIONS OF PURCHASE/SALE 1. ACCEPTANCE OF TERMS AND CONDITIONS. (a) DISTRIBUTOR and SUPPLIER agree to be bound by and to comply with all the terms and conditions in and referred to in this Schedule B, as well as those appearing elsewhere in the Agreement ---------- (to which the section references contained herein apply), in any supplements hereto and in all specifications and other documents referred to herein. (b) An order by DISTRIBUTOR or the acceptance of an order by SUPPLIER does not constitute an acceptance by the DISTRIBUTOR or SUPPLIER of any offer to sell, any quotation, or any proposal, other than under the terms and conditions contained in this Agreement. ANY PURCHASE ORDER, ATTEMPTED ACKNOWLEDGMENT OF AN ORDER, OR ANY DOCUMENT CONNECTED THEREWITH, CONTAINING TERMS AND CONDITIONS INCONSISTENT WITH OR IN ADDITION TO THE TERMS AND CONDITIONS IN THIS SCHEDULE B ---------- IS NOT BINDING UPON DISTRIBUTOR OR SUPPLIER UNLESS SPECIFICALLY ACCEPTED BY DISTRIBUTOR AND SUPPLIER IN WRITING. 2. PRICES AND PAYMENTS. SUPPLIER's prices are as established pursuant to Schedule C and shall not be subject to change, except as provided in this - ---------- Agreement and Schedule C. SUPPLIER's total price is FOB SUPPLIER's designated, ---------- continental U.S. manufacturing facility, unless otherwise agreed in writing by SUPPLIER and DISTRIBUTOR. All prices are exclusive of any applicable federal, state, or local sales, use, excise, or other similar taxes, provided, however, that any such taxes to which SUPPLIER becomes subject as a result of manufacturing, having manufactured, or procuring Products shall be borne by SUPPLIER. No extra charges of any kind will be allowed unless specifically agreed to in writing by DISTRIBUTOR. Unless otherwise agreed between SUPPLIER and DISTRIBUTOR, payments shall become due 45 days from receipt of invoice. In the event of delay in payment, DISTRIBUTOR will pay SUPPLIER a late fee equal to the lesser of 1.5%, or the maximum rate allowable by law, of any unpaid balance per month of delay or the maximum rate allowable by law. DISTRIBUTOR must make payment when due, without offset, deduction, or counterclaim, regardless of any claim by DISTRIBUTOR. 3. DELIVERY AND PASSAGE OF TITLE. Time is of the essence of all purchase orders, except that delivery dates will be framed in terms of calendar months and orders will not be deemed late until after the end of such calendar month. If SUPPLIER fails to deliver the Products or to complete any Services furnished hereunder, then DISTRIBUTOR shall be entitled, in addition to the remedies available elsewhere under the Agreement, to assess an amount, as liquidated damages for delay, equal to 1% of the total dollar value of DISTRIBUTOR's order for the first month of delay and 2% of the total dollar value of DISTRIBUTOR's order per subsequent month of delay; provided, (a) that such remedy will be capped at 6%, (b) if the order is more than three months late, then DISTRIBUTOR may cancel the order, and (c) such liquidated damages will only be available to DISTRIBUTOR for those orders to the extent that DISTRIBUTOR has provided such remedy to its Customer. SUPPLIER agrees that such amounts are a reasonable pre-estimate of the damages which DISTRIBUTOR may suffer as a result of such delay, and are to be assessed as liquidated damages and not as a penalty. Where such liquidated damages are available to DISTRIBUTOR, they shall be DISTRIBUTOR's only remedy for SUPPLIER's failure to make timely delivery, other than the remedies for non-performance expressly set forth in this Agreement. Products which will be shipped from within the United States for delivery within the United States shall be delivered FOB SUPPLIER's designated, continental U.S. manufacturing facility, unless otherwise agreed in writing by SUPPLIER and DISTRIBUTOR. Products delivered to DISTRIBUTOR in advance of schedule may be returned to SUPPLIER at SUPPLIER's expense. Title shall pass to DISTRIBUTOR upon delivery to DISTRIBUTOR FOB SUPPLIER's designated, continental U.S. manufacturing facility. 4. CHANGES. The DISTRIBUTOR may at any time, in writing, request changes within the general scope of a purchase order in (a) specifications, where the Products to be furnished are to be specifically manufactured in accordance therewith, (b) method of shipment or packing, or (c) place and time of delivery. Any such change shall be authorized only by an amendment executed by SUPPLIER and DISTRIBUTOR, with such amendment to specify any additional expense, to be borne by DISTRIBUTOR. 5. INSPECTION: (a) All Products shall be subject to inspection and test by DISTRIBUTOR at reasonable times and places upon reasonable notice, including the place of manufacture (which SUPPLIER shall use reasonable efforts to arrange, including providing for such access in SUPPLIER's purchase orders to the manufacturer); (b) If any inspection or test is made on the premises of SUPPLIER, then SUPPLIER, without additional charge, shall provide reasonable facilities and assistance for the safety and convenience of the inspectors in the performance of their duties, provided that the inspectors must execute SUPPLIER's standard confidentiality agreement, must abide by such facility's rules and regulations, and must be covered by insurance for occurrences other than due to SUPPLIER's negligence or willful misconduct; and (c) SUPPLIER shall provide 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 (the "Product Quality and Safety Assurance Program"). Records of all inspection work by SUPPLIER shall be kept complete and available to DISTRIBUTOR during the performance of a purchase order and for three (3) years from the date of such inspection. SUPPLIER will allow representatives of DISTRIBUTOR access to the facilities involved in performing an order for purposes of reviewing the status and progress of production. 6. REJECTION. If any of the Products or Services ordered are found by DISTRIBUTOR within 30 days of delivery to be defective, or otherwise not in conformity with the requirements of the order, including any applicable specifications, SUPPLIER, at its option and sole discretion may: (a) instruct DISTRIBUTOR to return such goods at SUPPLIER's expense; (b) request that DISTRIBUTOR, with DISTRIBUTOR's written approval, take such actions as may be required to cure all defects and/or bring the Products into conformity with all requirements, in which event any reasonable costs and expenses thereby incurred by DISTRIBUTOR, including material and handling charges, will be at SUPPLIER's expense; and (c) re-perform, at SUPPLIER's own expense, any defective portion of the Services performed. DISTRIBUTOR must notify SUPPLIER in writing of such defect or non-conformity within 30 days after delivery of the Products or performance of Services, if applicable, or DISTRIBUTOR's rights under this Section 6 shall be waived. The remedies in this Section 6 shall be DISTRIBUTOR's exclusive remedies under this Section 6. 7. WARRANTIES. (a) SUPPLIER will convey clear title to all Products to DISTRIBUTOR as provided hereunder; (b) SUPPLIER warrants and represents that all Products and Services sold hereunder or pursuant hereto will be free from all material defects in workmanship and material, and that the Products and Services are provided in strict accordance with the specifications as established by mutual agreement of SUPPLIER and DISTRIBUTOR, and (c) Except as provided by this Agreement, any attempt by SUPPLIER to limit, disclaim, or restrict any such warranties or any remedies of DISTRIBUTOR, except as limited by this Agreement, by acknowledgment or otherwise, in accepting or performing an order, shall be null, void and ineffective without DISTRIBUTOR's written consent. For Products or Services purchased under this Agreement, the foregoing warranties shall apply for (a) Products to a period of the lesser of twelve (12) months from the date of installation or eighteen (18) months from delivery to DISTRIBUTOR, and (b) Services to a period twelve (12) months from the date such Services are completed. For any components purchased by SUPPLIER with a warranty in excess of the terms described above, SUPPLIER will make such extended warranty coverage available to DISTRIBUTOR for the relevant components. The foregoing warranties are conditioned upon (a) proper storage, handling, transportation, installation, use, repair, and maintenance, and conformance with any reasonable recommendations of SUPPLIER, and (b) DISTRIBUTOR's promptly notifying SUPPLIER of any defects and, if required, promptly making the Product available for correction. The foregoing warranties are provided at no cost to DISTRIBUTOR or Customers. If any Product or Service fails to meet the foregoing warranties during the warranty periods set forth above, SUPPLIER shall thereupon correct any such failure by either (with such choice to be solely SUPPLIER's) (a) repairing the defective Product, (b) replacing the defective Product, or (c) re-performing the defective portion of the Services performed. All costs associated with such repair, replacement, or re-performance, including any transportation costs, shall be the sole responsibility of SUPPLIER, subject to the limitations set forth in a Service Agreement as mutually agreed to by SUPPLIER and DISTRIBUTOR. The Service Agreement will set forth limits on SUPPLIER's reimbursement to DISTRIBUTOR for labor, transportation, and other Services. The Service Agreement will also set forth a warranty approval process that will include pre-approval of major warranty claims prior to commencement of work, submission of all warranty claims for review and approval by SUPPLIER, and return of all parts subject to warranty claims to SUPPLIER. For commercial Products, SUPPLIER will provide DISTRIBUTOR with the option of purchasing an extension to the initial warranty period. Such additional warranty period will be for a period of at least * years beyond the termination of the initial warranty period, and will cover the entire Product. The price for such warranty extension will be established pursuant to Schedule C, and ---------- made available as an option to DISTRIBUTOR. THE WARRANTIES SET FORTH IN THIS SECTION 7 ARE IN LIEU OF ALL OTHER WARRANTIES, WHETHER ORAL, WRITTEN, EXPRESS, OR IMPLIED, INCLUDING WITHOUT LIMITATION IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. SUPPLIER'S WARRANTY OBLIGATIONS AND DISTRIBUTOR'S REMEDIES UNDER THIS SECTION 7 (EXCEPT AS TO TITLE) ARE SOLELY AND EXCLUSIVELY AS STATED HEREIN. 8. PROPER BUSINESS PRACTICES. SUPPLIER and DISTRIBUTOR shall comply with all laws dealing with improper or illegal payments, gifts or gratuities, and SUPPLIER and DISTRIBUTOR agree not to pay, promise to pay or authorize the payment of any money or anything of value, directly or indirectly to any person for the purpose of illegally or improperly inducing a decision or obtaining or retaining business in connection with a purchase order. 9. COMPLIANCE WITH LAWS. SUPPLIER and DISTRIBUTOR agree to comply with the applicable provisions of any federal, state, provincial or local law or ordinance and all lawful orders, rules, and regulations issued thereunder. No forced or prison labor may be used in manufacturing the Products to be supplied under this Agreement. If forced or prison labor is determined to have been used in the manufacture of the Products supplied hereunder, the DISTRIBUTOR shall have the right to immediately terminate the purchase order and this Agreement without further compensation to the SUPPLIER; and, in such case, DISTRIBUTOR shall return to SUPPLIER any Products for which it has not yet made payment. Provisions applicable to orders for work to be performed, goods to be produced, or services to be rendered within the United States. (a) SUPPLIER shall comply with any provisions, representations or agreements or contractual clauses required thereby to be included or incorporated by reference or operation of law in the contract resulting from acceptance of this order and dealing with: (i) Equal Opportunity (Executive Order 11246 as amended by Executive Orders 113575 and 10286 and applicable regulations promulgated pursuant thereto); (ii) Employment of Veterans (Executive Order 11701 and applicable regulations promulgated pursuant thereto); (iii) Employment of the Handicapped (Executive Order 11758 as amended by Executive Order 11867 and applicable regulations promulgated pursuant thereto); (iv) Employment Discrimination Because of Age (Executive Order 11141 and applicable regulations promulgated pursuant thereto); and (v) Utilization of Disadvantaged and Business Enterprises (Executive Order 11625, Public Law 95-507 and applicable regulations promulgated pursuant thereto). (b) SUPPLIER certifies that with respect to orders which exceed $10,000 it is in compliance with the requirements for non-segregated facilities set forth in 41 CFR Chapter 60-1.8. (c) SUPPLIER warrants that each chemical substance constituting or contained in goods sold or otherwise transferred to DISTRIBUTOR hereunder is on the list of chemical substances compiled and published by the Administrator of the Environmental Protection Administration pursuant to the Toxic Substances Control Act (P.L. 92-573 as amended, and the Federal Hazardous Substances Act (P.L. 92-516) as amended and lawful standards and regulations thereunder. (d) In accepting an order SUPPLIER represents that the goods to be furnished thereunder were or will be produced in compliance with the requirements of the Fair Labor Standards Act of 1938, as amended, including Section 12 (a) and SUPPLIER shall insert a certificate to that effect on all invoices submitted in connection with such order. 10. PACKING, PRESERVATION AND MARKING. Packing, preservation and marking requirements will be in accordance with the specification drawing or as otherwise agreed by SUPPLIER and DISTRIBUTOR. If none are specified, SUPPLIER shall use the commercially accepted practice. 11. LIMITATION OF LIABILITY. In no case will SUPPLIER or DISTRIBUTOR be liable for the other's 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, Sale, or supplying of the Products or Services. The remedies available to DISTRIBUTOR hereunder may be asserted only by DISTRIBUTOR and by no other party. DISTRIBUTOR may not expand warranty coverage to Customers beyond the coverage specifically described herein, except as agreed in writing by SUPPLIER. SCHEDULE C ---------- PRODUCT PRICES - APPLICABLE TO COMPLETE SYSTEMS AND REPLACEMENT PARTS The Parties will mutually agree on prices (including prices for ECAT units, the extended warranty for commercial Product, and Product replacement parts) for the first two production years (including ECAT units) of each Product version (e.g., SU1, SU2, SU3), no later than the completion of SUPPLIER's Design and Verification phase (i.e., NPD Stage 3) for such Product. SUPPLIER's NPD process stages are as set forth in the Business Plan. In the event that the Parties cannot agree on the price for a given Product, both Parties shall be prohibited from Selling such Product. Distributor and Supplier will use general pricing principles as guidelines to be considered in negotiating pricing. These principles will include, among others, the following: . Both GEFCS and Plug Power must be profitable . GEFCS to target X%-X% EBIT for X and beyond . Plug Power to target X% gross margin for X and beyond, reflecting higher capital and R&D investment . Both Parties must see a path toward target profitability . Plug Power to benefit from decreases in manufacturing costs . GEFCS to benefit from increase in sales volumes and reduced selling costs SCHEDULE D ---------- DISTRIBUTOR'S PURCHASE FORECAST Provided that the Commercial Period has commenced prior to such dates: 1. On or before January 1, 2002, DISTRIBUTOR will provide SUPPLIER with a forecast of DISTRIBUTOR's monthly purchases for the 12 months beginning April 1, 2002. Each of the first 3 months of DISTRIBUTOR's forecast (i.e. April 1, 2002 to June 30, 2002) will be a firm order. DISTRIBUTOR's forecast for the final 9 months of the forecast period (i.e. July 1, 2002 to March 31, 2003) is for SUPPLIER's planning purposes only. DISTRIBUTOR, at its sole discretion, may change the monthly purchase forecast in any month in the final 9-month forecast period by any amount. 2. On the first business day of each month beginning February 1, 2002, DISTRIBUTOR will provide SUPPLIER with a 12-month rolling forecast of monthly purchases for the period beginning 3 months hence. Each of the first 3 months of DISTRIBUTOR's forecast will be a firm order. DISTRIBUTOR's forecast for the final 9 months of each forecast period is for SUPPLIER'S planning purposes only. DISTRIBUTOR, at its sole discretion, may change the monthly purchase forecast in any month in the final 9-month forecast period by any amount. In the event that SUPPLIER makes material changes to the Product commercial introduction dates set forth in the MGPP, then the Parties will mutually agree to modify the January 1, 2002 start date for DISTRIBUTOR's purchase forecast. In addition, purchase forecasts shall be modified to the extent Distributor determines necessary on the occasion of each modification to the MGPP. Any Products that DISTRIBUTOR is obligated to purchase, but otherwise unable to sell, may be held in SUPPLIER's inventory at the request of DISTRIBUTOR, provided that SUPPLIER has reasonably available space. Electing to have SUPPLIER hold DISTRIBUTOR's inventory does not relieve DISTRIBUTOR of its obligation to purchase and take delivery of any of DISTRIBUTOR's units held in inventory. DISTRIBUTOR will reimburse SUPPLIER for its fully loaded inventory carrying cost, including warehouse expenses, interest, and any inventory carrying cost charged to SUPPLIER by SUPPLIER's vendors as a direct result of DISTRIBUTOR's request for SUPPLIER to hold inventory. On or before September 1, 2001, SUPPLIER will provide DISTRIBUTOR with a firm price for the monthly inventory carrying charge for 2002. On or before August 1 of each subsequent year, SUPPLIER will provide DISTRIBUTOR with a firm price for the monthly inventory carrying charge for the upcoming year. 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) SCHEDULE F ---------- COPIES OF TRADEMARK REGISTRATIONS (See Attached) EX-10.49 7 dex1049.txt INVESTMENT AGREEMENT DTD JULY 25, 2001 Exhibit 10.49 Execution Copy INVESTMENT AGREEMENT -------------------- THIS INVESTMENT AGREEMENT (this "Agreement") dated as of July 25, 2001, is by and between Plug Power, Inc., a Delaware corporation ("Plug Power"), and GE Power Systems Equities Inc., a Delaware corporation ("GEPS Equities"). W I T N E S S E T H: WHEREAS, GEPS Equities currently owns a total of 5,250,000 shares of the issued and outstanding common stock, par value $.01 per share, of Plug Power (the "Common Stock"); and WHEREAS, the parties hereto contemplate entering into a transaction involving, among other things, (i) the restructuring of the Operating Agreement of GE Fuel Cell Systems, L.L.C. ("GEFCS"); (ii) further amendments to the Distributor Agreement dated as of February 2, 1999, as amended, between Plug Power and GEFCS (the "Amended Distributor Agreement") to expand the distribution scope and rights of GEFCS with respect to Plug Power products; and, in connection with these changes, (iii) the issuance to GEPS Equities by Plug Power of certain shares of Common Stock (the "GEFCS Shares"); WHEREAS, GEPS Equities has agreed to purchase 416,666 shares of Common Stock at a purchase price of $12.00 per share; NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I SALE OF INVESTMENT SHARES SECTION 1.01. Purchase and Sale of Investment Shares. Upon the terms and -------------------------------------- subject to the conditions of this Agreement, GEPS Equities shall purchase from Plug Power, and Plug Power shall sell to GEPS Equities, at the Investment Closing (as hereinafter defined), 416,666 shares of Common Stock (such shares of Common Stock being sold to GEPS Equities hereunder are referred to herein as the "Investment Shares"). SECTION 1.02. Purchase Price. The aggregate purchase price (the "Purchase -------------- Price") for the Investment Shares is Four Million Nine Hundred Ninety-Nine Thousand, Nine Hundred Ninety-Two and No/100 Dollars ($4,999,992), representing a price per Investment Share of $12.00 (the offering price per share as set forth in Plug Power's final prospectus filed as a part of its Registration Statement on Form S-3 (Registration No. 333-62686)). Payment of the Purchase Price shall be made by wire transfer of immediately available federal funds at the closing of the transaction contemplated by this Article I (the "Investment Closing"). ARTICLE II ISSUANCE OF GEFCS SHARES SECTION 2.01. Issuance of the GEFCS Shares. Contemporaneous with the ---------------------------- execution and delivery of the Amended Distributor Agreement by the parties thereto (the "Distributor Agreement Closing"), and upon the terms and subject to the conditions of this Agreement, Plug Power shall issue to GEPS Equities, at the Distributor Agreement Closing, such number of shares of Common Stock as shall be agreed to in writing at or before the Distributor Agreement Closing by the parties hereto (such shares of Common Stock being issued to GEPS Equities hereunder are referred to herein as the "GEFCS Shares," and together with the Investment Shares, the "Shares"). ARTICLE III REPRESENTATIONS AND WARRANTIES OF PLUG POWER Plug Power represents and warrants to GEPS Equities as follows: SECTION 3.01. Authority. Plug Power has all requisite corporate power and --------- authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. All necessary corporate action has been taken by and on behalf of Plug Power with respect to the execution, delivery, and performance by Plug Power of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly and validly authorized, executed and delivered by Plug Power, and, assuming this Agreement constitutes a valid and binding obligation of GEPS Equities, constitutes legal, valid, and binding obligations of Plug Power, enforceable against Plug Power in accordance with its terms. SECTION 3.02. The Shares. The Investment Shares have been duly authorized ---------- and reserved for issuance and, when payment is made therefor in accordance with this Agreement, shall be validly issued, fully paid, and nonassessable and will be free of restrictions on transfers other than restrictions contained in this Agreement and under applicable state and federal securities laws. The GEFCS Shares will be duly authorized and reserved for issuance and, upon issuance, shall be validly issued, fully paid and nonassessible and will be free of restrictions on transfers other than restrictions contained in this Agreement and under applicable state and federal securities laws. SECTION 3.03. SEC Filings. Since becoming subject to the periodic ----------- reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Plug Power has made all required filings pursuant to the rules and regulations promulgated thereunder. All such filings and all filings made under the Securities Act of 1933, as amended (the "Securities Act"), or if such filings were amended, such amended filings, complied in all material respects with the Exchange Act and the Securities Act, as applicable, and the rules and regulations promulgated thereunder, as of the date filed (or amended) with the Securities and Exchange Commission (the "SEC"). Such filings did not and do not contain any untrue statement or omission of material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Plug Power understands and acknowledges that GEPS Equities has relied on such filings in making its investment in the Shares under this Agreement, and agrees that GEPS Equities has the right to rely on such filings without regard to any other diligence on or information about Plug Power that GEPS Equities may have. SECTION 3.04. Financial Statements. As of their respective dates, the -------------------- financial statements of Plug Power, together with related notes and schedules, included in all of its filings made pursuant to the Exchange Act or the Securities Act complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements and related notes and schedules have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the period involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of Plug Power as of the dates thereof and its results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF GEPS EQUITIES GEPS Equities represents and warrants to Plug Power as follows: SECTION 4.01. Accredited Investor. GEPS Equities is an "Accredited ------------------- Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. GEPS Equities has such knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of its investment in Plug 2 Power and is able to bear the economic risk of its investment in the Shares pursuant to the terms of this Agreement, including a complete loss of GEPS Equities' investment in the Shares. SECTION 4.02. Purchase for Investment. GEPS Equities is acquiring or will ----------------------- be acquiring the Shares for investment for its own account, not as a nominee or agent and not with the view to, or for resale in connection with, any distribution thereof. GEPS Equities understands that the Shares have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act that depends upon, among other things, the bona fide nature of the investment intent and the accuracy of GEPS Equities' representations as expressed herein. GEPS Equities has not been formed for the specific purpose of acquiring the Shares. SECTION 4.03. Legend. Each certificate or instrument representing the ------ Shares will be endorsed with the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND UNDER APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER THE ACT, OR UNDER RELEVANT STATE SECURITIES LAWS, IS IN EFFECT AS TO THESE SECURITIES, OR (II) AN EXEMPTION THEREFROM IS AVAILABLE. SECTION 4.04. Authority Relative to this Agreement. GEPS Equities has all ------------------------------------ requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly authorized, executed and delivered by GEPS Equities and, assuming this Agreement constitutes a valid and binding obligation of Plug Power, constitutes a valid and binding obligation of GEPS Equities, enforceable against GEPS Equities in accordance with its terms. ARTICLE V CLOSING SECTION 5.01. Deliveries at the Investment Closing. At the Investment ------------------------------------ Closing, the following shall be delivered: (a) GEPS Equities will deliver or cause to be delivered to Plug Power: (i) the Purchase Price referred to in Section 1.02 hereof and (ii) the First Amendment to Registration Rights Agreement by and among Plug Power and GEPS Equities, in the form of Exhibit A attached hereto (the "First Amendment --------- to Registration Rights Agreement"). (b) Plug Power will deliver or cause to be delivered to GEPS Equities (i) a stock certificate representing all of the Investment Shares and (ii) the First Amendment to Registration Rights Agreement. SECTION 5.02. Deliveries at the Distributor Agreement Closing. At the ----------------------------------------------- Distributor Agreement Closing, the following shall be delivered: (a) GEPS Equities will deliver or cause to be delivered to Plug Power: (i) the Amended Distributor Agreement and (ii) the Amended and Restated Limited Liability Company Agreement of GEFCS (the "Amended LLC Agreement"). (b) Plug Power will deliver or cause to be delivered to GEPS Equities (i) a stock certificate representing all of the GEFCS Shares, (ii) the Amended Distributor Agreement and (iii) the Amended LLC Agreement. 3 SECTION 5.03. Closing. Subject to the satisfaction or waiver of the ------- conditions set forth herein, the Investment Closing shall take place in the offices of Plug Power, 968 Albany-Shaker Road, Latham, New York 12110 at 10:00 a.m. on July 25, 2001 or at such other date, time and place to which the parties shall agree in writing, and the Distributor Agreement Closing shall take place at such date, time and place to which the parties shall agree in writing. The parties acknowledge and agree that upon mutual exchange and receipt of signature pages via facsimile, and upon the deliveries set forth in Section 5.01 and 5.02 hereof, respectively, this Agreement and the transactions hereby contemplated shall be deemed consummated, notwithstanding either party's failure or refusal to deliver original (i.e. non-facsimile) signature pages. ARTICLE VI MISCELLANEOUS SECTION 6.01. Brokerage Fees and Commissions Plug Power hereby represents ------------------------------ and warrants to GEPS Equities, and GEPS Equities hereby represents and warrants to Plug Power, that no person or entity is entitled to receive from Plug Power or GEPS Equities, respectively, any investment banking, brokerage or finder's fee or fees for financial consulting or advisory services in connection with this Agreement or the transactions contemplated hereby, except for J.P. Morgan Securities, Inc. (which will receive a placement fee from Plug Power in connection with the sale of the Investment Shares). SECTION 6.02. Entire Agreement; Amendment. This Agreement, along with the --------------------------- Distributor Agreement, the Amended LLC Agreement and the First Amendment to Registration Rights Agreement, constitute the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, among the parties or any of them with respect to the subject matter hereof. This Agreement may not be amended except by a written agreement signed on behalf of both of the parties hereto. SECTION 6.03. Assignment. This Agreement shall not be assigned by either ---------- party, by operation of law or otherwise, without the prior written consent of the other party; provided, however, that GEPS Equities may assign this Agreement to an affiliate of GEPS Equities without the consent of Plug Power. SECTION 6.04. Validity. The invalidity or unenforceability of any -------- provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, all of which shall remain in full force and effect. SECTION 6.05. Notices. All notices, requests, claims, demands and other ------- communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, by fax (with a copy delivered the next business day), by registered or certified mail (postage prepaid, return receipt requested), or by any overnight courier or other service providing evidence of delivery to the respective parties and their counsel at the following addresses: (a) if to Plug Power, to: Plug Power, Inc. 968 Albany-Shaker Road Latham, New York 12110 Attention: Ana-Maria Galeano Fax: (518) 782-7884 with a copy to: Goodwin Procter LLP Exchange Place Boston, Massachusetts 02109 Attention: Andrew F. Viles, Esq. 4 Fax: (617) 523-1231 (b) if to GEPS Equities, to: C/o General Electric Company 3135 Easton Turnpike Fairfield, Connecticut 06481 Attention: Elizabeth K. Lanier Fax: _______________________ with a copy to: Long Aldridge & Norman LLP 303 Peachtree Street, Suite 5300 Atlanta, Georgia 30308 Attention: Johnathan H. Short, Esq. Fax: (404) 527-4198 or to such other address (or fax number, if applicable) as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above (provided that notice of any change of address or fax number shall be effective only upon receipt thereof). SECTION 6.06. Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the State of Delaware, without regard to such state's principles of conflicts of laws. SECTION 6.07. Descriptive Headings. The descriptive headings herein are -------------------- inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 6.08. Parties in Interest. This Agreement shall be binding upon ------------------- and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 6.09. Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which shall be deemed to be an original or a facsimile or photocopy of an original, but all of which shall constitute one and the same agreement. [SIGNATURES ON NEXT PAGE] 5 IN WITNESS WHEREOF, each of the parties has duly executed this Agreement as of the date first above written. PLUG POWER, INC.: By:_________________________ Name:_______________________ Title:______________________ GE POWER SYSTEMS EQUITIES, INC.: By:_________________________ Name:_______________________ Title:______________________ 6 EXHIBIT A First Amendment to Registration Rights Agreement EX-10.50 8 dex1050.txt OPTION TO PURCHASE COMMON STOCK OF PLUG POWER Exhibit 10.50 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. OPTION TO PURCHASE COMMON STOCK OF PLUG POWER INC. 1. General Provisions. FOR VALUE RECEIVED, on and after the Commencement ------------------ Date, and subject to the terms and conditions herein set forth, Holder (as defined below) is entitled to purchase from Plug Power Inc., a Delaware corporation (the "Company"), at any time before 6:00 p.m. New York time on August 21, 2006 (the "Termination Date"), at a price per share equal to $15.00 (subject to adjustment as provided herein) (the "Exercise Price"), 725,000 shares of the Company's $.01 par value common stock (subject to adjustment as provided herein) (the "Option Stock") upon exercise of this Option pursuant to Section 6 hereof. 2. Definitions. As used in this Option, the following terms shall have ----------- the definitions ascribed to them below: (a) "Affiliate" means any person or entity which controls, is controlled by, or which is under common control with another person or entity. (b) "Change of Control" shall mean any of the following with respect to the Company whether resulting from one transaction of a series of related transactions: (i) the purchase or other acquisition by any person, entity or group of persons, within the meaning of Section 13(d) of 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of either the outstanding common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally; (ii) a reorganization, merger or consolidation of the Company, in each case, with respect to which persons who were shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote generally of the Company or the surviving or resulting entity (as the case may be); (iii) a complete liquidation or dissolution of the Company; or (iv) a sale of all or substantially all of the Company 's assets. (c) "Commencement Date" shall mean August 21, 2001. (d) "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). (e) "Holder" shall mean GE Power Systems Equities, Inc. or any permitted assignee hereunder. (f) "Securities" shall mean the $.01 par value common stock of the Company and any other securities into which or for which any of the securities described in this paragraph may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, or other like transaction. 3. Adjustments and Notices. The Exercise Price and Option Stock shall be ----------------------- subject to adjustment from time to time in accordance with the following provisions: (a) Subdivision, Stock Dividends or Combinations. In case the -------------------------------------------- Company shall at any time split or subdivide the outstanding shares of Securities or shall issue a stock dividend with respect to the Securities resulting in the issuance of additional Securities, the number of shares of Option Stock for which this Option is exercisable immediately prior to such event shall be proportionally increased and the Exercise Price in effect immediately prior to such event shall be proportionately decreased. In case the Company shall at any time combine the outstanding shares of Securities, the number of Shares of Option Stock for which this Option is exercisable immediately prior to such event shall be proportionally decreased and the Exercise Price in effect immediately prior to such event shall be proportionately increased. Such adjustments shall take effect at the close of business on the date of any such subdivision, dividend or combination, as the case may be. (b) Reclassification, Exchange, Substitution, In-Kind Distribution. -------------------------------------------------------------- Upon any reclassification, exchange, substitution, capital reorganization of the Company, or other event that results in a change of the number and/or class of the securities issuable upon exercise of this Option or upon the payment of a dividend in securities or property other than Securities, the Holder shall be entitled to receive, upon exercise of this Option, the number and kind of securities and property that Holder would have received for the Securities if this Option had been exercised immediately before the record date for such reclassification, exchange, substitution, or other event or immediately prior to the record date for such dividend. The Company or its successor shall promptly issue to Holder a new Option for such new securities or other property. The new Option shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 3 including, without limitation, adjustments to the Exercise Price and to the number of securities or property issuable upon exercise of the new Option. The provisions of this Section 3.b shall similarly apply to successive reclassifications, exchanges, substitutions, or other events and successive dividends. (c) Reorganization, Merger etc. -------------------------- (i) If at any time prior to the Termination Date the Company proposes to merge or consolidate the Company into or with another corporation where the Company is not the surviving corporation and in which the holders of Securities would receive consideration other than cash or freely tradeable registered shares of a publicly traded company, the Company will require, as a condition to the consummation of such transaction, that the acquiring company issue to Holder a replacement Option for securities of the acquiring company on terms as nearly 2 identical as possible to those under this Option, and in such event the Option shall terminate upon the issuance of such replacement option. (ii) If at any time prior to the Termination Date the Company proposes to undertake a Change of Control transaction, merge or consolidate the Company into or with another corporation, sell all or substantially all of the assets of the Company, engage in a share exchange or tender offer transaction, or liquidate, dissolve or wind up the Company, whether voluntarily or involuntarily, then the Company shall give the Holder at least twenty (20) days notice of the proposed effective date of the transaction. (d) No Impairment. The Company shall not, by amendment of its ------------- Certificate of Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Option by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Section 3 and in taking all such action as may be necessary or appropriate to protect the Holder's rights under this Section 3 against impairment. (e) Notice. Upon any adjustment of the Exercise Price and any ------ increase or decrease in the number of shares of the Securities purchasable upon the exercise of this Option, then, and in each such case, the Company, as promptly as practicable thereafter, shall give written notice thereof to the Holder of this Option at the address of such Holder as shown on the books of the Company which notice shall state the Exercise Price as adjusted and the increased or decreased number of shares purchasable upon the exercise of this Option, setting forth in reasonable detail the method of calculation of each. (f) Fractional Shares. No fractional shares shall be issuable upon ----------------- exercise of the Option and the number of shares to be issued shall be rounded down to the nearest whole share. If a fractional share interest arises upon any exercise of the Option, the Company shall eliminate such fractional share interest by paying the Holder an amount computed by multiplying the fractional interest by the fair market value of a full share. 4. No Shareholder Rights. This Option, by itself, as distinguished from --------------------- any shares of Option Stock purchased hereunder, shall not entitle its Holder to any of the rights of a shareholder of the Company. 5. Reservation of Stock; Taxes. --------------------------- (a) The Company will reserve from its authorized and unissued Securities a sufficient number of shares to provide for the issuance of Option Stock upon the exercise of this Option. Issuance of this Option shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Option Stock issuable upon the exercise of this Option. (b) The Company covenants that all shares of Option Stock that may be issued upon the exercise of rights represented by this Option will, upon exercise, be fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue (other than taxes in respect of any transfer occurring contemporaneously with such issue). The Company shall 3 pay any and all United States federal, state and local taxes and other charges that may be payable in connection with the preparation, issuance and delivery of the certificates representing shares of Option Stock issued hereunder. Notwithstanding the foregoing, the Company shall not be responsible for the payment of any taxes on the income of Holder. 6. Exercise of Option. This Option may be exercised in whole or in part ------------------ by the Holder, at any time after the Commencement Date, by the surrender of this Option, together with the Notice of Exercise in the form attached hereto as Exhibit A, duly completed and delivered to the principal office of the Company, accompanied by payment in full of the Exercise Price in cash or by check with respect to the shares of Option Stock being purchased. This Option shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Option Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Option Stock issuable upon such exercise, together with a replacement Option in the event this Option is exercised for less than all of the Option Stock. 7. Legend. Upon exercise of this Option prior to the registration ------ pursuant to the Securities Act of 1933, as amended (the "1933 Act") of the Option Stock underlying the Option, all shares of Option Stock shall bear an appropriate legend noting that such shares are restricted securities. 8. Transfer of Option. Neither this Option nor the related Option Stock ------------------ may be transferred except (i) pursuant to an effective registration statement under the 1933 Act, or (ii) pursuant to any available exemption from registration. 9. Representations and Warranties of the Company. The Company represents --------------------------------------------- and warrants to the Holder as follows: (a) Authority. The Company has all requisite corporate power and --------- authority to grant this Option, to perform its obligations hereunder and to consummate the transactions contemplated hereby. All necessary corporate action has been taken by and on behalf of the Company with respect to the execution, delivery, and performance by the Company of this Option and the consummation of the transactions contemplated hereby. This Option has been duly and validly authorized, executed and delivered by the Company, and, assuming this Option constitutes a valid and binding obligation of the Holder, constitutes legal, valid, and binding obligations of the Company, enforceable against the Company in accordance with its terms. (b) SEC Filings. Since becoming subject to the periodic reporting ----------- requirements of the Exchange Act, the Company has made all required filings pursuant to the rules and regulations promulgated thereunder. All such filings and all filings made under the 1933 Act or if such filings were amended, such amended filings, complied in all material respects with the Exchange Act and the 1933 Act, as applicable, and the rules and regulations promulgated thereunder, as of the date filed (or amended) with the Securities and Exchange Commission (the "SEC"). Such filings did not and do not contain any untrue statement or 4 omission of material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company understands and acknowledges that the Holder has relied on such filings in making its investment in the Option under this Agreement, and agrees that the Holder has the right to rely on such filings without regard to any other diligence on or information about the Company that the Holder may have. (c) Financial Statements. As of their respective dates, the financial -------------------- statements of the Company, together with related notes and schedules, included in all of its filings made pursuant to the Exchange Act or the 1933 Act complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements and related notes and schedules have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the period involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and its results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). 10. Lost, Stolen, Mutilated or Destroyed Option. Upon receipt of evidence ------------------------------------------- reasonably satisfactory to the Company of the loss, theft, mutilation or destruction of this Option, and in case of loss, theft or destruction, upon the agreement of the Holder to indemnify the Company, or in the case of mutilation, upon surrender and cancellation of this Option, the Company shall issue a new Option of like denomination and tenor as the Option so lost, stolen, mutilated or destroyed. Any such new Option shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Option shall be at any time enforceable by anyone. 11. Registration Rights. The Option Stock shall be deemed to be "GEFCS ------------------- Shares" referred to in, and accordingly defined as "Registrable Securities" for all purposes of, that certain Registration Rights Agreement dated as of November 3, 1999, by and among the Company and GE On-Site Power, Inc. (now known as GE MicroGen, Inc., whose rights and obligations thereunder have been assigned to and assumed by the Holder), as amended by the First Amendment to Registration Rights Agreement dated July, 25, 2001, and shall be the subject of all rights for registration for the resale of the GEFCS Shares described in that agreement. 12. Applicable Law. This Option shall be governed by and construed in -------------- accordance with the internal laws of the State of Delaware, without regard to such state's principles of conflicts of laws. 13. Successors and Assigns. Subject to the provisions hereof, this Option ---------------------- and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of Company and the successors and assigns of Holder. The provisions of this Option are intended to be for the benefit of all Holders from time to time of this Option and shall be enforceable by any such Holder. 5 14. Miscellaneous. The headings in this Option are for purposes of ------------- convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Option nor any term hereof may be changed or waived orally, but only by an instrument in writing signed by the Company and the Holder of this Option. All notices and other communications from the Company to the Holder of this Option shall be delivered personally or mailed by first class mail, postage prepaid, to the address furnished to the Company in writing by the last Holder of this Option who shall have furnished an address to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. ISSUED: August ____, 2001 PLUG POWER INC. By:__________________________ Name:________________________ Its:_________________________ 6 NOTICE OF EXERCISE TO: PLUG POWER INC. 1. The undersigned hereby elects to purchase ________________________ shares of the Option Stock of PLUG POWER INC. pursuant to the terms of the attached Option number _______, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of Option Stock in the name of the undersigned or in such other name as is specified below: ____________________________________ (Name) ____________________________________ (Address) ____________________________ ______________________________ (Date) (Name of Option Holder) By:___________________________ Title:________________________ EX-10.51 9 dex1051.txt SERVICES AGREEMENT DTD MARCH 17,2000 Exhibit 10.51 CONFIDENTIAL INFORMATION HAS BEEN OMITTED PURSUANT TO RULE 246-2 UNDER THE SECURITIES EXCHANGE ACT AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED INFORMATION HAVE BEEN INDICATED WITH AN "*". SERVICES AGREEMENT THIS SERVICES AGREEMENT (the "Agreement") made this 17 day of March, 2000, between Plug Power Inc., a Delaware corporation, having its principal place of business at 968 Albany-Shaker Road, Latham, New York 12110 (hereinafter "Plug Power") and General Electric Company, a New York corporation, having offices at 1 River Road, Schenectady, New York 12345 (hereinafter "GE"). WITNESSETH: WHEREAS, Plug Power desires to have GE perform, and GE desires to perform, certain technical services and support as is more fully defined in the Statement of Work attached hereto as Exhibit 3. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree to this Agreement. 1. Definitions. ----------- (a) "Agreement" shall mean this agreement, and any subsequent agreement amendment executed in accordance with the Change Order Protocol attached hereto as Exhibit 1. (b) "Change Order" shall have the meaning ascribed thereto in Exhibit 1. (c) "Funding Schedule" shall have the meaning ascribed thereto in Exhibit 2. (d) "Statement of Work" shall mean the statement of the work to be performed by GE in connection with the Agreement, which statement is attached to this Agreement as Exhibit 3. 2. Change Orders; Additional Services and/or Funding. ------------------------------------------------- (a) The Statement of Work and/or Funding Schedule may be modified or altered prior to completion only with a Change Order executed in accordance with the Change Order Protocol attached hereto as Exhibit 1. (b) In addition to any such additional services and/or funding effected by any such Change Order, GE shall, if and to the extent requested by Plug Power and upon mutual agreement by the parties, provide training and technical support services in respect of any deliverables produced by GE for, or delivered by GE to, Plug Power pursuant to this Agreement. (c) The standard terms and conditions attached hereto as Exhibit 4 shall apply to any Page 1 services performed by GE pursuant to this Agreement. 3. Confidential Information. ------------------------ (a) As used herein, the term "Confidential Information" of a party shall mean any information or intellectual property of a party, whether presented in writing or in any other tangible medium or presented verbally, that is of a secret, confidential or non-public nature including, but not limited to (i) matters of a technical nature (including inventions, data, concepts, devices, software and documentation, secret processes or machines, know-how and related improvements thereon), (ii) matters of a business nature (such as information about contracts, profits, product pricing, promotional methods, markets, sales, product availability, customers, suppliers), (iii) plans for further development, and (iv) other information or intellectual property proprietary to the party and not generally available to the public. All Confidential Information shall be clearly marked by the disclosing party as "Confidential" or "Proprietary". (b) Each party shall treat as confidential all Confidential Information of the other party, shall not use such Confidential Information other than as required to carry out its duties and exercise its rights under this Agreement, and shall not disclose such Confidential Information to any third party. Notwithstanding the previous sentence, a party may disclose Confidential Information of the other party to its employees, agents and subcontractors who require such information in order for such party to carry out its duties and exercise its rights under this Agreement; provided that such employee, agent or -------- subcontractor has first entered into a confidentiality agreement containing substantially the same obligations and restrictions as this Section 3. Without limiting the foregoing, each of the parties shall use reasonable care to prevent the disclosure or misuse of Confidential Information disclosed to it by the other party under this Agreement. (c) Notwithstanding the above, neither party shall have liability to the other with regard to any Confidential Information of the other which: (i) was in the public domain at the time it was disclosed or has entered the public domain through no fault of the receiver; (ii) was known to the receiver, without restriction, at the time of disclosure as shown by the files of the receiver in existence at time of disclosure; (iii) was independently developed by the receiver without any use of the Confidential Information of the other party and by employees, agents and subcontractors of the receiver who have not had access to the Confidential Information of the other party; or (iv) is disclosed pursuant to the order or requirement of a court, administrative agency or other governmental body, provided -------- that the receiver shall have Page 2 provided prompt notice thereof to the discloser to enable the discloser to seek a protective order or otherwise prevent disclosure. (d) Plug Power's Confidential Information is and shall remain the property of Plug Power, and shall only be used by GE for the limited purpose of rendering services directly related to the Work. GE acknowledges that, by the disclosure of its Confidential Information, Plug Power has not granted to it any express or implied right to Plug Power's patents, copyrights, trademarks, trade secrets or other Confidential Information for any other purpose whatsoever. (e) Within 10 days after the acceptance date with respect to, or the effective date of cancellation of, any Agreement, GE shall return to Plug Power all of Plug Power's Confidential Information then in tangible form and then held by it or under its control and any part or portion thereof, including all copies or other reproductions thereof. 4. Intellectual Property Rights. ---------------------------- (a) Definitions ----------- 1. "Technical Information" means all technical information, know- how, manufacturing techniques, engineering and other data, drawings, material and process specifications, and other information, whether patented or unpatented, whether in written, oral or other form, relating to fuel cells. 2. "Patents" means all patents (including patents of importation, patents of confirmation, patents of improvement, patents and certificates of addition and utility model patents, as well as divisions, reissues, continuations, continuations-in-part, reexamination certificates, renewals and extensions of any of the foregoing) and applications therefor and patents which may issue on such applications, covering inventions with respect to which the first application for patent anywhere was filed prior to the date of expiration or any prior termination of this Agreement. 3. "Technology" means Technical Information and Patents. 4. "Background" means, with respect to Patents, Technical Information and Technology, that which a party has acquired or acquires outside of this Agreement. 5. "Foreground" means, with respect to Patents, Technical Information and Technology, that which is created pursuant to this Agreement. Page 3 (b) Ownership and Use Rights in Technology -------------------------------------- 1. Each party shall retain ownership of its Background Technology, and neither party shall obtain, either directly, by implication, estoppel or otherwise, rights under any Background Technology of the other party except as explicitly set forth herein. 2. In the event an invention is conceived solely by employees of GE in the course of performance of tasks under this Agreement, such inventions and any resulting Foreground Technology shall be owned by GE. GE shall have the sole right to apply for such Foreground Patents resulting from any such inventions, which shall be at GE's sole expense and option. 3. Inventions conceived jointly by employees of both parties in the course of performance of tasks under this Agreement and any resulting Foreground Technology arising from such joint inventions shall be the joint property of GE and Plug Power and, except as limited by this Agreement, each shall be free to utilize the same and to license third parties of its own choosing thereunder without consultation with the other party, and without an accounting or sharing of licensing income thereby received, if any. The parties agree to select mutually acceptable patent attorneys to file and prosecute patent applications based on such joint patentable inventions and to share equally the cost of such services and expenses reasonably incurred by such attorneys, including the payment of patent maintenance fees, and without further compensation, to give such attorneys all reasonable assistance, to cause all necessary papers to be executed and do all things that may reasonably be required to obtain and maintain patents on such joint inventions. Each party shall be kept fully advised of the status of the prosecution of each such patent application and shall be consulted in advance with respect to the advisability of continuing said prosecution in the event of any final rejection, appeal, interference, or the like, and each party may, at any time by ten (10) days' notice to the other party, elect not to continue to pay its share of such services and expenses incurred after the date of said election with respect to any such patent or patent application; provided, however, that the party making such an election shall, at the time of so notifying the other party, immediately assign to the other party all rights to the patent or patent application with respect to which the election is being made. Neither party hereto shall be obligated to make any payments for or on account of proceedings before any court or any other tribunal or agency in connection with the maintenance or assertion of any patent based on joint inventions. 4. In the event an invention is conceived solely by employees of Plug Power in the course of performance of tasks under this Agreement, any resulting Foreground Technology shall be owned by Plug Power. Plug Power shall Page 4 have the sole right to apply for Foreground Patents resulting from any such inventions, which shall be at Plug Power's sole expense and option. 5. GE agrees to grant and hereby grants to Plug Power a royalty-free, irrevocable, world-wide license to make, have made, use, sell, offer for sale or otherwise dispose of fuel cells under the Foreground Technology described in Paragraphs 4(b)2 and 4(b)3. The foregoing grant consists of a right and license to use such Foreground Technical Information and a license under such Foreground Patents which cover the Technical Information. (i) In the case of fuel cell systems (i.e., fuel cell stacks, fuel reformers, power electronic systems and balance of plant (e.g., auxiliaries such as blowers, fans, pipes)) employing proton exchange membrane (PEM) technology (includes membranes that transport protons, including polymer electrolyte membranes and acid doped polymer membranes), and subject to Paragraph 4(b)7, the license rights shall be exclusive. (ii) In the case of fuel cells other than those employing PEM technology, the license rights shall be non- exclusive. 6. Prior to the parties mutually agreeing to start work in any specific area (the "Project"), GE agrees to notify Plug Power of any GE Background Technology administered by the GE Power Systems business ("GEPS") or GE Corporate Research and Development ("GE-CRD") where it appears to GE that the use or practice of the anticipated Project deliverables by Plug Power is likely to infringe such GE Background Technology, and such infringement cannot be reasonably avoided in the field of fuel cell systems employing PEM technology. Prior to the start of any Project, GE will either: (i) offer Plug Power a non-exclusive license to use such GE Background Technology as is necessary for Plug Power to practice the Foreground Technology in the field of fuel cell systems employing PEM technology, such license to be under terms, including compensation (if any), to be negotiated in good faith; or (ii) negotiate with Plug Power to change the direction of the Project so as to avoid infringement. If GE fails to notify Plug Power of any relevant blocking GE Background Technology administered by GEPS or GE-CRD, as stated herein, then GE waives any future right to assert such GEPS or GE-CRD administered Background Technology against Plug Power in the field of fuel cell systems employing PEM technology. Page 5 7. The license grant set forth in Paragraph 4(b)5(i) hereof shall immediately become non-exclusive upon notice from GE: (i) in the event that Plug Power enters into a product distribution and/or service relationship with the following GE Power Systems' competitors: * provided, however, that nothing herein shall prevent Plug Power from using such competitors as product suppliers or product manufacturers; or (ii) in the event Plug Power becomes a subject of any voluntary or involuntary bankruptcy, settlement, receivership, reorganization or other insolvency proceedings, unless such proceedings are terminated within six months from their original opening. 8. In the event that Plug Power desires to sell that portion of its business to which the license grants of Paragraph 4(b)5 relate or to sell a portfolio of assets that includes the license grants of Paragraph 4(b)5, Plug Power will provide GE with an exclusive 30-day negotiating period to purchase same and, after such 30-day period, Plug Power may not enter into such a transaction with any other party upon terms less favorable than those previously offered by GE. (c) Miscellaneous ------------- 1. Nothing in this Agreement shall be construed as: (i) a warranty or representation by GE as to the validity or scope of any GE Background or Foreground Patent; or (ii) a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted in this Agreement is or will be free from infringement of patents of third parties; or (iii) a requirement that GE shall file any patent application, secure any patent or maintain any patent in force; or (iv) an obligation to bring or prosecute actions or suits against third parties for infringement. 2. GE makes no representations, extends no warranties of any kind, either express or implied, and assumes no responsibilities whatever with respect to the adequacy, accuracy, or utility of any Technical Information provided to Plug Power under this Agreement; and GE assumes no responsibilities whatever with respect to use by Plug Power or any third party of any Technical Information provided to Plug Power under this Agreement, or with respect to any use, sale or other disposition by Plug Power of any products incorporating or made by use of any (i) inventions licensed under this Page 6 Agreement, or (ii) Technical Information, if any, obtained by Plug Power under this Agreement 3. Plug Power agrees to indemnify, hold harmless and save from liability GE, including its officers, employees and agents from and against all claims, demands and actions arising out of or related to the commercial use by Plug Power of Technology licensed to Plug Power under Paragraphs 4(b)5 and 4(b)6 of this Agreement. 5. Payment and Reporting Terms --------------------------- (a) The cost reimbursement for services to be rendered by GE shall not exceed $2,801,079 during the first six month period ending on June 31, 2000. Additional funding for the remainder of calendar year 2000 will be authorized on a quarterly basis prior to the beginning of third quarter by amendment to this Agreement in accordance with the Funding Schedule. In no event will the total funding for calendar year 2000 exceed $4,072,375 unless otherwise agreed to by the parties pursuant to the Change Order Protocol. (b) GE shall provide monthly reports to Plug Power of expenditures incurred under this Agreement. The monthly reports shall be provided within five working days following GE's monthly closing. Such monthly reports shall be broken down in accordance with the work task categories as set forth in the Statement of Work and shall include actual labor hour rates for each listed category (direct salary plus 45% for GE Power Systems, actual internal GE transfer rates for other GE divisions), plus actual expenditures without any markups for materials, supplies, travel, or other direct costs. (c) Invoices for actual expenditures incurred and paid shall be submitted to the Plug Power not more often than on a monthly basis. Payments shall be made within 30 days after receipt of invoice. 6. Term and Termination. -------------------- (a) This Agreement shall be effective as of the day and year first written above and shall continue in full force and effect until March 31, 2001, unless otherwise extended by mutual written agreement of the parties. (b) The provisions of Sections 3 and 4 of this Agreement shall survive any expiration or termination thereof. (b) Plug Power shall have the right to terminate this Agreement upon 15 days prior written notice to GE. [NEXT PAGE IS SIGNATURE PAGE] Page 7 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement the day and year first above written. PLUG POWER INC. GENERAL ELECTRIC COMPANY By:__________________________ By:_______________________ Title:_______________________ Title:_ Manager, New Products & Processes General Electric Company Page 8 Exhibit 1 --------- Change Order Protocol --------------------- 1. Plug Power may, upon mutual agreement of the parties, alter the description of the Work and Deliverables required by any Agreement on notice to GE (any such notice, a "Change Order"). 2. Upon receipt of a Change Order request, Plug Power shall prepare and submit the following to GE: revised Statement of Work, delivery schedule, and where appropriate, payment schedule. GE shall prepare and submit to Plug Power an estimate of the increased or decreased costs, and delays or time savings associated with the Change Order. 3. If Plug Power then wishes GE to proceed with the Change Order, Plug Power shall prepare a revised Statement of Work and delivery schedule and any such payment schedule for execution by the parties. The revised Statement of Work shall become effective upon execution by the parties. 4. Plug Power and GE shall exercise its best efforts to minimize increased costs and delays, if any, associated with a Change Order. Page 9 Exhibit 2 --------- Funding Schedule ---------------- Work for calendar year 2000 in accordance with this Agreement will be authorized on a quarterly basis prior to the beginning of each quarter. This Funding Schedule specifies the funding planned to be authorized for each quarter and the date by which funding will be authorized by Change Order Protocol . Quarter Funding to be authorized Target date for authorization - ------------------------------------------------------------------------------- 1 (Jan-Mar) $1,447,119 N/A 2 (Apr-Jun) $1,353,960 March 17, 2000 3 (Jul-Sep) $ 776,460 June 16, 2000 4 (Oct-Dec) $ 494,835 September 15, 1999 Page 10 Exhibit 3 --------- Statement of Work ----------------- Attached Page 11 Exhibit 4 --------- Standard Terms and Conditions ----------------------------- Attached Page 12 EX-10.52 10 dex1052.txt AMENDMENT DTD SEPT 18,2000 BETWEEN PLUG AND GE Exhibit 10.52 AMENDMENT TO SERVICES AGREEMENT THIS AMENDMENT ("Amendment") to the March 17, 2000 Services Agreement between Plug Power Inc. and General Electric Company is made and entered into as of this 18th day of September, 2000, by and between: (1) PLUG POWER INC. (the "Buyer"), a corporation organized and existing under the laws of Delaware and having a place of business at 968 Albany-Shaker Road, Latham, New York, 12110, USA and (2) GENERAL ELECTRIC COMPANY (the "Seller"), a corporation organized and existing under the laws of the State of New York, U.S.A., having offices at 1 River Road, Schenectady, New York, 12345, USA. (Buyer and Seller are referred to individually herein as a "Party" and collectively as the "Parties"). WHEREAS, Buyer and Seller entered into a Services Agreement dated March 17, 2000 ("March 17 Agreement"), under which Seller agreed to perform certain technical services and support for Buyer; WHEREAS, Seller is engaged in the business of procuring and delivering various kinds of fuel cell equipment, parts and components; WHEREAS, Buyer desires that Seller act as its agent in procuring certain fuel cell equipment, parts, and components; WHEREAS, Buyer desires that Seller provide training services to certain of Buyer's employees regarding procurement services and Seller desires to sell certain services subject to the terms and conditions of this Amendment; WHEREAS, Buyer and Seller desire that the costs for services provided hereunder be included in the work task category labeled "Sourcing/Supplier Quality and Manufacturing" in the Statement of Work in the March 17 Agreement; WHEREAS, Buyer and Seller desire to amend the March 17 Agreement to reflect these changes; WHEREAS, the March 17 Agreement provides that the Statement of Work and/or Funding Schedule may be modified or altered prior to completion only with a Change Order (defined therein); and WHEREAS, Buyer and Seller agree that this Amendment shall replace any such need for a Change Order with respect to the subject matter hereof; 1 NOW, THEREFORE, in consideration of the mutual promises stated herein, the parties agree as follows: 1. Scope of Services Procurement/Supplier Quality Services. Seller shall use its negotiating - ------------------------------------- experience and ability to act as Buyer's agent, subject to Buyer's direction, in identifying suppliers who can provide fuel cell equipment, parts, and components, and other items as needed, to Buyer. Upon the identification of such suppliers, Supplier shall notify Buyer, and it shall be Buyer's responsibility to place purchase orders, if any, for such material. If requested by Buyer, to the extent possible, Seller will include Buyer's volume requests with those of Seller when procuring material in order to obtain volume discounts. In such cases, Seller will disclose to the third party supplier that the request includes quantities of Buyer. Training Services. During the term of the Amendment, Seller shall provide - ----------------- personnel to train up to six (6) Buyer employees at offices designated by Seller in Schenectady, New York in the performance of procurement services. Seller shall not be obligated to provide training to more than two (2) employees of Buyer during any given period. 2. Price 2.1 In consideration of the supply of the foregoing Scope of Services, Buyer shall pay to Seller: . The "Procurement Services Price" at the rates and fees set forth below; . The "Training Services Price" in the amounts stated below; The "Contract Price" shall mean the total of the Primary Services Price and the Training Price. ---------------------------------------------------------------------------- Price ---------------------------------------------------------------------------- Training Price $1650 - Per Person Per Week ---------------------------------------------------------------------------- Procurement Services Buyer - $75,500 Per Person Per Year Price SQE - $112,500 - Per Person Per Year Contract Specialist - $112,500 Per Person Per Year ---------------------------------------------------------------------------- 2 Invoicing for travel expenses including air travel, car rental, lodging, meals and miscellaneous out-of-pocket expenses will be billed at cost plus a $50 administration fee. 2.2 The Contract Price shall be adjusted as necessary to take account of changes, options or other adjustments provided for in this Amendment. 2.3 Payments made by Buyer to Seller under this Amendment shall be included in the "Sourcing/Supplier Quality and Manufacturing" work task category in the Statement of Work set forth in the March 17 Agreement. 3. Terms of Payment 3.1 The Contract Price shall be paid by Buyer to Seller at the times and in the manner set forth in the March 17 Agreement. For purchases made by Seller on behalf of Buyer, Buyer shall reimburse Seller within ten days of purchase or as mutually agreed by Buyer and Seller. 4. Excusable Delays 4.1 Seller shall not have any liability or be considered to be in breach or default of its obligations under the Amendment to the extent that performance of such obligations is delayed or prevented, directly or indirectly, due to: (i) causes beyond its reasonable control; or (ii) acts of God, act (or failures to act) of governmental authorities, fires, severe weather conditions, earthquakes, strikes or other labor disturbances, floods, war (declared or undeclared), epidemics, civil unrest, riot, delays in transportation, or car shortages; or (iii) acts (or omissions) of Buyer including failure to promptly: (a) provide Seller with information and approvals necessary to permit Seller to proceed with work immediately and without interruption, (b) comply with the terms of payment, or (c) provide Seller with such evidence as Seller may request that any export or import license or permit has been issued (if such is the responsibility of Buyer), or (iv) inability on account of causes beyond the reasonable control of Seller to obtain necessary materials, necessary components or services. Seller shall notify Buyer of any such delay. The date of delivery or of performance shall be extended for a period equal to the time lost by reason of delay, plus such additional time as may be reasonably necessary to overcome the effect of such excusable delay. Seller shall notify Buyer, as soon as practicable, of the Service resumption date. If Seller is delayed by acts or omissions of Buyer, or by the prerequisite work of Buyer's other contractors or suppliers, Seller shall also be entitled to an equitable price adjustment. 3 4.2 If delay excused by this Article extends for more than one hundred and twenty (120) days and the parties have not agreed upon a revised basis for continuing the work at the end of the delay, including adjustment of the price, then either party (except where delay is caused by Buyer, in which event only Seller), upon thirty (30) days' written notice, may terminate the Amendment with respect to any uncompleted Services, whereupon Buyer shall promptly pay Seller's termination charges determined in accordance with Seller's standard accounting practices upon submission of Seller's invoices therefor. 5. Compliance With Laws, Codes And Standards Notwithstanding any other provisions herein, Buyer shall be responsible for the timely obtaining of any required authorization, such as an export license, import license, foreign exchange permit, work permit or any other governmental authorization, even though any such authorization may be applied for by Seller. Buyer and Seller shall provide each other reasonable assistance in obtaining required authorizations. Seller shall not be liable if any authorization is delayed, denied, revoked, restricted or not renewed and Buyer shall not be relieved thereby of its obligations to pay Seller for the work. 6. Limitation Of Liability 6.1 The total liability of Seller, on all claims of any kind, whether in contract, warranty, indemnity, tort (including negligence), strict liability, or otherwise, arising out of the performance or breach of the Amendment or use of any equipment shall not exceed the greater of US $10,000 or the Contract Price of a fixed price contract or the price of work completed for a time and materials or cost plus contract. All liability under the Amendment shall terminate upon the expiration of the Amendment. 6.2 In no event, whether as a result of breach of contract, warranty, tort (including negligence), strict liability, indemnity, or otherwise, shall Seller or its subcontractors or suppliers be liable for loss of profit or revenues, loss of use of the equipment or any associated equipment, cost of capital, cost of substitute equipment, facilities, services or replacement power, downtime costs, claims of Buyer's customers for such damages, or for any special, consequential, incidental, indirect or exemplary damages and Buyer shall indemnify Seller against such claims of Buyer's customers. 6.3 If Seller furnishes Buyer with advice or assistance concerning any products, systems or work which is not required pursuant to the Amendment, the furnishing of such advice or assistance will not subject Seller to any liability, whether in contract, indemnity, warranty, tort (including negligence), strict liability or otherwise. 4 6.4 For the purposes of this Article 6, the term "Seller" shall mean Seller, its affiliates, subcontractors and suppliers of any tier, and their respective agents and employees, whether individually or collectively. 6.5 The provisions of this Article 6 shall prevail over any conflicting or inconsistent provisions contained in any of the documents comprising the Amendment, except to the extent that such provisions further restrict Seller's liability. 7. Relationship of Parties 7.1 Seller is an independent contractor under this Amendment, as is each affiliate, agent or employee of Seller. Seller acknowledges that, except as authorized by Buyer on a case-by-case basis, Seller does not have the authority to obligate Buyer in any manner whatsoever. 7.2 Buyer's personnel shall remain employees of and shall be supervised solely by Buyer, and shall not be employees of Seller. Buyer shall not express or imply to any such personnel that they have any rights as employees of Seller and Buyer shall indemnify Seller against any costs, damages, and liabilities, including attorney fees that Seller may incur as a result of claims, suits, or actions by any such personnel, provided that such claims, suits, or actions not result from willful actions or inactions of Seller. 7.3 Each party and its employees shall comply with all rules, including safety, traffic and security, established by the other party for operations within the other party's location(s). 8. Expiration - Renewal - Termination 8.1 This Amendment shall automatically expire at the end of the term specified in Section 12 hereof unless specifically renewed prior thereto by mutual consent given in writing by the parties hereto. 8.2 This Amendment may be terminated prior to the completion of the term specified in Section 8 hereof: 1) By mutual consent given in writing by the parties hereto; 2) By either party at will with or without cause upon not less than thirty (30) days' notice in writing by registered mail, cable, or personal delivery to the other party, or 5 3) By Seller upon one (1) day's like notice in the event: (i) Buyer ceases to conduct its operations in the normal course of business (ii) A receiver for Buyer is appointed or applied for, or it otherwise takes advantage of an insolvency law, or (iii) Buyer breaches this Agreement or acts in any manner deemed by the Seller to be detrimental to the best interests of Seller Without limitation, the foregoing events shall be deemed to be cause for termination by the Seller. Termination of the Seller shall not relieve either Party of any obligation arising out of work performed prior to termination. 9. General Clauses 9.1 Except as provided in the Article entitled "Limitation of Liability," these provisions are for the benefit of the parties hereto and not for any other third party. 9.2 Except as expressly set forth herein, this Amendment in no way alters or affects any other terms of the March 17 Agreement, which otherwise remains in full force and effect. 9.3 The invalidity in whole or in part of any part of the Amendment shall not affect the validity of the remainder of the Amendment. 9.4 Failure to insist upon strict compliance with any of the terms in this Amendment (by way of a waiver of a term or of a breach) by either party hereto shall not be deemed to be a continuous waiver in the event of any future breach or waiver of any term in this Amendment. 9.5 The following Articles shall survive termination of the Amendment: Article 6 (Limitation of Liability), Article 9 (General Clauses) and Article 11 (Governing Law and Disputes). 9.6 In the event of a conflict between the terms of this Amendment and any other ancillary document related thereto, the terms of this Amendment shall apply. 9.7 The Amendment together with the March 17 Agreement represents the entire agreement between the parties and no modification, amendment, rescission, waiver or other change shall be binding on either party unless assented to in writing by the parties' authorized representatives. Any oral or written representation, warranty, course of dealing or trade usage not contained or referenced herein shall not be binding on either party. Each party agrees that is has not relied on, or been induced by, any representations of the other party not contained in the Amendment. 6 10. Transfer to Subsidiary or Affiliated Companies Seller may assign or novate its rights and obligations regarding the Amendment, in part or in whole, to one or more of its wholly owned subsidiaries upon written notice to Buyer setting forth the effective date of such assignment or novation. Upon the effective date of said assignment or novation, all of the rights and obligations of Seller under this Amendment shall vest solely in Seller's respective subsidiaries. Buyer agrees to execute such documents as may be necessary to effect the assignment or novation. Seller guarantees the performance of its subsidiaries after the assignment or novation takes effect. The delegation or assignment by Buyer of any or all of its duties or rights under this order without Seller's prior written consent shall be void. 11. Governing Law and Disputes This Amendment shall be construed and interpreted in accordance with the laws of New York, provided that any provision of such law invalidating any provision of this Amendment or modifying the intent of the Parties as expressed in the terms of this Amendment shall not apply (the "Governing Law of the Amendment"). Any dispute which cannot be settled by agreement of the Parties shall be submitted to arbitration to be held in New York, NY in accordance with the procedures set forth by the American Arbitration Association. 7 12. Effective Date This Amendment shall become effective as of the day and year first written above and shall continue in full force and effect until December 31, 2000, unless otherwise terminated earlier pursuant to the terms herein or extended by mutual written agreement of the parties. IN WITNESS WHEREOF the Parties have caused this document to be executed by their authorized representatives on the date first above written. SELLER BUYER GENERAL ELECTRIC COMPANY PLUG POWER INC. By By /s/ William F. Lopes /s/ Gregory A. Silvestri (Signature) (Signature) $ William F. Lopes Gregory A. Silvestro (Printed Name) (Printed Name) General Manager-- Emerging Technologies Chief Operating Officer (Title) (Title) September 18, 2000 September , 2000 (Date) (Date) 8 EX-10.53 11 dex1053.txt AMENDMENT DTD DECEMBER 31,2000 BETWEEN PLUG AND GE Exhibit 10.53 AMENDMENT TO SERVICES AGREEMENT THIS AMENDMENT ("Amendment") to the March 17, 2000 Services Agreement between Plug Power Inc. and General Electric Company is effective as of the 31st day of December, 2000, by and between: (1) PLUG POWER INC. (the "Buyer"), a corporation organized and existing under the laws of Delaware and having a place of business at 968 Albany-Shaker Road, Latham, New York, 12110, USA and (2) GENERAL ELECTRIC COMPANY (the "Seller"), a corporation organized and existing under the laws of the State of New York, U.S.A., having offices at 1 River Road, Schenectady, New York, 12345, USA. (Buyer and Seller are referred to individually herein as a "Party" and collectively as the "Parties"). WHEREAS, Buyer and Seller entered into a Services Agreement dated March 17, 2000 ("March 17 Agreement"), under which Seller agreed to perform certain technical services and support for Buyer; WHEREAS, Buyer and Seller entered into an Amendment to Services Agreement dated September 18, 2000 (September 18 Amendment) that provided for Seller to act as Buyer's agent in procuring certain fuel cell equipment, parts, and components and for Seller to provide certain training services to Buyer; WHEREAS, the September 18 Amendment will expire on December 31, 2000 unless modified; WHEREAS, Buyer and Seller desire to further amend the March 17 Agreement to extend the term of the September 18 Amendment through December 31, 2001 and on an annual basis thereafter unless terminated earlier by Buyer or Seller; NOW, THEREFORE, in consideration of the mutual promises stated herein, the parties agree as follows: 1 The September 18 Amendment shall continue and remain in full force and effect until December 31, 2001, and year-to-year thereafter, unless and until terminated by either Party pursuant to the terms therein. Except as expressly set forth herein, this Amendment in no way alters or affects any other term of the March 17 Agreement or any amendments thereto, which otherwise remain in full force and effect. IN WITNESS WHEREOF the Parties have caused this document to be executed by their authorized representatives on the date first above written. SELLER BUYER GENERAL ELECTRIC COMPANY PLUG POWER INC. By By ______________________________ ______________________________ (Signature) (Signature) _________________________ _________________________ (Printed Name) (Printed Name) _________________________ _________________________ (Title) (Title) _________________ _________________ (Date) (Date) 2 EX-10.54 12 dex1054.txt AMENDMENT DTD MARCH 31,2001 BETWEEN PLUG AND GE Exhibit 10.54 Amendment to Plug Power-GE Services Agreement CONFIDENTIAL Amendment to the Services Agreement between General Electric Company and Plug Power Inc. dated March 17, 2000 March 31, 2001 This Amendment to the SERVICES Agreement (the "Amendment") dated March 17, 2000 is made and entered into as of this 31st day of March 31, 2001, by GENERAL ELECTRIC COMPANY, a New York corporation having offices at 1 River Road, Schenectady, New York 12345 (hereinafter referred to as "GE") and Plug Power, Inc., a Delaware corporation located at 968 Albany-Shaker Road, Latham, N.Y. 12110 (hereinafter referred to as "Plug Power"). GE and Plug Power are individually referred to herein as a "Party" and collectively as the "Parties". WHEREAS, GE and Plug Power entered into a Services Agreement dated March 17, 2000(the "Agreement"), as amended, in order to set forth, among other things, and Plug Power's obligations with respect to the distributor of Products, Pre-Commercial Units, and Services, which are defined in the Agreement; WHEREAS, GE and Plug Power now desire to extend the term of the Agreement; 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. Agreement Revisions Section 6(a) is deleted in its entirety and replaced with the following: (a) This agreement shall be effective as of the day and year first written above and shall continue in full force and effect until Plug Power satisfies its obligations under and in accordance with the August 27, 1999 Agreement between Plug Power and GE to purchase a minimum of $12,000,000 of technical services. In the event of a conflict between the terms of this Amendment and any other ancillary documents related thereto, the terms of this Amendment shall apply. This Amendment 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 Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment. This Amendment shall be construed without regard to any presumption or rule requiring construction 1 Proprietary and confidential information 03/28/02 Amendment to Plug Power-GE Services Agreement or interpretation against the Party drafting or causing any instrument to be drafted. The headings contained in this Amendment are for convenience of reference only, do not constitute a party of this Amendment, and will not be used in interpreting this Amendment. Except as expressly set forth herein, this Amendment in no way alters or affects any other terms of the Agreement, which otherwise remains in full force and effect. IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first above written. GENERAL ELECTRIC COMPANY By: ________________________________ Name: Title: PLUG POWER INC. By: ________________________________ Name: Title: Chief Operating Officer 2 Proprietary and confidential information 03/28/02 EX-10.55 13 dex1055.txt AMENDMENT NO.1 DTD FEBRUARY 27, 2002 Exhibit 10.55 CONFIDENTIAL ------------ AMENDMENT NO. 1 THIS AMENDMENT NO. 1 (the "Amendment") is made and entered into as of this __ day of November, 2001, among Plug Power Inc., a Delaware corporation ("PP"), GE Microgen (f/k/a GE On-Site Power), a Delaware corporation, GE Power Systems business of General Electric Company, a New York corporation having offices at 1 River Road, Schenectady, New York 12345 (hereinafter referred to as "GE") and GE Fuel Cell Systems, L.L.C., a Delaware limited liability company (GE Microgen, GE Power Systems and GE Fuel Cell Systems are hereinafter collectively referred to as "GE"). GE and PP are referred to individually herein as a "Party", and collectively as the "Parties". WHEREAS, GE and PP entered into an Agreement dated August 27, 1999 (the "Agreement"), in order to set forth, among other things, PP's obligation to purchase technical support services from GE; WHEREAS, GE and PP now desire amend the Agreement in order extend the time within which PP is obligated to purchase such technical support services from GE; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of are hereby acknowledged, the Parties hereto agree as follows: 1. AGREEMENT REVISION Section 4.3 of the Agreement is deleted in its entirety and replaced with the following: PP shall 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), by no later than September 30, 2004. If, by September 30, 2004 , PP fails to satisfy the PP Commitment then PP shall pay GE, as liquidated damages for such failure, the difference between $12,000,000 and the amount purchased hereunder. In the event of a conflict between the terms of this Amendment and any other ancillary documents related thereto, the terms of this Amendment shall apply. This Amendment 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 Amendment by telecopier shall be effective as delivery of a manually executed counterpart to this Amendment. This Amendment 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. Except as expressly set forth herein, this Amendment in no way alters or affects any other terms of the Agreement, which otherwise remains in full force and effect. IN WITNESS WHEREOF, the Parties have entered into and executed this Amendment as of the date first above written. GENERAL ELECTRIC COMPANY By:____________________________ Name: Title: PLUG POWER, INC By:____________________________ Name: Gregory A. Silvestri Title: Chief Operating Officer EX-23.1 14 dex231.txt CONSENT OF KPMG LLP Exhibit 23.1 Independent Auditors' Consent ----------------------------- We consent to the incorporation by reference in the registration statements on Form S-8 (Nos. 333-90275, 333-90277, and 333-72734) of Plug Power Inc. of our report dated February 8, 2002, with respect to the consolidated balance sheet of Plug Power Inc. and subsidiary as of December 31, 2001, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended, which report appears in the December 31, 2001, annual report on Form 10-K of Plug Power Inc. Our report refers to cumulative consolidated statements of operations, stockholders' equity, and cash flows for the period June 27, 1997 (inception) to December 31, 2001 which include amounts for the period from June 27, 1997 (inception) to December 31, 1997 and for each of the years in the three-year period ending December 31, 2000, which were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the period June 27, 1997 through December 31, 2000 is based solely on the report of other auditors. /s/ KPMG LLP Albany, New York March 28, 2002 EX-23.2 15 dex232.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-90275, No. 333-90277 and No. 333-72734) of Plug Power Inc. of our report dated February 9, 2001 relating to the financial statements, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Albany, New York March 26, 2002 -----END PRIVACY-ENHANCED MESSAGE-----