UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2013
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number: 1-14204
FUELCELL ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
06-0853042
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
3 Great Pasture Road
Danbury, Connecticut
 
06813
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (203) 825-6000 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
¨
Accelerated filer
ý
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
Number of shares of common stock, par value $.0001 per share, outstanding at March 5, 2013: 189,475,524





FUELCELL ENERGY, INC.
FORM 10-Q
Table of Contents

 
 
Page
PART I. FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
 
Item 1
Item 1A
Item 6.

2





FUELCELL ENERGY, INC.
Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands, except share and per share amounts)

 
January 31,
2013
 
October 31,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
86,271

 
$
57,514

License fee receivable

 
10,000

Accounts receivable, net
20,101

 
25,984

Inventories
47,048

 
47,701

Other current assets
6,945

 
4,727

Total current assets
160,365

 
145,926

Property, plant and equipment, net
21,553

 
23,258

Goodwill
4,245

 

Intangible assets
9,592

 

Investment in and loans to affiliate

 
6,115

Other assets, net
13,881

 
16,186

Total assets
$
209,636

 
$
191,485

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
5,221

 
$
5,161

Accounts payable
7,413

 
12,254

Accounts payable due to affiliate

 
203

Accrued liabilities
20,843

 
20,265

Deferred revenue
66,589

 
45,939

Preferred stock obligation of subsidiary
1,073

 
1,075

Total current liabilities
101,139

 
84,897

Long-term deferred revenue
22,317

 
15,533

Long-term preferred stock obligation of subsidiary
13,268

 
13,095

Long-term debt and other liabilities
7,380

 
3,975

Total liabilities
144,104

 
117,500

Redeemable preferred stock (liquidation preference of $64,020 at January 31, 2013 and October 31, 2012)
59,857

 
59,857

Total Equity:
 
 
 
Shareholders’ equity
 
 
 
Common stock ($.0001 par value); 275,000,000 shares authorized; 189,496,028 and 185,856,123 shares issued and outstanding at January 31, 2013 and October 31, 2012, respectively.
19

 
18

Additional paid-in capital
754,605

 
751,256

Accumulated deficit
(748,512
)
 
(736,831
)
Accumulated other comprehensive income
142

 
66

Treasury stock, Common, at cost (5,679 shares at January 31, 2013 and October 31, 2012)
(53
)
 
(53
)
Deferred compensation
53

 
53

Total shareholders’ equity
6,254

 
14,509

Noncontrolling interest in subsidiaries
(579
)
 
(381
)
Total equity
5,675

 
14,128

Total liabilities and equity
$
209,636

 
$
191,485

See accompanying notes to consolidated financial statements.

3



FUELCELL ENERGY, INC.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(Amounts in thousands, except share and per share amounts)
 
 
Three Months Ended January 31,
 
2013
 
2012
Revenues (1):
 
 
 
Product sales
$
29,065

 
$
26,202

Service and license revenues
4,969

 
3,398

Advanced technologies contract revenues
2,324

 
1,737

Total revenues
36,358

 
31,337

Costs of revenues:
 
 
 
Cost of product sales
29,944

 
23,360

Cost of service and license revenues
6,485

 
4,300

Cost of advanced technologies contract revenues
2,240

 
1,573

Total costs of revenues
38,669

 
29,233

Gross (loss) profit
(2,311
)
 
2,104

Operating expenses:
 
 
 
Administrative and selling expenses
5,432

 
3,764

Research and development expenses
3,327

 
3,783

Total costs and expenses
8,759

 
7,547

Loss from operations
(11,070
)
 
(5,443
)
Interest expense
(566
)
 
(630
)
Income (loss) from equity investment
46

 
(362
)
License fee and royalty income

 
424

Other income (expense), net
(282
)
 
196

Loss before provision for income taxes
(11,872
)
 
(5,815
)
Provision for income taxes
(7
)
 
(199
)
Net loss
(11,879
)
 
(6,014
)
Net loss attributable to noncontrolling interest
198

 
71

Net loss attributable to FuelCell Energy, Inc.
(11,681
)
 
(5,943
)
Preferred stock dividends
(800
)
 
(800
)
Net loss attributable to common shareholders
$
(12,481
)
 
$
(6,743
)
Loss per share basic and diluted:
 
 
 
Net loss per share attributable to common shareholders
$
(0.07
)
 
$
(0.05
)
Basic and diluted weighted average shares outstanding
187,553,306

 
139,555,596


 
Three Months Ended January 31,
 
 
2013
 
2012
Net loss
$
(11,879
)
 
$
(6,014
)
Other comprehensive income (loss):


 


        Foreign currency translation adjustments
76

 
(2
)
Comprehensive loss
$
(11,803
)
 
$
(6,016
)
See accompanying notes to consolidated financial statements.
 
(1)
Includes revenue from a related party. Refer to Concentrations in note 1 to the financial statements.  


4



FUELCELL ENERGY, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)

 
Three Months Ended January 31,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net loss
$
(11,879
)
 
$
(6,014
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Share-based compensation
509

 
540

(Income) loss from equity investment
(46
)
 
362

Depreciation
1,012

 
1,449

Amortization of bond premium and interest expense on preferred stock obligation
511

 
581

Other non-cash transactions, net
210

 
(175
)
Decrease (increase) in operating assets:
 
 
 
Accounts receivable
17,020

 
(1,942
)
Inventories
3,236

 
(6,203
)
Other assets
(739
)
 
(880
)
Increase (decrease) in operating liabilities:
 
 
 
Accounts payable
(5,345
)
 
3,919

Accrued liabilities
(1,026
)
 
(3,255
)
Deferred revenue
27,434

 
(6,184
)
Net cash provided by (used in) operating activities
30,897

 
(17,802
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(1,397
)
 
(926
)
Cash acquired from acquisition
357

 

Treasury notes matured

 
7,500

Net cash (used in) provided by investing activities
(1,040
)
 
6,574

Cash flows from financing activities:
 
 
 
Repayment of debt
(63
)
 
(55
)
Payment of preferred dividends and return of capital
(1,113
)
 
(4,288
)
Proceeds from sale of common stock, net of registration fees

 
1,188

Net cash used in financing activities
(1,176
)
 
(3,155
)
Effects on cash from changes in foreign currency rates
76

 
(2
)
Net increase (decrease) in cash and cash equivalents
28,757

 
(14,385
)
Cash and cash equivalents-beginning of period
57,514

 
51,415

Cash and cash equivalents-end of period
$
86,271

 
$
37,030

Supplemental cash flow disclosures:
 
 
 
Cash interest paid
$
55

 
$
63

Noncash financing and investing activity:
 
 
 
Common stock issued in settlement of prior year bonus obligation
$

 
$
550

Common stock issued for Employee Stock Purchase Plan in settlement of prior year accrued employee contributions
$
85

 
$
84

Common stock issued for acquisition
$
3,562

 
$

See accompanying notes to consolidated financial statements.


5


FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)


Note 1. Nature of Business and Basis of Presentation
FuelCell Energy, Inc. and subsidiaries (the “Company”, “FuelCell Energy”, “we”, “us”, or “our”) is a Delaware corporation engaged in the design, manufacture, install, operation and service of ultra-clean, efficient and reliable fuel cell power plants. Our Direct FuelCell power plants produce reliable 24/7 base load electricity and usable high quality heat for commercial, industrial, government and utility customers. We have commercialized our stationary carbonate fuel cells and are also pursuing the complementary development of planar solid oxide fuel cell and other fuel cell technologies. We continue to invest in new product and market development and, as such, we are not currently generating positive cash flow from our operations.  Our operations are funded primarily through cash generated from product sales and research and development contracts, license fee income and sales of equity and debt securities. In order to produce positive cash flow from operations, we need to be successful at increasing annual order volume and continuing our cost reduction efforts.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all normal and recurring adjustments necessary to fairly present our financial position as of January 31, 2013 have been included. All intercompany accounts and transactions have been eliminated.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  The balance sheet as of October 31, 2012 has been derived from the audited financial statements at that date, but it does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.   These financial statements should be read in conjunction with our financial statements and notes thereto for the year ended October 31, 2012 , which are contained in our Annual Report on Form 10-K previously filed with the Securities and Exchange Commission.  The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.
Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. Service agreement revenue has been separated from Product sales and revenues and is now combined with license revenue. Beginning in fiscal year 2013, license fees and royalty income have been included within revenues. This change is a result of the new license agreement entered into on October 31, 2012 for our core technology and the harmonization of the agreements to reflect fees and royalties for the manufacture of complete DFC Power Plants. Classification as revenue is reflective of our Asia market partnership and royalty based strategy and this business activity has become a significant component of non-product revenue. Additionally, Advanced technologies contract revenues has been renamed from Research and development contracts to better describe the sources of revenue from contract research.

Use of Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Estimates are used in accounting for, among other things, revenue recognition, excess, slow-moving and obsolete inventories, product warranty costs, reserves on service agreements ("SA"), allowance for uncollectible receivables, depreciation and amortization, impairment of assets, taxes, and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.  Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

Concentrations
We contract with a concentrated number of customers for the sale of products and for research and development contracts. Significant revenues from individual customers for the three months ended January 31, 2013 and 2012 included POSCO Energy (“POSCO”), which is a related party and owns approximately 16 percent of the outstanding common shares of the Company as of January 31, 2013, Dominion Bridgeport Fuel Cell, LLC, U.S. Government (primarily the Department of Energy) and Logan Energy.

6


FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)


The percent of consolidated revenues from each customer is presented below.
 
Three Months Ended January 31,
 
2013
 
2012
POSCO Energy
69
%
 
64
%
Dominion Bridgeport Fuel Cell, LLC
16
%
 
%
U.S. Government (primarily the Department of Energy)
5
%
 
5
%
Logan Energy
%
 
11
%
Combined
90
%
 
80
%


Note 2. Recent Accounting Pronouncements

Recently Adopted Accounting Guidance
In June 2011, the FASB issued guidance that eliminates the option to present items of other comprehensive income (“OCI”) as part of the statement of changes in stockholders’ equity, and instead requires either OCI presentation and net income in a single continuous statement to the statement of operations, or as a separate statement of comprehensive income. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company has adopted this update in the first quarter of fiscal year 2013. The adoption of this accounting guidance only impacted our financial statement presentation and did not have an impact on our financial position, results of operations or disclosures.

Recent Accounting Guidance Not Yet Effective
In December 2011, the FASB issued guidance to enhance a financial statement user’s ability to understand the effects of netting arrangements on an entity’s financial statements, including financial instruments and derivative instruments that are either offset or subject to an enforceable master netting or similar arrangement. The scope of this guidance includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. This guidance also includes enhanced disclosure requirements, including both gross and net information about instruments and transactions eligible for offset or subject to an agreement similar to a master netting arrangement. The provisions will be applied retrospectively for interim and annual periods beginning on or after January 1, 2013. The adoption of this accounting guidance is not expected to have a material impact on our financial statements.


Note 3. Acquisitions
Versa Power Systems, Inc. (“Versa”) is one of our sub-contractors under the Department of Energy's (“DOE”) large-scale hybrid project to develop a coal-based, multi-megawatt solid oxide fuel cell (“SOFC”) based hybrid system. Versa is a private company founded in 2001 that is developing advanced SOFC systems for various stationary and mobile applications. We had a 39 percent ownership interest and accounted for Versa under the equity method of accounting. We recognized our share of the income or losses as income/(loss) from equity investments on the consolidated statements of operations.
On December 20, 2012, the Company acquired the remaining 61 percent ownership position of Versa in a stock transaction by exchanging approximately 3.5 million shares of its common stock for the remaining 61 percent of outstanding Versa shares held by the other Versa shareholders.
The transaction has been accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. Step-acquisition accounting guidance was applied and an impairment charge relating to the previously held equity investment was recorded in the fourth quarter of 2012.
The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date. This allocation is preliminary and the Company is still in the process of

7


FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)

analyzing and evaluating the acquired deferred tax attributes of Versa, if any.  Completion of this review may result in adjustments to the deferred tax attributes and amounts recorded as a result of this acquisition. 
Cash and cash equivalents
357

Accounts receivable
1,133

Other current assets
23

Property, plant and equipment
480

Goodwill
4,245

In-process research and development
9,592

Other assets
101

Accounts payable
(302
)
Other current liabilities
(1,682
)
Deferred tax liabilities (1)
(3,357
)
Other long-term liabilities
(155
)
   Total identifiable net assets
10,435


(1) Classified in Long-term debt and other liabilities.

Acquisition-related costs are being expensed as incurred. The Company incurred a total of $0.1 million of transaction costs related to the acquisition. These costs were recognized in administrative and selling expenses on the statement of operations and comprehensive income for the three months ended January 31, 2013.

Versa has been fully consolidated into the Company's financial statements as of the acquisition date. Versa receives revenue under a number of research contracts including the U.S. Department of Energy Solid State Energy Conversion Alliance (SECA) coal-based systems program and a research contract with The Boeing Company. Revenue and associated costs are recognized under advanced technologies contract revenues in the consolidated statements of operations.


Note 4. Inventories
The components of inventory at January 31, 2013 and October 31, 2012 consisted of the following:
 
 
January 31,
2013
 
October 31,
2012
Raw materials
$
20,022

 
$
17,683

Work-in-process (1)
27,026

 
30,018

Net Inventory
$
47,048

 
$
47,701


(1)
Work-in-process includes the standard components of inventory used to build the typical modules or stack components that are intended to be used in future power plant orders. Included in Work-in-process as of January 31, 2013 and October 31, 2012 is $6.4 million and $11.3 million , respectively, of completed standard components ready to be incorporated into power plants and deployed upon receipt of customer orders.

Raw materials consist mainly of various nickel powders and steels, various other components used in producing cell stacks and purchased components for balance of plant. Work-in-process inventory is comprised of material, labor, and overhead costs incurred to build fuel cell stacks, which are subcomponents of a power plant. Work in process also includes costs related to modules which have not yet been placed into production for a particular commercial customer contract.

Raw materials and work in process are net of valuation reserves of approximately $1.8 million and $2.4 million at January 31, 2013 and October 31, 2012 , respectively.


8


FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)

Note 5. Accounts Receivable
Accounts receivable at January 31, 2013 and October 31, 2012 consisted of the following:
 
 
January 31, 2013
 
October 31, 2012
U.S. Government:
 
 
 
Amount billed
$
524

 
$
20

Unbilled recoverable costs
1,611

 
890

 
2,135

 
910

Commercial Customers:
 
 
 
Amount billed
9,857

 
18,786

Unbilled recoverable costs
8,109

 
6,288

 
17,966

 
25,074

 
$
20,101

 
$
25,984


We bill customers for power plant and module kit sales based on certain milestones being reached. We bill service agreements ("SA") based on the contract price and billing terms of the contracts. The majority of advanced technology contracts are with the U.S. Government. We bill the U.S. Government based on actual recoverable costs incurred, typically in the month subsequent to incurring costs. The remainder of advanced technology contracts are billed based on milestones or costs incurred. Included in Commercial Customers accounts receivable are amounts due from POSCO of $8.1 million and $18.1 million at January 31, 2013 and October 31, 2012 , respectively. Unbilled recoverable costs relate to revenue recognized on customer contracts that have not been billed. Accounts receivable are presented net of an allowance for doubtful accounts of $0.6 million at January 31, 2013 and October 31, 2012 .

Note 6. Other Assets, net
Other assets, net at January 31, 2013 and October 31, 2012 consisted of the following:
 
 
January 31, 2013
 
October 31, 2012
Long-term stack residual value (1)
$
12,924

 
$
14,316

Other (2)
957

 
1,870

Other Assets, net
$
13,881

 
$
16,186

 
(1)
Relates to stack replacements performed under the Company's service agreements. The cost of the stack replacement is recorded as a long term asset and is depreciated over its expected life. If the Company does not obtain rights to title from the customer, the cost of the stack is expensed at the time of restack. Accumulated depreciation was $8.6 million and $7.6 million for the periods ended January 31, 2013 and October 31, 2012 , respectively.
(2)
Includes security deposits, notes receivable and interest receivable.


9


FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)

Note 7. Accrued Liabilities
Accrued liabilities at January 31, 2013 and October 31, 2012 consisted of the following:
 
 
January 31, 2013
 
October 31, 2012
Accrued payroll and employee benefits (1)
$
3,560

 
$
3,907

Accrued contract and operating costs (2)
36

 
39

Reserve for product warranty cost (3)
2,384

 
2,317

Reserve for service agreement costs (4)
7,957

 
7,222

Reserve for B1200 repair and upgrade program (5)
4,669

 
4,753

Accrued taxes, legal, professional and other (6)
2,237

 
2,027

 
$
20,843

 
$
20,265

 
(1)
Balance relates to amounts owed to employees for compensation and benefits as of the end of the period.
(2)
Balance includes estimated losses accrued on product sales contracts.
(3)
Activity in the reserve for product warranty costs for the three months ended January 31, 2013 included additions for estimates of potential future warranty obligations of $1.7 million on contracts in the warranty period and reserve reductions related to actual warranty spend and reversals to income of $1.6 million as contracts progress through the warranty period or are beyond the warranty period.
(4)
As of January 31, 2013 , the loss reserve on service agreement contracts totaled $5.6 million compared to $5.0 million as of October 31, 2012 . Also included in this line item is a reserve for performance guarantees penalties under the terms of our customer contracts, which based on our ongoing analysis of historical fleet performance totaled $2.4 million and $2.2 million as of January 31, 2013 and October 31, 2012 , respectively.
(5)
For the three months ended January 31, 2013 , the Company incurred actual repair and upgrade costs of approximately $0.1 million .
(6)
Balance includes accrued sales, use and payroll taxes as well as accrued legal, professional and other expenses as of the end of the period.

Note 8. Share-Based Compensation Plans
We have shareholder approved equity incentive plans and a shareholder approved Section 423 Stock Purchase Plan (the “ESPP”). We account for stock awards to employees and non-employee directors under the fair value method. We determine the fair value of stock options at the grant date using the Black-Scholes valuation model. The model requires us to make estimates and assumptions regarding the expected life of the award, the risk-free interest rate, the expected volatility of our common stock price and the expected dividend yield. The fair value of restricted stock awards (“RSA”) is based on the common stock price on the date of grant. The fair value of stock awards is amortized to expense over the vesting period, generally four years.

Share-based compensation reflected in the consolidated statements of operations were as follows:
 
 
Three Months Ended January 31,
 
2013
 
2012
Cost of revenues
$
132

 
$
161

General and administrative expense
315

 
297

Research and development expense
60

 
83

Total share-based compensation
$
507

 
$
541



10


FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)

The following table summarizes stock option activity for the three months ended January 31, 2013 :
 
 
Number of
options
 
Weighted
average
option  price ($)
Outstanding at October 31, 2012
3,120,456

 
6.96

Canceled
(32,325
)
 
9.07

Outstanding at January 31, 2013
3,088,131

 
6.94


As of January 31, 2013 , there were 3,118,429 RSAs outstanding with a weighted average per share fair value of $1.59 . There were 18,349 RSA's granted during the three months ended January 31, 2013 and forfeitures totaled 8,780 during this period.

For the three months ended January 31, 2013 , 108,008 shares were issued under the ESPP at a per share cost of $0.79 . There were 666,365 shares of common stock reserved for issuance under the ESPP as of January 31, 2013 .

Note 9. Shareholders’ Equity
Changes in shareholders’ equity
Changes in shareholders’ equity were as follows for the three months ended January 31, 2013 :
 
 
Total
Shareholders’
Equity
 
Noncontrolling
interest
 
Total
Equity
Balance at October 31, 2012
$
14,509

 
$
(381
)
 
$
14,128

Common stock issued for acquisition
3,562

 

 
3,562

Share-based compensation
509

 

 
509

Stock issued under benefit plans, net of taxes paid upon vesting of restricted stock awards
79

 

 
79

Preferred dividends – Series B
(800
)
 

 
(800
)
Other comprehensive loss - foreign currency translation adjustments
76

 

 
76

Net loss
(11,681
)
 
(198
)
 
(11,879
)
Balance at January 31, 2013
$
6,254

 
$
(579
)
 
$
5,675


  Common Stock Sales
On December 20, 2012, the Company issued 3.5 million shares of common stock for the remaining 61 percent of outstanding Versa shares at a price of $1.01 per share for a total value of $3.6 million .
The Company may sell common stock on the open market from time to time to raise funds in order to pay obligations related to the Company's outstanding Series I and Series B preferred shares.



11


FUELCELL ENERGY, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts in thousands, except share and per share amounts)


Note 10. Loss Per Share
The calculation of basic and diluted loss per share was as follows:
 

 
Three Months Ended January 31,
 
 
2013
 
2012
 
Numerator
 
 
 
 
Net loss
$
(11,879
)
 
$
(6,014
)
 
Net loss attributable to noncontrolling interest
198

 
71

 
Preferred stock dividend
(800
)
 
(800
)
 
Net loss attributable to common shareholders
$
(12,481
)
 
$
(6,743
)
 
Denominator
 
 
 
 
Weighted average basic common shares
187,553,306

 
139,555,596

 
Effect of dilutive securities (1)

 

 
Weighted average diluted common shares
187,553,306

 
139,555,596

 
Basic loss per share
$
(0.07
)
 
$
(0.05
)
 
              Diluted loss per share (1)
$
(0.07
)
 
$
(0.05
)
 
 
(1)
Diluted loss per share was computed without consideration to potentially dilutive instruments as their inclusion would have been antidilutive, as the strike prices are above current market price. Potentially dilutive instruments include stock options and convertible preferred stock. At January 31, 2013 and 2012 , there were options to purchase 3.1 million  and 3.0 million shares of common stock, respectively. Refer to our Annual Report on Form 10-K for the year ended October 31, 2012 for information on our convertible preferred stock.

Note 11. Commitments and Contingencies
We have pledged approximately $15.6 million of our cash and cash equivalents as collateral and letters of credit for certain banking requirements and contracts. As of January 31, 2013 , outstanding letters of credit totaled $14.7 million . These expire on various dates through July 2015 .

Note 12. Preferred Stock
Series B Preferred Stock
At January 31, 2013 and October 31, 2012 , there were 64,020 shares of Series B Preferred Stock issued and outstanding, with a carrying value of $59.9 million. Dividends of $0.8 million were paid in cash for the three months ended January 31, 2013 and 2012 , respectively.

Series 1 Preferred Shares
As of January 31, 2013 and October 31, 2012 , the carrying value of the Series 1 Preferred shares was Cdn. $14.4 million ( $14.3 million USD) and Cdn. $14.2 million ( $14.2 million USD), respectively, and is classified as preferred stock obligation of subsidiary on the consolidated balance sheets. The Company made its scheduled return of capital and dividend payments of $0.3 million (Cdn. $0.3 million ) during the three months ended January 31, 2013 .

Derivative liability related to Series 1 Preferred Shares
The aggregate fair value of the derivatives related to the Series 1 Preferred shares which are included within long-term debt and other liabilities on the consolidated balance sheets as of January 31, 2013 and October 31, 2012 was $0.7 million, respectively.

12



Note 13. Subsequent Events

On March 5, 2013 the Company closed on a new long-term loan agreement with the Connecticut Clean Energy and Finance Investment Authority (CEFIA) totaling $5.9 million in support of the Bridgeport project. A portion of the proceeds of this new loan will be used to repay an existing loan of $0.9 million due to the Connecticut Clean Energy Fund. The balance of this loan will be drawn down during 2013 as working capital support during the construction period of the project. The loan agreement to carries an interest rate of 5.0% and principal repayments will commence on the eighth anniversary of the project's provisional acceptance date in forty eight equal monthly installments.



ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (including exhibits and any information incorporated by reference herein) contains both historical and forward-looking statements that involve risks, uncertainties and assumptions. The statements contained in this report that are not purely historical are forward-looking statements that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions and strategies for the future. These statements appear in a number of places in this Report and include all statements that are not historical statements of fact regarding our intent, belief or current expectations with respect to, among other things: (i) our ability to achieve our sales plans and cost reduction targets; (ii) trends affecting our financial condition or results of operations; (iii) our growth and operating strategy; (iv) our product development strategy; (v) our financing plans; (vi) the timing and magnitude of future contracts; (vii) changes in the regulatory environment; (viii) potential volatility of energy prices; and (ix) rapid technological change or competition. The words “may,” “would,” “could,” “should,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend,” “plans” and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, many of which are beyond our ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors discussed herein, including those discussed in detail in our filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended October 31, 2012 in the section entitled “Item 1A. Risk Factors.”
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to the accompanying financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations. The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Estimates are used in accounting for, among other things, revenue recognition, excess, slow-moving and obsolete inventories, product warranty costs, reserves on service agreements ("SA"), allowance for uncollectible receivables, depreciation and amortization, impairment of assets, taxes, and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates. The following discussion should be read in conjunction with information included in our Annual Report on Form 10-K for the year ended October 31, 2012 filed with the SEC. Unless otherwise indicated, the terms “Company”, “FuelCell Energy”, “we”, “us”, and “our” refer to FuelCell Energy Inc. and its subsidiaries. All tabular dollar amounts are in thousands.

OVERVIEW AND RECENT DEVELOPMENTS
Overview
We are a leading integrated fuel cell company with a growing global presence. We design, manufacture, install, operate and service ultra-clean, efficient and reliable stationary fuel cell power plants. Our power plants offer scalable on-site power and utility grid support, helping customers solve their energy, environmental and business challenges.
Global urban populations are expanding, becoming more industrialized and requiring greater amounts of power to sustain their growth. As policymakers and power producers struggle to find economical and readily available solutions that will alleviate the

13



impact of harmful pollutants and emissions, the market for ultra-clean, efficient and reliable distributed generation is rapidly growing.
With fully commercialized ultra-clean fuel cell power plants and decades of experience in the industry, we are well positioned to grow our installed base of power plants. Our plants are operating in more than 50 locations worldwide and have generated more than 1.5 billion kilowatt hours (kWh) of electricity, which is equivalent to powering more than 135,000 average size U.S. homes for one year. Our installed base and steadily growing backlog exceeds 300 megawatts (MW).
Our diverse and growing customer base includes major electric utility companies, municipalities, universities, government entities and businesses in a variety of commercial and industrial enterprises. Our leading geographic markets are South Korea and the United States and we are actively pursuing expanding opportunities in Asia, Europe and Canada.
We service the power plants for virtually every customer we have globally under long term service agreements. We monitor and operate the power plants around the clock from our technical assistance center located at our Danbury, Connecticut headquarters. We have an extensive service network of FuelCell Energy technicians who provide on-site service and maintenance.
Recent Developments
The Company executed a number of key initiatives during the first quarter of 2013.
Versa Power Systems, Inc. acquisition
In December 2012, the Company acquired the remaining 61 percent ownership position of Versa Power Systems, Inc. (Versa), a leading global developer of solid oxide fuel cell technology (SOFC). The Versa SOFC technology is incorporated in programs involving a broad range of leading global companies including the Boeing Company. The potential market opportunity for the SOFC technology is with sub-megawatt applications for customers that need on-site power generation in either combined heat and power or electric-only configurations. The DFC® product line utilizes carbonate technology and is well-suited for the megawatt class market as the technology and the economics scale very well with greater size. SOFC technology is complementary and will target adjacent market opportunities in the sub-megawatt market, such as commercial buildings and high rise residential complexes. FuelCell Energy is currently in discussion with several potential global partners to commercialize the SOFC technology.

The transaction resulted in the Company exchanging approximately 3.5 million shares of its common stock for the remaining 61 percent of outstanding Versa shares held by the four Versa shareholders.

As of January 31, 2013, the Company had a total of 107 U.S. patents (27 U.S. patents were acquired through the acquisition of Versa) and 89 international patents (42 international patents were acquired through the acquisition of Versa). The patents have an average remaining life of approximately 11 years. 

Versa is fully consolidated into the Company's financial statements since the date of the acquisition of the remaining ownership interest. Versa earns revenue under a number of research contracts including the U.S. Department of Energy Solid State Energy Conversion Alliance (SECA) coal-based systems program and a research contract with The Boeing Company. Revenue and associated costs are expected to be recognized under advanced technologies contract revenues in the consolidated financial statements of FuelCell Energy, Inc.

Bridgeport Project

In December 2012, the Company announced the sale of a 14.9 MW fuel cell park in Bridgeport, Connecticut to Dominion, one of the largest utilities in the U.S. with operations in 15 states. Five 2.8 MW DFC3000® power plants will supply 14.0 megawatts of ultra-clean electricity and heat from the fuel cells will be converted into an additional 0.9 MW of virtually emission free electricity through use of an organic rankine cycle configuration. Connecticut Light & Power will purchase the electricity from Dominion under a 15 year energy purchase agreement. Fuel cell parks assist utilities in adding environmentally friendly and economical baseload power generation throughout their service areas, reducing congestion of their existing transmission and distribution grids.

On March 5, 2013 the Company closed on a new long-term loan agreement with the Connecticut Clean Energy and  Finance Investment Authority (CEFIA) totaling $5.9 million in support of the Bridgeport project. A portion of the proceeds of this new loan will be used to repay an existing loan of $0.9 million due to the Connecticut Clean Energy Fund. The balance of this loan will be drawn down during 2013 as working capital support during the construction period of the project. The loan agreement

14



to carries an interest rate of 5.0% and principal repayments will commence on the eighth anniversary of the project's provisional acceptance date in forty eight equal monthly installments.

Korean Market Developments
During the first quarter of 2013, construction began on a 58.8 MW fuel cell park in Hwasung City, South Korea. FuelCell Energy will be supplying DFC modules and components to the project. The project is supportive of the Renewable Portfolio Standard (RPS) that promotes clean energy, reduces carbon emissions, and develops local economic growth. The fuel cell park ownership includes Korea Hydro Nuclear Power Co., Ltd., Samchully Co., a gas distribution company, POSCO and financial investors. The electricity generated by the fuel cell park will be supplied to the local electric grid.
The POSCO relationship illustrates our strategy of executing locally for economic development, while leveraging our global expertise and infrastructure. The global supply chain developed by FuelCell Energy will supply both the new POSCO facility in Pohang, South Korea as well as the FuelCell Energy production facility. Integrating the supply chain to support global production leverages the greater purchasing volume and enhanced consistency of ordering to reduce product costs. Local capacity in South Korea provides a second source of supply for DFC fuel cell stacks, which is valued by some prospective customers and project investors should a supply disruption occur at the FuelCell Energy production facility in Connecticut, USA. Locating final assembly of our DFC power plants closer to end users reduces costs and ensures our products meet the needs of individual markets. POSCO fulfills South Korean energy policy objectives and creates local employment. POSCO is also marketing power plants regionally, beginning with markets in Indonesia.


RESULTS OF OPERATIONS
Management evaluates the results of operations and cash flows using a variety of key performance indicators including revenues compared to prior periods and internal forecasts, costs of our products and results of our “cost-out” initiatives, and operating cash use. These are discussed throughout the ‘Results of Operations’ and ‘Liquidity and Capital Resources’ sections.
Comparison of Three Months Ended January 31, 2013 and 2012
Revenues and Costs of revenues
Our revenues and cost of revenues for the three months ended January 31, 2013 and 2012 were as follows:

 
 
Three Months Ended
January 31,
 
Change
 
 
 
2013
 
2012
 
$
 
%
Total revenues
 
$
36,358

 
 
$
31,337

 
 
$
5,021


 
16

 
 
 
 
 
 
 
 
 
 
Total cost of revenues
 
$
38,669

 
 
$
29,233

 
 
$
9,436


 
32

 
 
 
 
 
 
 
 
 
 
Total gross (loss) profit
 
$
(2,311
)
 
 
$
2,104


 
$
(4,415
)
 
 
(210
)
 
 
 
 
 
 
 
 
 
 
Total cost-to-revenue ratio (1)
 
1.06
 
 
 
0.93
 
 
 
 
 
14

 

(1)
Cost-to-revenue ratio is calculated as total cost of revenues divided by total revenues.
Total revenues for the three months ended January 31, 2013 increased $5.0 million, or 16 percent, to $36.4 million from $31.3 million during the same period last year. Total cost of revenues for the three months ended January 31, 2013 increased by $9.4 million, or 32 percent, to $38.7 million from $29.2 million during the same period last year. A discussion of the changes in product sales and service agreement revenues and advanced technologies contract revenues follows.
Refer to Critical Accounting Policies and Estimates for more information on revenue and cost of revenue reclassifications.

15



Product sales and service and license revenues
Our product sales and service and license revenues and cost of revenues for the three months ended January 31, 2013 and 2012 were as follows:

 
 
Three Months Ended
January 31,
 
Change
 
 
 
2013
 
2012
 
$
 
%
Revenues:
 
 
 
 
 
 
 
 
Product sales
 
$
29,065

 
 
$
26,202

 
 
$
2,863


 
11

 
Service and license revenues
 
 
4,969

 
 
 
3,398

 
 

1,571

 
 
46

 
Total
 
$
34,034

 
 
$
29,600

 
 
$
4,434


 
15

 
Cost of Revenues:
 
 
 
 
 
 
 
 
Product sales
 
$
29,944

 
 
$
23,360

 
 
$
6,584


 
28

 
Service and license revenues
 
 
6,485

 
 
 
4,300

 
 
 
2,185


 
51

 
Total
 
$
36,429

 
 
$
27,660

 
 
$
8,769


 
32

 
Gross profit (loss):
 
 
 
 
 
 
 
 
Gross profit (loss) from product sales
 
$
(879
)
 
 
$
2,842

 
 
$
(3,721
)

 
(131
)
 
Gross loss from service and license revenues
 
 
(1,516
)

 
 
(902
)

 
 
(614
)
 
 
68

 
Total
 
$
(2,395
)
 
 
$
1,940


 
$
(4,335
)
 
 
(223
)
 
       Product sales cost-to-revenue ratio (1)
 
1.03
 
 
 
0.89
 
 
 
 
 
16

 
      Service agreement revenues cost-to-revenue ratio (1)
 
1.31
 
 
 
1.27
 
 
 
 
 
3

 

(1)
Cost-to-revenue ratio is calculated as cost of sales and revenues divided by sales and revenues.

Product sales and service and license revenues increased $4.4 million, or 15 percent, in the three months ended January 31, 2013 to $34.0 million compared to $29.6 million for the prior year period. The increase is due to higher fuel cell kit sales, the beginning of revenue recognition for the Bridgeport fuel cell park of approximately $2.7 million and additional license and royalty income generated in the 2013 period. Beginning in the first quarter of 2013, license revenue is being recorded as service and license revenues. This change in prospective classification is due to the new license agreement entered into on October 31, 2012 for our core technology and the harmonization of POSCO licensing and royalty agreements to reflect fees and royalties for the exclusive rights to sell, install, service and repair complete DFC Power Plants in the Asia Market. Cost of product sales and service and license revenues increased $8.8 million, or 32 percent for the three months ended January 31, 2013 to $36.4 million compared to $27.7 million in the same period in the prior year. The Company incurred warranty and after-market costs of approximately $2.1 million during the quarter as a result of a select number of fuel cell stacks being damaged in the assembly process. This isolated issue has been thoroughly investigated, process changes implemented, and field repairs undertaken to support the limited number of customers impacted. Margins in the first quarter of 2013 were further impacted by unfavorable product mix and costs related to the Company's undertaking to increase production in the second quarter of 2013.
Gross loss for product sales and service and license revenues is $2.4 million, compared to gross profit of $1.9 million for the three months ended January 31, 2013. The cost-to-revenue ratio for product sales was 1.03-to-1.00 for the three months ended January 31, 2013 compared to 0.89-to-1.00 for the three months ended January 31, 2012.

Cost of product sales includes costs to design, engineer, manufacture and ship our power plants and power plant components to customers, site engineering and construction costs where we are responsible for power plant system installation, costs for stack module assembly and conditioning equipment sold to POSCO, warranty expense, liquidated damages and inventory excess and obsolescence charges. Cost of service and license agreements include maintenance and stack replacement costs to service power plants for customers with long-term service agreements and operating costs for our units under power purchase agreements (“PPA”).
Product Sales and Cost of Sales
Product sales and revenues for the three months ended January 31, 2013 included $25.1 million from the sale of power plants and fuel cell kits and $4.0 million of revenue primarily related to costs incurred for site engineering and construction

16



services relating to the Bridgeport fuel cell park contract. This compared to product sales and revenues for the three months of January 31, 2012 which included $20.9 million from the sale of power plants and fuel cell kits and $5.3 million of revenue primarily from power plant component sales and site engineering and construction services.
Cost of product sales increased $6.5 million for the three months ended January 31, 2013 to $29.9 million, compared to $23.4 million in the same period the prior year. Gross profit decreased $3.7 million to a gross loss of $0.9 million in the three months ended January 31, 2013 compared to a gross profit of $2.8 million for the three months ended January 31, 2012 due to a select number of fuel cell stacks being damaged in the assembly process, an unfavorable product mix and costs related to the Company's undertaking to increase production in the second quarter of 2013.
As of January 31, 2013 our annual production run-rate was 56 MW. Numerous actions were undertaken during the first quarter of 2013 in preparation for increasing the annual production run-rate at the Torrington, Connecticut facility to 70 MW in the second quarter of 2013. The supply chain is ready to support the production increase. More than 50 direct manufacturing positions have been added since the start of the first quarter to support the production ramp. Total headcount globally is now 575 employees. Higher production volumes support increased quarterly revenue in 2013 and will lead to expanding margins from improved absorption of fixed overhead costs and broadening of the revenue mix to include complete power plant sales in North America and Europe.
Service and License Revenues and Cost of Revenues
Revenues for the three months ended January 31, 2013 from service and power purchase agreements and license fee and royalty agreements totaled $5.0 million, compared to $3.4 million for the same period in the prior year. The increase relates to the inclusion of license and royalty income within revenues beginning in the first quarter of fiscal 2013. The change in classification is a result of the new license and royalty agreement entered into with POSCO on October 31, 2012 for our core technology and the harmonization of the existing agreements to reflect fees and royalties to be earned for the rights to sell, install, service and repair complete DFC Power Plants. Classification of license and royalty income as revenue is reflective of our Asia market partnership and royalty based strategy and this business activity becoming an ongoing significant component of our central operations. Service and license cost of revenues increased to $6.5 million from $4.3 million for the prior year period. The gross loss on service and license agreements increased to $1.5 million for the three months ended January 31, 2013, compared to $0.9 million for the comparable prior year period. The decrease in service and license agreement margins is primarily due to additional costs incurred on service agreements in the 2013 period including reserves required due to the assembly quality issue discussed above under Product Sales and Cost of Sales. The loss on service agreements has historically been due to high maintenance, stack replacement and other costs on older and sub-MW product designs. As profitable megawatt-class service agreements are executed and as early generation sub-megawatt products are retired or become a smaller overall percentage of the installed fleet, we expect the margins on service agreements to increase.
Advanced technologies contracts
Advanced technologies contracts revenue and related costs for the three months ended January 31, 2013 and 2012 were as follows:

 
 
Three Months Ended
January 31,
 
Percentage
 
 
2012
 
2011
 
change
Advanced technologies contracts
 
$
2,324

 
 
$
1,737

 
 
33

%
Cost of advanced technologies contracts
 
 
2,240

 
 
 
1,573

 
 
42

%
Gross profit
 
$
84

 
 
$
164


 
(49
)
%
Advanced technologies contracts revenue for the three months ended January 31, 2013 was $2.3 million, which increased $0.6 million when compared to $1.7 million of revenue for the three months ended January 31, 2012. Cost of advanced technologies contracts increased $0.7 million to $2.2 million for the three months ended January 31, 2013, compared to $1.6 million for the same period in the prior year. Gross profit from advanced technology contracts for the three months ended January 31, 2013 was $0.1 million or 4 percent, compared to $0.2 million or 9 percent for the three months ended January 31, 2012. The decrease in margins is due to the mix of cost share on contracts with activity during the period.
We contract with a concentrated number of customers for the sale of our products and for research and development contracts. Refer to Note 1 of notes to consolidated financial statements for more information on customer concentrations.

17



There can be no assurance that we will continue to achieve historical levels of sales of our products to our largest customers. Even though our customer base is expected to increase and our revenue streams to diversify, a substantial portion of net revenues could continue to depend on sales to a concentrated number of customers. Our agreements with these customers may be canceled if we fail to meet certain product specifications or materially breach the agreements, and our customers may seek to renegotiate the terms of current agreements or renewals. The loss of, or reduction in sales to, one or more of our larger customers, could have a material adverse effect on our business, financial condition and results of operations.
Administrative and selling expenses
Administrative and selling expenses were $5.4 million for the three months ended January 31, 2013 compared to $3.8 million during the three months ended January 31, 2012. Administrative and selling expenses increased as a result of increased business development activity in the U.S. and Europe.
Research and development expenses
Research and development expenses decreased $0.5 million to $3.3 million during the three months ended January 31, 2013, compared to $3.8 million for the same period in 2012. The decrease reflects resource requirements on the previously discussed manufacturing quality issue on a select batch of fuel cell stacks. Our internal research and development focus continues to be on initiatives that have near term product implementation potential and product cost reduction opportunities.
Loss from operations
Loss from operations for the three months ended January 31, 2012 was $11.1 million compared to a loss of $5.4 million for the same period in 2012. The increase was a result of a quality issue identified in a select batch of fuel cell stacks, unfavorable manufacturing variances and increased business development activity which increased administrative and selling expenses, partially offset by lower research and development expenses.
Interest expense
Interest expense for the three months ended January 31, 2013 and 2012 was $0.6 million. Interest expense for both periods includes interest for the amortization of the redeemable preferred stock of subsidiary of $0.5 million and $0.6 million, respectively.
Income/(loss) from equity investments
Equity in income of $0.05 million recorded in the three months ended January 31, 2013 represents our share of Versa's income through the acquisition date. A loss of $0.4 million was recorded for our share of Versa's losses for this investment for the three months ended January 31, 2012.
License fee and royalty income
License fee income for the three month period ended January 31, 2012 was $0.4 million which represents the license fee and royalty income earned from POSCO. Beginning in fiscal year 2013, license fees and royalty income have been included within revenues under service and license revenues. Refer to Critical Accounting Policies and Estimates for further discussion on this change.
Other income (expense), net
Other income (expense), net, was an expense of $0.3 million for the three month period ended January 31, 2013 compared to an income of $0.2 million for the same period in 2012.
Provision for income taxes
We have not paid federal or state income taxes in several years due to our history of net operating losses, although we have paid foreign taxes in South Korea. For the three months ended January 31, 2013 our provision for income taxes was insignificant. We have begun manufacturing products that are gross margin profitable on a per unit basis; however, we cannot estimate when production volumes will be sufficient to generate taxable domestic income. Accordingly, no tax benefit has been recognized for these net operating losses or other deferred tax assets as significant uncertainty exists surrounding the recoverability of these deferred tax assets.

18



Net loss attributable to noncontrolling interest
The net loss attributed to the noncontrolling interest for the three months ended January 31, 2013 and October 31, 2012 was $0.2 million and $0.1 million, respectively.
Preferred Stock dividends
Dividends recorded on the Series B Preferred Stock were $0.8 million in each of the three month periods of January 31, 2013, and 2012.
Net loss to common shareholders and loss per common share
Net loss to common shareholders represents the net loss for the period less the net loss attributable to noncontrolling interest, less the preferred stock dividends on the Series B Preferred Stock. For the three month periods ended January 31, 2013 and 2012, net loss to common shareholders was $12.5 million and $6.7 million, respectively and loss per common share was $(0.07) and $(0.05), respectively.

LIQUIDITY AND CAPITAL RESOURCES
The Company's future liquidity will be dependent on obtaining the order volumes and cost reductions necessary to achieve profitable operations. The Company expects to generate gross profit from product sales and revenues with production volumes in the range of 50 MW to 55 MW on an annualized basis. Increasing annual order volume and reduced product costs are expected to reduce annual cash use and we expect positive cash flows and net income profitability at an annual production rate of 80 - 90 MW. Actual results will depend on product mix, volume, future service costs and market pricing.
Annual production capacity at our manufacturing facility is up to 90 MW with full utilization under its current configuration. Numerous actions were undertaken during the first quarter of 2013 in preparation for increasing the annual production run-rate at the Torrington, Connecticut facility to 70 MW as a result of the increasing backlog. To support the production ramp more than 50 new manufacturing jobs have been created in Connecticut since the start of the first quarter.
The 121.8 MW POSCO order, combined with scheduled re-stacks of existing power plant installations that are currently under Service Agreements (SA's) is expected to provide a base level of production of approximately 50 MW per year through 2016 at the Company's production facility in Torrington, Connecticut. The Company also has production backlog of approximately 16 MW which are planned for 2013 production. The Company is targeting additional order flow of 20 to 30 MW in 2013. As order flow dictates, the Company will ramp up production to meet demand. EBITDA (earnings before interest, taxes, depreciation and amortization) breakeven is expected with annual production volume of approximately 80 MW.
The cell license agreement has multiple benefits for both FuelCell Energy and POSCO. POSCO is currently designing and will construct a cell manufacturing facility in South Korea capacity capable of producing up to 140 MW of product annually. Production in South Korea will improve responsiveness for meeting demand under the Renewable Portfolio Standard. The Company will avoid capital investment for Asian market development and will benefit from market expansion by receiving a royalty payment from POSCO for each power plant sold, with a 15 year royalty term. Establishing a second source of supply for fuel cell modules mitigates a risk factor for prospective customers evaluating long term fuel cell power plant projects that include scheduled replacement stacks. Increased production volume, whether in the USA or South Korea, will reduce the cost of DFC plants, further spurring market adoption.
If demand develops beyond the combined capacity of the Company and POSCO, we have the ability to further expand production capacity at our Torrington facility to approximately 150 MW. This expansion would require the addition of equipment (e.g. furnaces, tape casting and other equipment) to increase the capacity of certain manufacturing operations. Due to the economies of scale and equipment required, we believe it is more cost effective to add capacity in large blocks. We estimate that an expansion of the Company's Torrington facility to 150 MW would require additional capital investments of $30 to $40 million, although this expansion may occur in stages depending on the level of market demand.
In addition to cash flows from operations, we may also pursue raising capital through a combination of; (i) equity or strategic investments, (ii) debt financing (with improving operating results as the business grows, the Company expects to have access to the debt markets to finance capital expansion) and (iii) potential local or state Government loans or grants in return for manufacturing job creation. The timing and size of any financing will depend on multiple factors including market conditions, future order flow and the need to adjust production capacity. If we are unable to raise additional capital, our growth potential may be adversely affected and we may have to modify our plans. We anticipate that our existing capital resources, together with

19



anticipated order, revenues and cash flows, will be adequate to satisfy our financial requirements and agreements through at least the next twelve months.

Cash Flows
Cash and cash equivalents totaled $86.3 million as of January 31, 2013 compared to $57.5 million as of October 31, 2012. The key components of our cash inflows and outflows were as follows:
Operating Activities – Net cash provided by operating activities was $30.9 million during the first three months of 2013 compared to $17.8 million used in operating activities during the first three months of 2012. Net cash provided by operating activities for the first three month period of 2013 is a result of a decrease in accounts receivable of $17.0 million from customer collections, a decrease in inventories of $3.2 million resulting from the deployment of modules to customers, an increase in deferred revenues of $27.4 million relating to the timing of customer milestone billings. These were partially offset by a decrease in accounts payable and accrued liabilities of $6.4 million. Net cash used of $17.8 million during the first three months of 2012 related to a decrease in deferred revenues of $6.2 million due to lower progress payments on commercial orders, an increase of $6.2 million in inventory relating to the build of inventory for future orders, a decrease in accrued liabilities of $3.3 million, and an increase in accounts receivable of $1.9 million.
Investing Activities – Net cash used in investing activities was $1.0 million during the first three months of 2013 compared to net cash provided by investing activities of $6.6 million during the first three months of 2012. The net cash used in investing activities for the first three months of 2013 related to capital expenditures of $1.4 million, partially offset by cash acquired from the Versa acquisition of $0.4 million. Cash provided by investing activities during the first three months of 2012 relates to the maturity of U.S. treasuries of $7.5 million, partially offset by capital expenditures of $0.9 million.
Financing Activities – Net cash used in financing activities was $1.2 million during the first three months of 2013 compared to net cash used in financing activities of $3.2 million in the prior year period. The net cash used in financing activities during the first three months of 2013 was primarily for the payment of preferred dividends and return of capital relating of $1.1 million compared to $4.3 million in 2012. The first three months of 2012 also included cash received from the sale of common stock of $1.2 million.
Sources and Uses of Cash and Investments
We continue to invest in new product and market development and, as such, we are not currently generating positive cash flow from our operations on a consistent basis. Our operations are funded primarily through cash generated from product sales and advanced technology contracts, license fee income and raising capital. In order to consistently produce positive cash flow from operations, we need to be successful at increasing annual order volume and implementing our cost reduction efforts. Please see our Form 10-K for the fiscal year ended October 31, 2012 for further details.


20



Commitments and Significant Contractual Obligations
A summary of our significant future commitments and contractual obligations as of January 31, 2013 and the related payments by fiscal year are as follows:
 
 
Payments Due by Period
 
Total
 
Less
than 1
Year
 
1 – 3
Years
 
3 – 5
Years
 
More
than
5 Years
Purchase commitments (1)
$
81,265

 
$
73,629

 
$
7,636

 
$

 
$

Series 1 Preferred obligation (2)
14,102

 
1,247

 
2,495

 
2,495

 
7,865

Term loans (principal and interest)
4,240

 
1,070

 
429

 
475

 
2,266

Capital and operating lease commitments (3)
5,250

 
2,157

 
2,328

 
574

 
191

Revolving Credit Facility (4)
4,000

 
4,000

 

 

 

Series B Preferred dividends payable (5)
 
 
 
 
 
 
 
 
 
Totals
$
108,857

 
$
82,103

 
$
12,888

 
$
3,544

 
$
10,322

 
(1)
Purchase commitments with suppliers for materials, supplies and services incurred in the normal course of business.
(2)
On March 31, 2011, the Company entered into an agreement with Enbridge, Inc. (“Enbridge”) to modify the Class A Cumulative Redeemable Exchangeable Preferred Share Agreement (the “Series 1 Preferred Share Agreement”). The terms of the Series 1 preferred share agreement require payments of (i) an annual amount of Cdn$500,000 for dividends and (ii) an amount of Cdn.$750,000 as return of capital payments payable in cash. These payments commenced on March 31, 2011 and will end on December 31, 2020. Dividends accrue at a 1.25% quarterly rate on the unpaid principal balance, and additional dividends will accrue on the cumulative unpaid dividends (inclusive of the Cdn.$12.5 million unpaid dividend balance as of the modification date) at a rate of 1.25% per quarter, compounded quarterly. On December 31, 2020 the amount of all accrued and unpaid dividends on the Class A Preferred Shares of Cdn$21.1 million and the balance of the principal redemption price of Cdn.$4.4 million will be due to the holders of the Series 1 preferred shares. The Company has the option of making dividend payments in the form of common stock or cash under terms outlined in the preferred share agreement. For purposes of preparing the above table, the final balance of accrued and unpaid dividends due December 31, 2020 of Cdn.$21.1 million is assumed to be paid in the form of common stock and not included in this table.
(3)
Future minimum lease payments on capital and operating leases.
(4)
The amount represents the amount outstanding as of January 31, 2013 on a $5.0 million revolving credit facility with JPMorgan Chase Bank, N.A. and the Export-Import Bank of the United States. The credit facility is used for working capital to finance the manufacture and production and subsequent export sale of the Company’s products or services. The agreement has a one year term with renewal provisions and the current expiration date is April 3, 2013.  The outstanding principal balance of the facility will bear interest, at the option of the Company of either the one-month LIBOR plus 1.5 percent or the prime rate of JP Morgan Chase. The facility is secured by certain working capital assets and general intangibles, up to the amount of the outstanding facility balance.
(5)
We pay $3.2 million in annual dividends on our Series B Preferred Stock. The $3.2 million annual dividend payment has not been included in this table as we cannot reasonably determine the period when or if we will be able to convert the Series B Preferred Stock into shares of our common stock. We may, at our option, convert these shares into the number of shares of our common stock that are issuable at the then prevailing conversion rate if the closing price of our common stock exceeds 150 percent of the then prevailing conversion price ($11.75) for 20 trading days during any consecutive 30 trading day period.
In April 2008, we entered into a 10-year loan agreement with the Connecticut Development Authority allowing for a maximum amount borrowed of $4.0 million. At January 31, 2013, we had an outstanding balance of $3.4 million on this loan. The interest rate is 5 percent and the loan is collateralized by the assets procured under this loan as well as $4.0 million of additional machinery and equipment. Repayment terms require interest and principal payments through May 2018.

Bridgeport FuelCell Park, LLC (“BFCP”), one of our wholly-owned subsidiaries, has an outstanding loan with the Connecticut Clean Energy Fund, secured by assets of BFCP. Interest accrues monthly at an annual rate of 8.75 percent and repayment of principal and accrued interest is not required until the occurrence of certain events. The outstanding balance on this loan, including accrued interest, is $0.9 million as of January 31, 2013. On March 5, 2013 the Company closed on a new long-term loan agreement with the Connecticut Clean Energy and Finance Investment Authority (CEFIA) totaling $5.9 million in support of the Bridgeport project. A portion of the proceeds of this new loan will be used to repay an existing loan of $0.9 million due to the Connecticut Clean Energy Fund. The balance of this loan will be drawn down during 2013 as working capital support

21



during the construction period of the project. The loan agreement to carries an interest rate of 5.0% and principal repayments will commence on the eighth anniversary of the project's provisional acceptance date in forty eight equal monthly installments.

We have pledged approximately $15.6 million of our cash and cash equivalents as collateral and letters of credit for certain banking requirements and contracts. As of January 31, 2013, outstanding letters of credit totaled $14.7 million. These expire on various dates through July 2015.
As of October 31, 2012, we have uncertain tax positions aggregating $15.7 million and have reduced our net operating loss carryforwards by this amount. Because of the level of net operating losses and valuation allowances, unrecognized tax benefits, even if not resolved in our favor, would not result in any cash payment or obligation and therefore have not been included in the contractual obligation table above.
In addition to the commitments listed in the table above, we have the following outstanding obligations:
Power purchase agreements
In California, we have 1.5 MW of power plant installations under power purchase agreements ranging in duration from five to seven years. As owner of the power plants, we are responsible for all operating costs necessary to maintain, monitor and repair the power plants. Under certain agreements, we are also responsible for procuring fuel to run the power plants.
Service and warranty agreements
We warranty our products for a specific period of time against manufacturing or performance defects. Our standard warranty period is generally 15 months after shipment or 12 months after acceptance of the product. We have agreed to warranty kits and components for 21 months from the date of shipment due to the additional shipping and customer manufacture time required. In addition to the standard product warranty, we have contracted with certain customers to provide services to ensure the power plants meet minimum operating levels for terms ranging from one to 20 years. Our standard and most prevalent services agreement term is five years. Pricing for service contracts is based upon estimates of future costs, which could be materially different from actual expenses. Also see Critical Accounting Policies and Estimates for additional details.
Research and development cost-share contracts
We have contracted with various government agencies to conduct research and development as either a prime contractor or sub-contractor under multi-year, cost-reimbursement and/or cost-share type contracts or cooperative agreements. Cost-share terms require that participating contractors share the total cost of the project based on an agreed upon ratio. In many cases, we are reimbursed only a portion of the costs incurred or to be incurred on the contract. While government research and development contracts may extend for many years, funding is often provided incrementally on a year-by-year basis if contract terms are met and Congress authorizes the funds. As of January 31, 2013, research and development sales backlog totaled $18.0 million, of which $7.5 million is funded. Should funding be delayed or if business initiatives change, we may choose to devote resources to other activities, including internally funded research and development.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements and related disclosures requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Estimates are used in accounting for, among other things, revenue recognition, contract loss reserves, excess, slow-moving and obsolete inventories, product warranty costs, reserves on SA's, share-based compensation expense, allowance for doubtful accounts, depreciation and amortization, impairment of long-lived assets, purchase accounting, income taxes and contingencies. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.
Our critical accounting policies are those that are both most important to our financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our accounting policies are set-forth below.
Revenue Recognition
We earn revenue from (i) the sale and installation of fuel cell power plants and modules (ii) the sale of component part kits and spare parts to customers, (iii) site engineering and construction services (iv) providing services under SA's, (v) the sale of electricity under PPA's as well as incentive revenue from the sale of electricity under PPA's, (vi) license fees and royalty income from manufacturing and technology transfer agreements, and (vii) customer-sponsored advanced technology projects.

22



The Company periodically enters into arrangements with customers that involve multiple elements of the above items. We assess such contracts to evaluate whether there are multiple deliverables, and whether the consideration under the arrangement is being appropriately allocated to each of the deliverables. Our revenue is primarily generated from customers located throughout the U.S. and Asia and from agencies of the U.S. Government. Revenue from product and kit sales, construction services and component part kits revenue is recorded as product sales in the consolidated statements of operations. Revenue from SA's, PPA's, license and royalty revenue and engineering services revenue is recorded as service and license revenues and revenue from customer-sponsored advanced technology from research and development projects is recorded as advanced technologies contract revenues in the consolidated statements of operations.
For customer contracts for complete DFC Power Plants which the Company has adequate cost history and estimating experience and that management believes it can reasonably estimate total contract costs, revenue is recognized under the percentage of completion method of accounting. The use of percentage of completion accounting requires significant judgment relative to estimating total contract costs, including assumptions relative to the length of time to complete the contract, the nature and complexity of the work to be performed, anticipated increases in wages and prices for subcontractor services and materials, and the availability of subcontractor services and materials. Our estimates are based upon the professional knowledge and experience of our engineers, program managers and other personnel, who review each long-term contract on a quarterly basis to assess the contract's schedule, performance, technical matters and estimated cost at completion. Changes in estimates are applied retrospectively and when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods. Revenues are recognized based on the percentage of the contract value that incurred costs to date bear to estimated total contract costs, after giving effect to estimates of costs to complete based on most recent information. For customer contracts for new or significantly customized products, where management does not believe it has the ability to reasonably estimate total contract costs, revenue is recognized using the completed contract method and therefore all revenue and costs for the contract are deferred and not recognized until installation and acceptance of the power plant is complete. For all types of contracts, we recognize anticipated contract losses as soon as they become known and estimable. We have recorded an estimated contract loss reserve of $0.04 million as of January 31, 2013 and October 31, 2012. Actual results could vary from initial estimates and reserve estimates will be updated as conditions change.
Revenue from component part kits and spare parts sales is recognized upon shipment or title transfer under the terms of the customer contract. Terms for certain contracts provide for a transfer of title and risk of loss to our customers at our factory locations upon completion of our contractual requirement to produce and products prepare the products for shipment. A shipment in place may occur in the event that the customer is unready to take delivery of the products on the contractually specified delivery dates.

Site engineering and construction services revenue is recognized on a percentage of completion basis as costs are incurred.
Revenue from service agreement contracts is generally recorded ratably over the term of the SA, as our performance of routine monitoring and maintenance under these SA's are generally expected to be incurred on a straight-line basis. For SA's where we expect to have a restack at some point during the term (generally SA's in excess of five years), the costs of performance are not expected to be incurred on a straight-line basis, and therefore, a portion of the initial value related to the stack replacement is deferred and is recognized upon such stack replacement event. In the event a restack occurs whereby the stack estimated useful life exceeds the remaining contract term and if the customer agrees at the time of a restack to return the stack to the Company at the end of the term, the cost of the stack is recorded as a long-term asset and depreciated over its expected life, in which case we would record the remaining SA revenue ratably over the remaining term. If the Company does not obtain rights to title from the customer upon a restack, the cost of the stack is expensed.

Under PPA's, revenue from the sale of electricity is recognized as electricity is provided to the customer. Incentive revenue is recognized ratably over the term of the PPA.
The Company receives license fees and royalty income from POSCO as a result of manufacturing and technology transfer agreements entered into in 2007, 2009 and 2012. On October 31, 2012, we entered into a new license agreement; Cell Technology Transfer Agreement which provides POSCO with the technology to manufacture Direct FuelCell power plants in South Korea and the market access to sell power plants throughout Asia. In conjunction with this agreement we amended the 2010-year manufacturing and distribution agreement with POSCO and the 2009 License Agreement. The new 2012 agreement and the amendments contain multiple elements, including the license of technology and market access rights, fuel cell kit product deliverables, as well as professional service deliverables. We have identified these three items as deliverables under the multiple-element arrangement guidance and have evaluated the estimated selling prices to be allocated on a relative fair value basis to these deliverables, as vendor-specific objective evidence and third-party evidence was not available. The Company's determination of estimated selling prices involves the consideration of several factors based on the specific facts and circumstances of each arrangement. Specifically, the Company considers the cost to produce the tangible product and professional service deliverables,

23



the anticipated margin on those deliverables, prices charged when those deliverables are sold on a stand-alone basis in limited sales, and the Company's ongoing pricing strategy and practices used to negotiate and price overall bundled product, service and license arrangements. We are amortizing the consideration allocated to the license of technology and market access rights over the 15 year license term on a straight-line basis, and will recognize the amounts allocated to the kit deliverables and professional service deliverables, when such items are delivered to POSCO. We have also determined that based on the utility to the customer of the fully developed technology that was licensed in the Cell Technology Transfer Agreement, there is stand-alone value for this deliverable.

Beginning in fiscal year 2013, license fees and royalty income have been included within revenues on the consolidated statement of operations. This change is a result of the new license agreement entered into on October 31, 2012 for our core technology and the harmonization of the agreements to reflect fees and royalties for the manufacture of complete DFC Power Plants. Classification as revenue is reflective of our Asia market partnership and royalty based strategy and this business activity has become a significant component of non-product revenue and is expected to continue to grow over time.

Revenue from advanced technology contracts is recognized proportionally as costs are incurred and compared to the estimated total advanced technology costs for each contract. Revenue from customer funded advanced technology programs are generally multi-year, cost-reimbursement and/or cost-shared type contracts or cooperative agreements. We are reimbursed for reasonable and allocable costs up to the reimbursement limits set by the contract or cooperative agreement, and on certain contracts we are reimbursed only a portion of the costs incurred. While advanced technology contracts may extend for many years, funding is often provided incrementally on a year-by-year basis if contract terms are met and Congress has authorized the funds.
Inventories and Advance Payments to Vendors
Inventories consist principally of raw materials and work-in-process. In certain circumstances, we will make advance payments to vendors for future inventory deliveries. These advance payments are recorded as other current assets on the consolidated balance sheets.
Inventory is reviewed to determine if valuation adjustments are required for obsolescence (excess, obsolete, and slow-moving inventory). This review includes analyzing inventory levels of individual parts considering the current design of our products and production requirements as well as the expected inventory needs for maintenance on installed power plants.
Warranty and Service Expense Recognition
We warranty our products for a specific period of time against manufacturing or performance defects. Our warranty is limited to a term generally 15 months after shipment or 12 months after acceptance of our products, except for fuel cell kits. We have agreed to warranty fuel cell kits and components for 21 months from the date of shipment due to the additional shipping and customer manufacture time required. We reserve for estimated future warranty costs based on historical experience. We also provide for a specific reserve if there is a known issue requiring repair during the warranty period. Estimates used to record warranty reserves are updated as we gain further operating experience. As of January 31, 2013 and October 31, 2012, the warranty reserve, which is classified in accrued liabilities on the consolidated balance sheet, totaled $2.3 million.
In addition to the standard product warranty, we have entered into service agreement contracts with certain customers to provide monitoring, maintenance and repair services for fuel cell power plants. Under the terms of our service agreement, the power plant must meet a minimum operating output during the term. If minimum output falls below the contract requirement, we may be subject to performance penalties or may be required to repair or replace the customer's fuel cell stack. The Company has provided for a reserve for performance guarantees of $2.4 million and $2.2 million as of January 31, 2013 and October 31, 2012.
The Company provides for reserves on all SA's when the estimated future stack replacements and service costs exceed the remaining contract value. Reserve estimates for future costs on SA's are determined by a number of factors including the estimated remaining life of the stack, used replacement stacks available, our limit of liability on SA's and future operating plans for the power plant. Our reserve estimates are performed on a contract by contract basis and include cost assumptions based on what we anticipate the service requirements will be to fulfill obligations for each contract. As of January 31, 2013, our reserve on service agreement contracts totaled $5.5 million compared to $5.0 million as of October 31, 2012.
At the end of our SA's, customers are expected to either renew the SA or we anticipate that the stack module will be returned to the Company as the plant is no longer being monitored or having routine service performed. In situations where we do not expect to have a restack during the term, but a restack is required and if the customer agrees at the time of a restack to return the stack to the Company at the end of the SA term, the cost of the stack is recorded as a long-term asset and depreciated over its expected life. If the Company does not obtain rights to title from the customer the cost of the stack is expensed. As of October 31, 2013, the total remaining stack asset value was $12.9 million compared to $14.3 million as of October 31, 2012.

24



As of January 31, 2013, accumulated depreciation on stack assets totaled approximately $8.6 million compared to $7.6 million at October 31, 2012.
During fiscal 2011, the Company committed to a repair and upgrade program for a select group of 1.2 megawatt (MW) fuel cell modules produced between 2007 and early 2009. As of January 31, 2013, the balance was $4.7 million compared to $4.8 million as of October 31, 2012.
The Company has completed the repair activities related to the program. The remaining balance is primarily related to modules which are expected to be deployed as field replacements and will be provided to POSCO per the terms of the commitment when needed.
Share-Based Compensation
We account for restricted stock awards (RSA's) based on the closing market price of the Company's common stock on the date of grant. We account for stock options awarded to employees and non-employee directors under the fair value method of accounting using the Black-Scholes valuation model to estimate fair value at the grant date. The model requires us to make estimates and assumptions regarding the expected life of the option, the risk-free interest rate, the expected volatility of our common stock price and the expected dividend yield. The fair value of equity awards is amortized to expense over the vesting period, generally four years. Share-based compensation was $0.5 million for the three months ended January 31, 2013 and October 31, 2012.
Income Taxes
Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are determined based on net operating loss (“NOL”) carryforwards, research and development credit carryforwards, and differences between financial reporting and income tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to be in effect when the differences are expected to reverse. 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. A valuation allowance is recorded against deferred tax assets if it is unlikely that some or all of the deferred tax assets will be realized.
We apply the guidance regarding how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return (including a decision whether to file or not file a return in a particular jurisdiction). The company's financial statements reflect expected future tax consequences of such positions presuming the taxing authorities' full knowledge of the position and all relevant facts.
The evaluation of a tax position is a two-step process. The first step is recognition: the company determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement: a tax position that meets the “more likely than not” recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Certain transactions involving the Company's beneficial ownership occurred in fiscal 2012 and prior years, which could have resulted in a stock ownership change for purposes of Section 382 of the Internal Revenue Code of 1986, as amended. We completed a detailed Section 382 study in fiscal 2012 to determine if any of our NOL and credit carryovers will be subject to limitation. Based on that study we have determined that there was no ownership change as of October 31, 2012 under Section 382.

ACCOUNTING GUIDANCE UPDATE

Recently Adopted Accounting Guidance
In June 2011, the FASB issued guidance that eliminates the option to present items of other comprehensive income (“OCI”) as part of the statement of changes in stockholders’ equity, and instead requires either OCI presentation and net income in a single continuous statement to the statement of operations, or as a separate statement of comprehensive income. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company has adopted this update in the first quarter of fiscal year 2013. The adoption of this accounting guidance only impacted our financial statement presentation and did not have a material impact on our financial position, results of operations or disclosures.



25



Recent Accounting Guidance Not Yet Effective

In December 2011, the FASB issued guidance to enhance a financial statement user’s ability to understand the effects of netting arrangements on an entity’s financial statements, including financial instruments and derivative instruments that are either offset or subject to an enforceable master netting or similar arrangement. The scope of this guidance includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. This guidance also includes enhanced disclosure requirements, including both gross and net information about instruments and transactions eligible for offset or subject to an agreement similar to a master netting arrangement. The provisions will be applied retrospectively for interim and annual periods beginning on or after January 1, 2013. The adoption of this accounting guidance is not expected to have a material impact on our financial statements.



Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Exposure
We typically invest in U.S. treasury securities with maturities ranging from less than three months to one year or more. We typically hold these investments until maturity and accordingly, these investments are carried at cost and not subject to mark-to-market accounting. At January 31, 2013, we had no U.S. treasury investments. Cash is invested overnight with high credit quality financial institutions and therefore we are not exposed to market risk on our cash holdings from changing interest rates. Based on our overall interest rate exposure at January 31, 2013, including all interest rate sensitive instruments, a change in interest rates of one percent would not have a material impact on our results of operations.

Foreign Currency Exchange Risk
As of January 31, 2013, approximately three percent of our total cash, cash equivalents and investments were in currencies other than U.S. dollars (primarily the Euro, Canadian dollars and South Korean Won). We make purchases from certain vendors in currencies other than U.S. dollars. Although we have not experienced significant foreign exchange rate losses to date, we may in the future, especially to the extent that we do not engage in currency hedging activities. The economic impact of currency exchange rate movements on our operating results is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, may cause us to adjust our financing and operating strategies.
Derivative Fair Value Exposure
Series 1 Preferred Stock
The conversion feature and the variable dividend obligation of our Series 1 Preferred shares are embedded derivatives that require bifurcation from the host contract. The aggregate fair value of these derivatives included within long-term debt and other liabilities as of January 31, 2013 and October 31, 2012 was $0.7 million, respectively. The fair value was based on valuation models using various assumptions including historical stock price volatility, risk-free interest rate and a credit spread based on the yield indexes of technology high yield bonds, foreign exchange volatility as the Series 1 Preferred security is denominated in Canadian dollars, and the closing price of our common stock. Changes in any of these assumptions would change the underlying fair value with a corresponding charge or credit to earnings. However, any changes to these assumptions would not have a material impact on our results of operations.



26



Item 4.
CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures, which are designed to provide reasonable assurance that information required to be disclosed in the Company’s periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the Company’s periodic SEC reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in our internal controls over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

27




PART II. OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
We are involved in legal proceedings, claims and litigation arising out of the ordinary conduct of our business. Although we cannot assure the outcome, management presently believes that the result of such legal proceedings, either individually, or in the aggregate, will not have a material adverse effect on our consolidated financial statements, and no material amounts have been accrued in our consolidated financial statements with respect to these matters.

Item 1A.
RISK FACTORS
There have been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2012.

Item 6.
EXHIBITS
 
Exhibit No.
  
Description
10.69
 
Loan Agreement, dated March 5, 2013, between Clean Energy Finance and Investment Authority and the Company.
10.70
 
Security Agreement, dated March 5, 2013, by the Company in favor of the Clean Energy Finance and Investment Authority.
31.1
  
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
  
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
  
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
  
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS#
  
XBRL Instance Document
101.SCH#
  
XBRL Schema Document
101.CAL#
  
XBRL Calculation Linkbase Document
101.LAB#
  
XBRL Labels Linkbase Document
101.PRE#
  
XBRL Presentation Linkbase Document
101.DEF#
  
XBRL Definition Linkbase Document
The exhibits marked with the section symbol (#) are interactive data files. Pursuant to Rule 406T of Regulation S-T, these interactive data files (i) are not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, irrespective of any general incorporation language included in any such filings, and otherwise are not subject to liability under these sections; and (ii) are deemed to have complied with Rule 405 of Regulation S-T (“Rule 405”) and are not subject to liability under the anti-fraud provisions of the Section 17(a)(1) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 or under any other liability provision if we have made a good faith attempt to comply with Rule 405 and, after we become aware that the interactive data files fail to comply with Rule 405, we promptly amend the interactive data files.

28




SIGNATURE
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 on March 12, 2013.
 
 
 
FUELCELL ENERGY, INC.
 
 
(Registrant)
March 12, 2013
 
/s/ Michael S. Bishop
Date
 
Michael S. Bishop
Senior Vice President, Chief Financial Officer,
Treasurer and Corporate Secretary
(Principal Financial Officer and Principal Accounting Officer)



29



INDEX OF EXHIBITS

Exhibit
No.
 
Description
10.69
 
Loan Agreement, dated March 5, 2013, between Clean Energy Finance and Investment Authority and the Company.
10.70
 
Security Agreement, dated March 5, 2013, by the Company in favor of the Clean Energy Finance and Investment Authority.
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
 
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
 
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Schema Document
101.CAL
 
XBRL Calculation Linkbase Document
101.LAB
 
XBRL Labels Linkbase Document
101.PRE
 
XBRL Presentation Linkbase Document
101.DEF
 
XBRL Definition Linkbase Document













LOAN AGREEMENT
BETWEEN
CLEAN ENERGY FINANCE
AND INVESTMENT AUTHORITY,
as Lender,

AND
FUELCELL ENERGY, INC.,
as Borrower.










Dated:
March 5, 2013

1


LOAN AGREEMENT

THIS LOAN AGREEMENT (this “ Agreement ”) is made as of March 5, 2013, by and between FuelCell Energy, Inc., a Delaware corporation having its principal place of business at 3 Great Pasture Road, Danbury, Connecticut 06810 (“ Borrower ”), and the Clean Energy Finance and Investment Authority, a quasi-public agency of the State of Connecticut, acting as administrator of the Clean Energy Fund pursuant to Section 16-245n of the General Statutes, as amended by Section 99 of Public Act No. 11-80, and having its principal place of business at 865 Brook Street, Rocky Hill, Connecticut 06067 (the “ Lender ”).
WITNESSETH:

WHEREAS, the Borrower has requested that Lender lend it the sum of up to Five Million Eight Hundred Seventy-Three Thousand One Hundred Eighty-Eight and 45/100 Dollars ($5,873,188.45) for the purposes described in Section 5.7 herein; and

WHEREAS, Lender has agreed to make the Loan upon the terms and conditions hereinafter set forth in order to stimulate and encourage growth and investment in clean energy projects in the State of Connecticut; and

WHEREAS, Borrower and Lender agree that upon Borrower’s initial draw under this Loan, Borrower shall pay Eight Hundred Seventy-Three Thousand One Hundred Eighty-Eight and 45/100 Dollars ($873,188.45) (the “ Initial Draw Amount ”) of such drawn amounts to the Lender in order to pay off all outstanding, principal, interest and other obligations of Bridgeport Fuel Cell Park, LLC, a wholly-owned Subsidiary of Borrower, under that certain Loan Agreement, dated April 13, 2006, between Bridgeport Fuel Cell Park, LLC and Connecticut Innovations, Incorporated, acting on behalf of Connecticut Clean Energy Fund (the “ Pre-Development Loan ”) in full satisfaction of all of its obligations pursuant to the Pre-Development Loan.

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

SECTION I.

DEFINITIONS
1.1.      Definitions .
All capitalized terms used in this Agreement, in the Term Note, in the other Loan Documents or in any certificate, report or other document made or delivered pursuant to this Agreement (unless otherwise defined therein) shall have the meanings assigned to them below:
Account Control Agreement . The Blocked Account Control Agreement (“Shifting Control”) with respect to the Project Account, among Lender, Borrower and JPMorgan Chase Bank, N.A. dated March 5, 2013.

2


Affiliate . With respect to any Person, any Person which directly or indirectly Controls, is controlled by, or is under common Control with such Person; provided , however , that neither Lender nor any of its Affiliates shall be deemed or construed to be an Affiliate of the Borrower or any of its Affiliates solely as a consequence of holding the Term Note.
Agreement . This Loan Agreement, including the Exhibits and Schedules hereto, as the same may be supplemented, amended or restated from time to time.
Availability Period . The period commencing on the date that Lender receives the Environmental Report from Borrower demonstrating to Lender’s reasonable satisfaction that Borrower has adequately completed the Project Site Environmental Remediation and ending on April 30, 2014.
Asset Purchase Agreement . The Asset Purchase Agreement between Borrower, Bridgeport Fuel Cell Park, LLC and Dominion Bridgeport Fuel Cell, Inc., dated December 12, 2012.
Borrower . See Preamble.
Borrower’s Accountants . KPMG LLP, or such other independent certified public accountants as are selected by the Borrower and reasonably acceptable to the Lender.
Business Day . Any day other than a Saturday, Sunday or legal holiday on which banks in the State of Connecticut are open for the conduct of a substantial part of their commercial banking business.
Change in Control . The occurrence of any one of the following events:

(a)     the acquisition of direct or indirect Control of the Borrower by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), other than a Person or group which Controls Borrower as of the Closing Date; or

(b)     any sale, lease, exchange or other transfer (in a single transaction or a series of transactions) of all or substantially all of the assets of Borrower to any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof).

Closing Date . The first Business Day on which the conditions set forth in Section 3.1 have been satisfied or waived.
Code . The Internal Revenue Code of 1986 and the rules and regulations thereunder, collectively, as the same may from time to time be supplemented or amended and remain in effect.
Collateral . All of the property, rights and interests of the Borrower that are or are intended to be subject to the security interests and Liens created by the Security Documents.

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Compliance Certificate . A certificate, signed and certified as accurate and complete by a Responsible Officer of the Borrower, in substantially the form of Exhibit B or another form that is acceptable to the Lender in its sole discretion.
    
Control . The possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract, or otherwise. A Person shall be deemed to control another person if the controlling Person owns 20% or more of any Voting Stock of the controlled person or possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the controlled person, whether through ownership of stock, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
Default . An Event of Default or any event or condition that, but for the requirement that time elapse or notice be given, or both, would constitute an Event of Default.
Default Rate . The interest rate otherwise applicable to the Loan plus 3% per annum.
Disbursement Date . The date(s) on which Lender disburses the amount of the Loan or part thereof to the Borrower or its order pursuant to this Agreement.
EPC Agreement . That certain Agreement between Dominion Bridgeport Fuel Cell, LLC and Borrower for Engineering, Procurement and Construction for the Bridgeport Fuel Cell Park, Purchase Order No. 70254744, dated as of December 12, 2012.
Environmental Laws . Any and all applicable Law relating to injury to, or the protection of, real or personal property or human health or the environment, including, without limitation, all requirements pertaining to reporting, licensing, permitting, investigation, remediation and removal of emissions, discharges, releases or threatened releases of Hazardous Materials into the environment or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of such Hazardous Materials.
Environmental Report . A written report from Borrower’s environmental consultant, Fuss & O’Neill, that demonstrates to Lender’s reasonable satisfaction that Borrower has adequately completed the Project Site Environmental Remediation set forth in the November 26, 2012 letter from Fuss & O’Neill Richard S. Kulger and Andrew R. Zlotnick to Kirk Arneson, Senior Project Manager, Fuel Cell Energy, entitled “Work Plan for Site Preparation and Remediation Services, Bridgeport Fuel Cell Park, 1366 Railroad Avenue, Bridgeport, CT.”
Equity Interests . Shares of capital stock, partnership interest, membership interests in a limited liability company, beneficial interests in a trust or other equity interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.
ERISA . The Employee Retirement Income Security Act of 1974 and the rules and regulations thereunder, collectively, as the same may from time to time be supplemented or amended and remain in effect.

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ERISA Affiliate . Any trade or business, whether or not incorporated, that is treated as a single employer with the Borrower under Section 414(b), (c), (m) or (o) of the Code and Section 4001(a)(14) of ERISA.
ERISA Event . (a) Any “reportable event,” as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC as of the date hereof; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of the Borrower or any of its ERISA Affiliates from any Multiemployer Plan; (f) the receipt by the Borrower of any ERISA Affiliate from the PBGC or a plan administrator or any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g) the receipt by the Borrower or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability (as defined in Part I of Subtitle E of Title IV of ERISA) with respect to any Multiemployer Plan or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the occurrence of a “prohibited transaction” with respect to which the Borrower or any of its Subsidiaries is a “disqualified person” (within the meaning of Section 4975 of the Code) or with respect to which the Borrower or any such Subsidiary could otherwise be liable; and (i) any other event or condition with respect to a Plan or Multiemployer Plan that could reasonably be expected to result in liability of the Borrower.
Event of Default . Any event or condition identified as such in Section 8.1 hereof.
Excluded Taxes . With respect to the Lender or any other recipient of any payment to be made by or on account of any obligation of any Borrower under any Loan Document, (a) Taxes imposed on or measured by net income, franchise Taxes or branch profits Taxes under Section 884 of the Code (and similar Taxes imposed in lieu thereof) imposed by a jurisdiction as a result of such recipient being organized in or having its principal office or, in the case of a Lender, having its applicable lending office in, such jurisdiction, or as a result of any other present or former connection between such recipient and such jurisdiction, other than any connection arising from such recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or enforced, any Loan Document or sold or assigned an interest in any Loan or Credit Document, (b) in the case of a Lender, any U.S. federal withholding Tax that is imposed pursuant to a law in effect at the time such Lender becomes a party to this Agreement (or designates a new lending office), except to the extent that pursuant to Section 2.5, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, and (c) any U.S. federal withholding Tax imposed pursuant to FATCA.
Field Exam . See Section 5.5.
GAAP . United States generally accepted accounting principles, consistently applied.

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Governmental Authority . Any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
Grant Agreement . The Standard Grant Agreement between the Lender and Dominion Bridgeport Fuel Cell, LLC, dated December 12, 2012.
Grantor Trust . That certain trust created by the Borrower pursuant to a Grantor Trust Agreement between the Borrower and Branch Banking and Trust Company (the “ Grantor Trust Agreement ”), in accordance with Section 8.3 of the Services Agreement, which secures certain of the Borrower’s continuing obligations to Bridgeport Fuel Cell, LLC pursuant to the Asset Purchase Agreement, EPC Agreement and the Services Agreement.
Law . Any United States federal, state, local, county or municipal law, statute, regulation, code, order, ordinance, rule, decree, judgment, consent decree, or governmental requirement enacted, promulgated, entered into, agreed or imposed by any Governmental Authority
Guarantees . As applied to any Person (the “ Guarantor ”), all guarantees, endorsements and other contingent or surety obligations with respect to Indebtedness or other obligations of any other Person (the “ primary obligor ”), whether or not reflected on the consolidated balance sheet of the guarantor, including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or other obligation.
Guarantor . See Guarantees.
Hazardous Material . Any substance (a) the presence of which requires or may hereafter require notification, investigation, removal or remediation under any Environmental Law; (b) which is or becomes defined as a “hazardous waste”, “hazardous material” or “hazardous substance” or “pollutant” or “contaminant” under any present or future Environmental Law or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq .) and any applicable local statutes and the regulations promulgated thereunder; (c) that is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and that is or becomes regulated pursuant to any Environmental Law by any Governmental Authority; or (d) without limitation, that contains gasoline, diesel fuel or other petroleum products, asbestos or polychlorinated biphenyls (“PCB’s”).
Indebtedness . As applied to the Borrower and its Subsidiaries, without duplication, (a) all obligations for borrowed money or other extensions of credit whether secured or unsecured, absolute or contingent, including, without limitation, unmatured reimbursement obligations with respect to letters of credit or guarantees issued for the account of or on behalf of the Borrower and its Subsidiaries and all

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obligations representing the deferred purchase price of property, other than accounts payable arising in the ordinary course of business, (b) all obligations evidenced by bonds, notes, debentures or other similar instruments, (c) all obligations secured by any mortgage, pledge, security interest or other Lien on property owned or acquired by the Borrower or any of its Subsidiaries whether or not the obligations secured thereby shall have been assumed, (d) that portion of all obligations arising under leases that is required to be capitalized on the consolidated balance sheet of the Borrower and its Subsidiaries, (e) all obligations that are immediately due and payable out of the proceeds of or production from property now or hereafter owned or acquired by the Borrower or any of its Subsidiaries, (f) all other obligations that, in accordance with GAAP, would be included as a liability on the consolidated balance sheet of the Borrower and its Subsidiaries, but excluding anything in the nature of capital stock, capital surplus and retained earnings, (g) the principal and interest portions of all rental obligations of Borrower and its Subsidiaries under any off balance sheet loan or similar off balance sheet financing where such transaction is considered borrowed money indebtedness for Tax purposes but is classified as an operating lease in accordance with GAAP, and (h) all Guarantees of the foregoing.
Initial Draw . At Closing, Borrower may make an initial draw under this Loan of the Initial Draw Amount in order to pay off all outstanding, principal, interest and other obligations of Bridgeport Fuel Cell Park, LLC, a wholly-owned Subsidiary of Borrower, under the Pre-Development Loan.
Initial Draw Amount . Has the meaning set forth in the Recitals of this Agreement.
Initial Financial Statement . See Section 4.6(a).
Intercompany Indebtedness . See Section 10.21.
Interest Deficit . See Section 2.3(c)
Knowledge of the Borrower . As to a particular matter, the actual knowledge of the following persons: Arthur Bottone, Michael Bishop, Steve Brown, Anthony Leo, Anthony Rauseo, Andrew Skok, Michael Riddell, Kirk Arneson, Ben Toby, Frank Wolak, and Michael Sumrow.
Lender . See Preamble.
Liens . See Section 7.3.
Loan Documents . This Agreement, the Term Note, and the Security Documents, together with any agreements, instruments or documents now or hereafter executed and delivered pursuant to or in connection with any of the foregoing.
Loan . The term loan made or to be made by the Lender to the Borrower pursuant to Section II of this Agreement.
Material Adverse Effect . An event, circumstance, happening or condition which has resulted or could reasonably be expected to result in a material adverse effect on (a) the business, operations, property, assets, or financial condition of the Borrower and all of its Subsidiaries taken as a whole, (b) the ability of Borrower to perform any material obligation or to pay any Obligations under this Agreement or the other Loan Documents, or (c) the validity or enforceability of this Agreement or any

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of the other Security Documents or any of the rights or remedies of Lender hereunder or thereunder. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event in and of itself does not have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other than existing events would result in a Material Adverse Effect.
Maturity Date . The earlier of (a) the date that is one hundred forty four (144) months after the Provisional Acceptance Date, and (b) March 31, 2026.
Multiemployer Plan . Any plan that is a Multiemployer Plan as defined in Section 4001(a)(3) of ERISA.
Note Record . Any internal record, including a computer record, maintained by the Lender with respect to the Loan.
Obligations . The aggregate outstanding principal balance of and interest (and premium, if any) on the Loan (including, without limitation, interest accruing at the then applicable rate provided herein after the maturity of the Loan and interest accruing at the then applicable rate provided herein after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) and all other obligations of the Borrower to the Lender of every kind and description pursuant to or in connection with the Loan Documents, direct or indirect, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising, regardless of how they arise or by what agreement or instrument, if any, in each case whether on account of principal, interest, premium, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel that are required to be paid by the Borrower or any Guarantor pursuant to any of the Loan Documents), and including obligations to perform acts and refrain from taking actions as well as obligations to pay money.
Patriot Act . The United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, together with any amendments or supplements thereto or replacements thereof.
PBGC . The Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.
Pension Plan . Any Plan that is a “single employer plan” (as defined in Section 4001(a)(15) of ERISA).
Permitted Liens . See Section 7.3.
Person . Any individual, corporation, partnership, limited liability company, trust, association, unincorporated association, business or other legal entity, including any Government Authority.
Plan . Any “employee pension benefit plan” or “employee welfare benefit plan” (each as defined in Section 3 of ERISA) maintained by the Borrower or any Subsidiary of the Borrower.

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Pre-Development Loan . Has the meaning set forth in the Recitals of this Agreement.
Prohibited Transaction . Any “prohibited transaction” within the meaning of Section 406 of ERISA or Section 4975 of the Code that is not subject to a statutory, regulatory, class or individual exemption.
Project . The Bridgeport Fuel Cell Park project more fully described in Exhibit A hereto.
Project Accoun t. A depository account of Borrower maintained at JPMorgan Chase Bank, N.A, into which all payments to Borrower under the Services Agreement shall be deposited.
Project Agreements . The Asset Purchase Agreement, EPC Agreement, Services Agreement and the Grantor Trust Agreement.
Provisional Acceptance Date . The date on which Borrower has achieved “Provisional Acceptance” (as such term is defined in the EPC Agreement).
Responsible Officer . The chief executive officer, president, chief financial officer or treasurer of the Borrower, and any other officer of the Borrower designated by the Borrower to sign on its behalf.
SEC . The Securities and Exchange Commission.
Security Agreement . That certain Security Agreement dated as of the date hereof by and among Lender and Borrower pursuant to which the Borrower shall grant to Lender (a) first priority perfected security interests in Borrower’s right and interest in all future cash flows from the Project Agreements (other than cash flows from the EPC Agreement that are deposited into the Grantor Trust), and (b) a first priority, perfected security interest in Borrower’s rights to receive funds under the Grantor Trust, including without limitation Borrower’s right to receive interest on the balance of escrowed funds under the Grantor Trust.
Security Documents . The Security Agreement and the Account Control Agreement, each in favor of the Lender to secure the Obligations, in each case as amended and/or restated and in effect from time to time, and any additional documents evidencing or perfecting the Lender’s Lien on the Collateral. Services Agreement . That certain Services Agreement by and between Dominion Bridgeport Fuel Cell, LLC and FuelCell Energy, Inc., dated as of December 12, 2012.
Subsidiary . With respect to any Person, any corporation, association, joint stock company, business trust, partnership, limited liability company or other similar organization of which more than 50% of the ordinary voting power for the election of a majority of the members of the board of directors or other governing body of such entity is held or controlled by such Person or a Subsidiary of such Person; or any other such organization the management of which is directly or indirectly controlled by such Person or a Subsidiary of such Person through the exercise of voting power or otherwise; or any joint venture, whether incorporated or not, in which such Person has more than a 50% ownership interest. Unless otherwise expressly noted herein, the term “Subsidiary” means a Subsidiary of Borrower or of any of its direct or indirect Subsidiaries.

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Taxes . All present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Term Note . The Term Note in substantially the form of Exhibit C hereto, dated as of the Closing Date, executed by the Borrower and purchased by the Lender on the Closing Date in the principal amount of Five Million Eight Hundred Seventy-Three Thousand One Hundred Eighty-Eight and 45/100 Dollars ($5,873,188.45).
U.S. Person . Any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.
Voting Stock . Capital stock or other Equity Interests of a corporation, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or persons performing similar functions).
1.2.      Rules of Interpretation .
(a)    All terms of an accounting or financial character used herein but not defined herein shall have the meanings assigned thereto by GAAP, as in effect from time to time, and all calculations for the purposes of Section VI hereof shall be made in accordance with GAAP; provided that if any time after the date hereof there shall occur any change in respect of GAAP from that used in the preparation of the audited financial statements referred to in Section 4.6(a) in a manner that would have a material effect on any matter which is material to Section VI, the Borrower and the Lender will, within ten Business Days after notice from the Lender or the Borrower, as the case may be to that effect, commence and continue in good faith negotiations with a view towards making appropriate amendments to the provisions hereof reasonably acceptable to the Lender to reflect as narrowly as possible the effect on Section VI as in effect on the date hereof; provided , further , that until such notice shall have been withdrawn or the relevant provisions amended in accordance herewith, Section VI shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective.
(b)    Except as otherwise specifically provided herein, reference to any document or agreement shall include such document or agreement as amended, modified or supplemented and in effect from time to time in accordance with its terms and the terms of this Agreement.
(c)    The singular includes the plural and the plural includes the singular. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.
(d)    A reference to any Person includes its permitted successors and permitted assigns.
(e)    The words “include”, “includes” and “including” are not limiting.
(f)    The words “herein”, “hereof”, “hereunder” and words of like import shall refer to this Agreement as a whole and not to any particular section or subdivision of this Agreement.

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(g)    All terms not specifically defined herein or by GAAP that are defined in the Uniform Commercial Code as in effect in the State of Connecticut, shall have the meanings assigned to them in such Uniform Commercial Code.

SECTION II.

DESCRIPTION OF LOAN
2.1.     The Loan .
(a)    The parties agree that, subject to the terms and conditions of this Agreement, the Term Note and the other Loan Documents, upon a request of the Borrower, during the Availability Period and together with the Initial Draw the Lender shall make and Borrower shall borrow the Loan in an aggregate amount not exceeding the principal amount of Five Million Eight Hundred Seventy-Three Thousand One Hundred Eighty-Eight and 45/100 Dollars ($5,873,188.45). Borrower shall not be allowed to re-borrow any amount repaid (whether voluntary or otherwise) on the Loan. Amounts remaining undrawn at the end of the Availability Period shall be automatically cancelled and unavailable for borrowing by the Borrower.
(b)    The obligation of the Lender to make the Loan shall be subject to compliance with the terms and conditions in Section 2.6 and satisfaction of the conditions precedent in Article III herein, and receipt of such other approvals, opinions or documents that the Lender may reasonably request.
2.2.      The Term Note; Recordation . The Loan shall be evidenced by the Term Note. The Borrower irrevocably authorizes the Lender to make or cause to be made, at or about the time of the Closing Date of the Loan or at the time of receipt of any payment of principal on the Term Note, an appropriate notation on its Note Record reflecting (as the case may be) the making of such Loan or the receipt of such payment. The outstanding amount of the Loan set forth on the Note Record shall be prima facie evidence of the principal amount thereof owing and unpaid to the Lender, but the failure to record, or any error in so recording, any such amount on the Lender’s Note Record shall not limit or otherwise affect the obligations of the Borrower hereunder or under the Term Note to make payments of principal of or interest on the Term Note when due.
2.3.      Interest Rate .
(a)      Accrued Interest; Interest Payments .
(i)      Interest on the outstanding principal balance of the Term Note shall accrue monthly in arrears from the date of this Agreement until the Provisional Acceptance Date at the rate per annum equal to 5% and added monthly to the balance of the Loan. All computations of interest hereunder for the Loan shall be made on the basis of a 360 day year and the actual number of days elapsed.

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(ii)    Beginning on the Provisional Acceptance Date and until the indefeasible payment in full of the Obligations, Borrower shall pay interest to the Lender monthly in arrears on the outstanding Loan at a rate per annum equal to 5% with the first interest payment being due on the first day of the month immediately succeeding the Provisional Acceptance Date and in monthly installments thereafter. Interest shall be calculated on the basis of a year of 360 days and the actual number of days elapsed.
(b)      Default . If a Default shall occur, then at the option of the Lender (whether or not any of the Obligations have been accelerated) the unpaid balance of the Loan shall bear interest, to the extent permitted by law, at the Default Rate until such Default is cured or waived.
(c)      Interest Adjustments . Notwithstanding anything in the Loan Documents to the contrary, if this Agreement, the Term Note or the other Loan Documents would at any time otherwise require payment to the Lender of an amount of interest in excess of the maximum amount then permitted by law, such interest payments to the Lender shall be reduced to the extent necessary so as to ensure that the Lender shall not receive interest in excess of such maximum amount. To the extent that, pursuant to the foregoing sentence, the Lender shall receive interest payments hereunder or under the Term Note in an amount less than the amount otherwise provided, such deficit (the “ Interest Deficit ”) will cumulate and will be carried forward until the termination of this Agreement. Interest otherwise payable to the Lender hereunder and under the Term Note for any subsequent period shall be increased by the maximum amount of the Interest Deficit that may be so added without causing the Lender to receive interest in excess of the maximum amount then permitted by the law.
2.4.      Payments and Prepayments of the Loan .
(a)      Monthly Repayments . Borrower shall repay to the Lender all the drawn Loan amounts in forty-eight equal monthly installments in the amounts set forth in a schedule to be provided by the Lender to the Borrower on or before the date that is thirty (30) days from the last day of the Availability Period, which shall be payable on or before the first day of each month, beginning on the eighth anniversary of the Provisional Acceptance Date and monthly thereafter.
(b)     Repayment at Maturity . On the Maturity Date, the Borrower shall pay in full the unpaid principal balance of the outstanding Loan together with all unpaid interest thereon and all fees and other amounts due with respect thereto.
(c)     Prepayment Generally . The Loan may be prepaid at any time, without premium or penalty, upon two (2) Business Days prior written notice to Lender. Any such notice of prepayment shall be irrevocable. No such voluntary prepayment shall be in an amount less than $25,000.
(d)     Mandatory Prepayments . Any funds released under the Grantor Trust to the Borrower shall be paid by the Borrower directly to the Lender as a repayment of the Loan, and such amounts shall be applied to the Borrower’s scheduled repayments in Section 2.4(a) herein in inverse order of maturity.
2.5.      Method of Payments . All payments by the Borrower hereunder and under any of the other Loan Documents shall be made at:

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Bank Name: Webster Bank
Bank Address: 377 Cromwell Ave., Rocky Hill, CT 06067
Routing Number: 211170101
Bank Account Number: 1918015762
Name on Account: Clean Energy Finance and Investment Authority

or such other place as Lender may from time to time designate in writing, in lawful money of the United States. In each case, such payments shall be made in immediately available funds, and shall be deemed to have been made only when made in compliance with this Section. All such payments shall be made without set-off or counterclaim and free and clear of and without deduction for any Taxes. If any such obligation, other than an Excluded Tax, is imposed upon the Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, the Borrower will pay to the Lender such additional amount in U.S. Dollars as shall be necessary to enable the Lender to receive the same net amount that the Lender would have received on such due date had no such obligation been imposed upon the Borrower. The Borrower will deliver promptly to the Lender certificates or other valid vouchers or other evidence of payment satisfactory to the Lender for all Taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document.
2.6.      Drawdowns .
Borrower shall be permitted to make one (1) drawing per month under the Loan, and such drawings must occur during the Availability Period, except that the Initial Draw may be drawn by Borrower at the Closing. The date of each such drawing shall be known as a “Disbursement Date”, and the date of the first drawing shall be the first Disbursement Date. The amount of each draw for a particular month must be within the permitted drawdown range for that month, as such information is set forth in Schedule 2.6a to this Agreement. To request a borrowing under the Loan, Borrower shall notify Lender of such request in writing not later than 12:00 p.m., Eastern time, five (5) Business Days before the date of the proposed borrowing. Each such borrowing request shall be irrevocable and shall be in the form attached as Exhibit D and signed by Borrower. Each such written borrowing request shall specify the following information in compliance with this Section 2.6: (i) the aggregate amount of the requested borrowing; (ii) the date of such borrowing, which shall be a Business Day; (iii) certification that as of the date of borrowing the Borrower is in compliance with all covenants set forth in this Agreement and that the representations and warranties set forth in this Agreement remain true and correct in all respects, and (iv) a description of the purpose of such borrowing along with such other supporting documents and evidence as the Lender reasonably requires.
All outstanding undrawn commitments under the Loan shall automatically be cancelled and reduced to zero at the close of business in Connecticut on the last day of the Availability Period.

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SECTION III.

CONDITIONS TO THE LOAN
3.1.      Conditions Precedent to the Initial Draw .
The obligation of the Lender to make the initial draw on the Loan is subject to the satisfaction of the following conditions precedent on or prior to the Closing Date:
(a)      Closing Deliveries . The Lender shall have received the following agreements, documents, certificates and opinions in form and substance satisfactory to the Lender and its counsel and duly executed and delivered by the parties thereto:
(i)    this Agreement;
(ii)    the Term Note, substantially in the form of Exhibit C hereto;
(iii)    the Security Agreement;
(iv)    Account Control Agreement with respect to the Project Account;
(v)    a copy of the Borrower’s written notice to Dominion Bridgeport Fuel Cell, LLC to make all payments due to the Borrower under the Services Agreement directly into the Project Account;
(vi)    a legal opinion or opinions from the Borrower’s counsel;
(vii)    certificates of insurance or insurance binders evidencing compliance with Section 5.3 hereof and the applicable provisions of the Security Documents;
(viii)    a copy, certified by a duly authorized officer of the Borrower to be true and complete on the Closing Date, of the Borrower’s (a) articles of incorporation and certificate of incorporation, (b) bylaws or other similar agreement as in effect on such date of certification, and (c) to the extent required by such entity’s governing documents, the resolutions of the Borrower’s Board of Directors, authorizing the execution and delivery by the Borrower of the Loan Documents and identifying the officer(s) authorized to execute, deliver and take all other actions required under this Agreement, and providing specimen signatures of such officer(s);
(ix)    a certificate of good standing of recent date issued by the Secretary of State of the Borrower’s jurisdiction of incorporation;
(x)    a certificate of the Responsible Officer as to the solvency of the Borrower, that all conditions precedent on the part of the Borrower to the execution and delivery hereof and the making of the Loan hereunder have been satisfied, and the accuracy of the Borrower’s representations and warranties and such other matters as the Lender may request;

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(xi)    a non-discrimination certificate in the form attached hereto as Exhibit E ; and
(xii)    such other documents, instruments, opinions and certificates, and completion of such other matters, as the Lender may reasonably deem necessary or appropriate.
(b)     Litigation . No litigation, arbitration, proceeding or investigation shall be pending, or, to the Knowledge of the Borrower, threatened that questions the validity or legality of the transactions contemplated by any Loan Document or seeks a restraining order, injunction or damages in connection therewith, or that could reasonably be expected to have a Material Adverse Effect.
(c)     Perfected Security Interest . All necessary filings and recordings against the Collateral shall have been completed and the Lender shall have received evidence, in form and substance satisfactory to Lender, that Lender has valid perfected and first priority security interests in and Liens upon the Collateral and any other property which is intended to be security for the Obligations or the liability of any obligor in respect thereof, subject only to the security interests and Liens permitted herein or in the other Security Documents.
(d)     Material Adverse Change . No Material Adverse Effect shall have occurred with respect to Borrower since October 31, 2012, and no change or event shall have occurred which would impair the ability of Borrower to perform its obligations hereunder or under any of the other Loan Documents to which it is a party or the ability of Lender to enforce the Obligations or realize upon the Collateral.
(e)     Project Progress; No Default . The Borrower shall be on target to complete the Project by February 3, 2014, as determined by Lender in its reasonable discretion, and Borrower shall not be in default under the EPC Agreement, the Services Agreement, or the Grantor Trust Agreement.
(f)     Due Diligence; Lender Board Approval . Borrower shall provide Lender with all information and documents requested by the Lender to allow the Lender to have completed its due diligence on the Borrower and its assets and properties, and the results of such due diligence findings shall be to the satisfaction of the Lender in its sole and absolute discretion and Lender’s board of directors shall have approved the transaction.
(g)     Necessary Consents . Lender shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third persons necessary or desirable in order to permit, protect and perfect Lender’s security interests in and Liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and the other Loan Documents, including acknowledgments by lessors, mortgagees and warehousemen of Lender’s security interests in the Collateral, waivers by such persons of any security interests, Liens or other claims by such persons to the Collateral, and agreements permitting Lender access to, and the right to remain on, the premises to exercise its rights and remedies and otherwise deal with the Collateral.
3.2.      Conditions Precedent to Subsequent Draws . At the time of each draw under the Loan after the initial draw, Borrower shall be in compliance with all of the provisions, warranties, representation, agreements and covenants contained in this Agreement, the other Loan Documents and

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the Project Agreements; there shall exist no Event of Default; no Material Adverse Effect shall have occurred; the Borrower shall be on target to complete the Project by February 3, 2014; and Lender shall have received a certificate signed by a duly authorized officer of Borrower in the form attached hereto as Exhibit D dated the date of such draw, certifying to the foregoing as well as to the uses of the drawn amounts and the amount to be drawn pursuant to Section 2.6.
SECTION IV.

REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make the Loan, the Borrower hereby makes to Lender the following representations and warranties on the Closing Date and each Disbursement Date:
4.1.      Organization; Qualification; Business .
(a)      Each of the Borrower and its Subsidiaries (i) is a corporation, limited liability company, limited partnership or other business entity duly organized, validly existing and in good standing under the laws of its jurisdiction of formation, (ii) has all requisite power to own or lease its property and conduct its business as now conducted and as presently contemplated and (iii) is duly qualified and in good standing and is duly authorized to do business in each jurisdiction where the nature of its properties or business requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect. The jurisdictions in which Borrower is required to maintain foreign qualification to do business are set forth in Schedule 4.1 hereto.
(b)      Since the date of the Initial Financial Statement, the Borrower has continued to engage in substantially the same business as that in which it was then engaged.
4.2.      Authority; No Conflicts . The execution, delivery and performance of the Loan Documents and the transactions contemplated thereby are within the power and authority of the Borrower and have been authorized by all necessary limited liability company and/or corporate proceedings, as the case may be, and do not and will not (a) contravene any provision of the Certificate of Formation and Operating Agreement, or Certificate of Incorporation and Bylaws, as the case may be, of the Borrower or any of its Subsidiaries, or any law, rule or regulation applicable to the Borrower or any of its Subsidiaries, (b) contravene any provision of, or constitute an event of default or event that, but for the requirement that time elapse or notice be given, or both, would constitute an event of default under, any other order, agreement, lease, mortgage, note, bond, indenture, license, or other instrument or undertaking to which the Borrower is a party or by which any of its properties are bound, or (c) result in or require the imposition of any Lien on any of the properties, assets or rights of the Borrower or any of its Subsidiaries, except in favor of the Lender.
4.3.      Valid Obligations . Each of the Loan Documents delivered by the Borrower has been duly executed by the Borrower. The Loan Documents and all of their respective terms and provisions are the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors’ rights generally, and except as the remedy of specific

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performance or of injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought.
4.4.      Consents or Approvals . Except as set forth on Schedule 4.4 , the execution, delivery and performance of the Loan Documents and the transactions contemplated herein do not require any approval or consent of, or filing or registration with, any Governmental Authority, or any other Person.
4.5.      Title to Properties; Absence of Liens . Each of the Borrower and its Subsidiaries has good and marketable title to all of the properties, assets and rights of every name and nature now purported to be owned by it, and good and valid leasehold title to all of the properties, assets and rights of every name and nature now purported to be leased by it, including, without limitation, such properties, assets and rights as are reflected in the Initial Financial Statement (except such properties, assets or rights as have been disposed of in the ordinary course of business since the date thereof), free from all Liens except Permitted Liens, and free from all defects of title that could reasonably be expected to have a Material Adverse Effect. All leases under which Borrower or its Subsidiaries is the lessor or lessee are in full force and effect and there are no existing defaults or events that with the giving of notice or passage of time or both could ripen into defaults by either party thereunder. No third parties possess any rights with respect to any of Borrower’s or its Subsidiaries’ owned or leased properties, the exercise of which would have a Material Adverse Effect. All real property owned or leased by the Borrower is described in Schedule 4.5 hereto.
4.6.      Financial Statements; Indebtedness .
(a)      The Borrower has furnished to the Lender Borrower’s consolidated balance sheet as of each of October 31, 2011 and October 31, 2012 (the “ Initial Financial Statement ”), and Borrower’s consolidated statements of income, changes in shareholders’ equity and cash flow for the fiscal years then ended, and related footnotes, in each case audited and certified by the Borrower’s Accountants. All such financial statements were prepared in accordance with GAAP applied on a consistent basis throughout the periods specified and present fairly the financial position of the Borrower and its Subsidiaries as of such dates and the results of the operations of the Borrower and its Subsidiaries on a consolidated basis for such periods.
(b)    At the date hereof, the Borrower has no Indebtedness or other material liabilities, debts or obligations, whether accrued, absolute, contingent or otherwise, and whether due or to become due, including, but not limited to, liabilities or obligations on account of Taxes or other governmental charges, that are not set forth on the Initial Financial Statement or on Schedule 4.6 hereto.
4.7.      Changes . Since the date of the Initial Financial Statement, there have been no changes in the assets, liabilities, financial condition, business or prospects of the Borrower or any of its Subsidiaries, that have, in the aggregate, had a Material Adverse Effect to such Person.
4.8.      Solvency . Both Borrower and all of its Subsidiaries, taken as a whole:
(a)      have and, after giving effect to the Loan, will have, assets (both tangible and intangible) having a fair saleable value in excess of the amount required to pay the probable liability on

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their then-existing debts (whether matured or unmatured, liquidated or unliquidated, fixed or contingent);
(b)    have and will have access to adequate capital for the conduct of their business and the discharge of their debts incurred in connection therewith as such debts mature; and
(c)    were not insolvent immediately prior to the making of the Loan and, immediately after giving effect thereto, will not be insolvent.
4.9.      Defaults . As of the date of this Agreement, no Default has occurred and is continuing or would occur as a result of incurring the Obligations or the other transactions contemplated by the Loan Documents.
4.10.      Taxes . The Borrower and its Subsidiaries have filed all material federal, state and other Tax returns required to be filed, and all material Taxes, assessments and other governmental charges due from any of them have been fully paid, except for such Taxes, assessments or charges that are being contested in good faith by appropriate proceedings and with respect to which (a) adequate reserves have been established and are being maintained in accordance with GAAP and (b) no lien has been filed to secure such Taxes, assessments or charges. All such contests as of the Closing Date are described on Schedule 4.10 hereto. The Borrower and its Subsidiaries have not executed any waiver that would have the effect of extending the applicable statute of limitations in respect of material Tax liabilities. The federal and state income Tax returns of the Borrower and its Subsidiaries have not been audited or otherwise examined by any federal or state taxing authority, and neither the Borrower nor its Subsidiaries have received any notice that any such audit is required. The Borrower and its Subsidiaries have established on their books reserves adequate for the payment of all material federal, state and other Tax liabilities. The Borrower has materially complied with all applicable Law relating to the withholding of Taxes.
4.11.      Litigation . There is no litigation, arbitration, proceeding or investigation pending, or, to the Knowledge of the Borrower, threatened, against the Borrower or any Subsidiary that, individually or in the aggregate, if adversely determined, may reasonably be expected to have a Material Adverse Effect.
4.12.      Subsidiaries . All the Subsidiaries (whether direct or indirect) of Borrower and their jurisdictions of organization and foreign qualification are listed on Schedule 4.12 hereto.
4.13.      Governmental Regulations . Neither the Borrower nor any of its Subsidiaries is (a) an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended, or (b) subject to regulation under the Federal Power Act, the Interstate Commerce Act, any state utilities code, or any federal or state regulation limiting its ability to incur indebtedness. None of the Borrower or any Subsidiary of the Borrower is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, or is a common carrier under the Interstate Commerce Act. None of the Borrower or any of its Subsidiaries is engaged in: (i) a business or activity subject to any statute or regulation which regulates the incurring by the Borrower of Indebtedness for borrowed money, including statutes or regulations

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relating to common or contract carriers; or (ii) the regulated sale of electricity, gas, steam, water, telephone or telegraph or other public utility services.
4.14.      Compliance . The Borrower and its Subsidiaries have all necessary permits, approvals, authorizations, consents, variances, licenses, franchises, registrations and other rights and privileges (including patents, trademarks, trade names and copyrights) to allow it to own and operate its business and properties without any violation of laws, regulations, authorizations and orders of public authorities or the rights of others, except to the extent that any such violation would not have a Material Adverse Effect. Each of the Borrower and its Subsidiaries is duly authorized, qualified and licensed under and all real properties owned or leased by each of the foregoing are in compliance with, all applicable Law, including, without limitation, Environmental Laws, except to the extent that any such failure to be so authorized, qualified, licensed or in compliance would not have a Material Adverse Effect.
4.15.      ERISA .
(a)      As of the Closing Date, neither the Borrower nor any of its Subsidiaries nor any of their ERISA Affiliates maintains, contributes to or has an obligation to contribute to any Pension Plan or Multiemployer Plan.
(b)    In the event that the Borrower or any of its ERISA Affiliates has adopted or established a Plan, except as would not reasonably be expected to have a Material Adverse Effect, whether individually or in the aggregate, the Borrower and its ERISA Affiliates are in compliance in all material respects with ERISA and the provisions of the Code and the regulations and published interpretations thereunder applicable to the Plans.
(c)    No ERISA Event has occurred or is reasonably expected to occur with respect to the Borrower or any of its ERISA Affiliates, including by reason of the consummation of the transactions contemplated by this Agreement.
(d)    No Pension Plans of the Borrower or any of its ERISA Affiliates had any “unfunded benefit liabilities” (within the meaning of Section 4001(a)(18) of ERISA) as of the last annual valuation dates applicable thereto.
4.16.      Environmental Matters .
(a)      The Borrower and each of its Subsidiaries have obtained all permits, licenses and other authorizations and have made all filings, registrations and other submittals which are required under all Environmental Laws, except to the extent failure to have any such permit, license or authorization would not have a Material Adverse Effect. Except as otherwise set forth in Schedule 4.16 hereto, the Borrower and each of its Subsidiaries are in compliance with the terms and conditions of all such permits, licenses and authorizations, and are also in compliance with all applicable Environmental Laws as well as all orders, decrees, judgments and injunctions, issued, entered, promulgated or approved under any Environmental Law, except to the extent failure to comply would not have a Material Adverse Effect.

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(b)    No written notice, notification, demand, request for information, citation, summons or order has been issued and is outstanding, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to the Knowledge of the Borrower, threatened by any Governmental Authority or other entity (i) with respect to any alleged failure by the Borrower or any of its Subsidiaries to have any permit, license or authorization required in connection with the conduct of its business or to comply with any Environmental Laws, or (ii) regarding the presence of any Hazardous Material at, on or under any property now or previously owned or leased by the Borrower or any of its Subsidiaries or any other location to which Hazardous Materials from such property had been transported or where they have been disposed of, which, in the case of any Subsidiary, relates to a failure or circumstance that has had or could reasonably be expected to have a Material Adverse Effect.
(c)    No material oral or written notification of a release of a Hazardous Material has been filed by or on behalf of the Borrower or any of its Subsidiaries and no property now or previously owned or leased by the Borrower or any of its Subsidiaries is listed or, to the Knowledge of the Borrower, proposed for listing on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or on any similar state list of sites requiring investigation or clean-up, which, in the case of any Subsidiary, relates to a circumstance that has had or could reasonably be expected to have a Material Adverse Effect.
(d)    There are no Liens arising under or pursuant to any Environmental Law on any of the real property or properties owned or leased by the Borrower or any of its Subsidiaries and no governmental actions have been taken or, to the Knowledge of the Borrower, are in process which could subject any of such properties to such Liens or, as a result of which the Borrower or any of its Subsidiaries would be required to place any notice or restriction relating to the presence of Hazardous Materials at any property owned by it in any deed to such property, which, in the case of any properties of any Subsidiary, relates to a Lien that has had or could reasonably be expected to have a Material Adverse Effect
(e)    Neither the Borrower nor any of its Subsidiaries nor, to the Knowledge of the Borrower, any previous owner, tenant, occupant or user of any property owned or leased by the Borrower or any of its Subsidiaries has (i) engaged in or permitted any operations or activities upon or any use or occupancy of such property, or any portion thereof, for the handling, manufacture, treatment, storage, use, generation, release, discharge, refining, dumping or disposal of any Hazardous Materials on, under, in or about such property, except to the extent commonly used in day-to-day operations of such property and in such case only in compliance in all material respects with all Environmental Laws, or (ii) transported any Hazardous Materials to, from or across such property except to the extent commonly used in day-to-day operations of such property and, in such case, in compliance in all material respects with, all Environmental Laws; nor to the Knowledge of the Borrower have any Hazardous Materials migrated from other properties upon, about or beneath such property, nor, to the Knowledge of the Borrower, are any Hazardous Materials presently constructed, deposited, stored or otherwise located on, under, in or about such property except to the extent commonly used in day-to-day operations of such property and, in such case, in compliance in all material respects with all Environmental Laws.

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4.17.      Outstanding Indebtedness . The outstanding amount of Indebtedness of the Borrower and its Subsidiaries as of the date hereof, is correctly set forth in Schedule 4.17 hereto, and said Schedule correctly describes the credit agreements, guaranties, leases and other instruments pursuant to which such Indebtedness has been incurred and all liens, charges and encumbrances securing such Indebtedness. Said schedule also describes all agreements and other arrangements (other than the Loan Documents) pursuant to which the Borrower or any of its Subsidiaries may borrow any money.
4.18.      Restrictions on the Borrower . Neither the Borrower nor any of its Subsidiaries is a party to any indenture, loan or credit agreement, or any lease or other agreement or instrument, or subject to any charter, corporate or limited liability company restriction, which could reasonably be expected to have a Material Adverse Effect, or which restricts the ability of the Borrower or any Subsidiary to carry out any of the provisions of this Agreement, the Term Note or any of the Loan Documents executed in connection herewith and therewith.
4.19.      Labor Relations . Neither Borrower nor any of its Subsidiaries is subject to any collective bargaining agreement. There is (i) no unfair labor practice complaint pending against the Borrower or any of its Subsidiaries or, to the Knowledge of the Borrower, threatened, before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Borrower or any of its Subsidiaries or, to the Knowledge of the Borrower, threatened, except for such complaints, grievances and arbitration proceedings that, if adversely decided, would not have a Material Adverse Effect, (ii) no strike, labor dispute, slowdown or stoppage pending against the Borrower or any of its Subsidiaries or, to the Knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries, except for any such labor action as would not have a Material Adverse Effect and (iii) to the Knowledge of the Borrower, no union representation question exists with respect to the employees of the Borrower or any of its Subsidiaries and, to the Knowledge of the Borrower, no union organizing activities are taking place, except for any such question or activities as would not have a Material Adverse Effect.
4.20.      Trade Relations . There exists no actual or, to the Knowledge of the Borrower, threatened termination, cancellation or limitation of, or any material modification or change in, the business relationship between the Borrower or any of its Subsidiaries, on the one hand, and any customer or any group of customers, on the other hand, whose purchases, individually or in the aggregate, are material to the business of the Borrower and its Subsidiaries, taken as a whole, or with any material supplier, except in each case, where the same could not reasonably be expected to have a Material Adverse Effect.
4.21.      Margin Rules . Neither the Borrower nor any of its Subsidiaries owns or has any present intention of purchasing or carrying, and no portion of any Loan shall be used for purchasing or carrying, any “margin security” or “margin stock” as such terms are used in Regulations T, U or X of the Board of Governors of the Federal Reserve System.
4.22.      Disclosure . No representation or warranty made by the Borrower in any Loan Document, and no document or information furnished to the Lender by or on behalf of or at the request of the Borrower in connection with any of the transactions contemplated by the Loan Documents, taken together with all documents, reports or other written information furnished to the Lender that pertains to the Borrower or the transactions contemplated by the Loan Documents, together with all updates of

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such information prior to the date of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which they are made.
4.23.      Representation by Counsel . The Borrower acknowledges that it has been advised by counsel in connection with the negotiation, execution and delivery of each Loan Document.
4.24.      Relationship of Lender and Borrower . The Borrower acknowledges and agrees that the Lender does not have any fiduciary relationship with or duty to the Borrower or any of its Affiliates arising out of or in connection with this Agreement and that such relationship is solely that of debtor and creditor. Borrower further acknowledges and agrees that no joint venture exists between the Borrower or its Affiliates, on the one hand, and the Lender, on the other hand.
4.25.      Brokers . Except as otherwise disclosed in writing to the Lender prior to the date hereof, no broker, finder or other intermediary has brought about the obtaining, making or closing of the financing transactions contemplated by the Loan Documents, and neither the Borrower nor any of its Subsidiaries has or will have any obligation to any person in respect of any finder’s or brokerage fees in connection herewith or therewith.
4.26.      Security Interests . After giving effect to the transactions to occur on the Closing Date, the Security Documents have effectively created in favor of the Lender legal, valid and enforceable security interests in the Collateral and such security interests are fully perfected first priority security interests, subject to Permitted Liens.
4.27.      Foreign Assets Control Regulations and Anti-Money Laundering .
(a)      OFAC . Neither Borrower nor any of its Subsidiaries (i) is a Person whose property or interest in property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of such executive order or (iii) is a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other U.S. Department of Treasury’s Office of Foreign Assets Control regulation or executive order.
(b)     Patriot Act . Borrower and each of its Subsidiaries are, to the extent required by law, in compliance, in all material respects, with the Patriot Act. No part of the proceeds of the Loan or will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
4.28.      Trademarks, Franchises, and Licenses . Except as would not reasonably be expected to have a Material Adverse Effect, the Borrower and its Subsidiaries own, possess, or have the right to use all necessary patents, licenses, franchises, trademarks, trade names, trade styles, copyrights, trade secrets, know how, and confidential commercial and proprietary information to conduct their

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businesses as now conducted, without known conflict with any patent, license, franchise, trademark, trade name, trade style, copyright or other proprietary right of any other Person.
4.29.      Occupational Safety and Health Act Compliance . Borrower (a) has not been cited for violation of any occupational safety or health act or of any standard, order or regulation promulgated pursuant to any such act or standard during the three-year period preceding the date of this Agreement, except for certain non-willful violations for which Borrower paid a $10,500 fine and that were fully resolved by the Borrower in 2010, and (b) has not received any conviction related to the injury or death of any employee in the three-year period preceding the date of this Agreement.
4.30.      Consulting Agreements . Borrower hereby swears and attests as true that no consulting agreement, as defined in Conn. Gen. Stat. § 4a-81, has been entered into in connection with this Agreement.
4.31.      Campaign Contribution Restrictions . Borrower expressly acknowledges receipt of the State Elections Enforcement Commission’s notice advising state contractors of state campaign contribution and solicitation prohibitions (attached to this Agreement as Exhibit F ), and has informed its principals of the contents of the notice.
SECTION V.

AFFIRMATIVE COVENANTS
The Borrower covenants that so long as any Loan or other Obligation remains outstanding or the Lender has any obligation to lend hereunder:
5.1.      Financial Statements; Management Reports . The Borrower shall furnish to the Lender:
(a)      as soon as available to the Borrower, but in any event within 120 days after the end of each fiscal year, the Borrower’s consolidated and consolidating balance sheets as of the end of such year and related consolidated and consolidating statements of income, retained earnings and cash flow for such year, setting forth in each case in comparative form the figures for the previous fiscal year, prepared in accordance with GAAP and audited and certified without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit by the Borrower’s Accountants in the case of such consolidated statements, and certified by the Responsible Officer in the case of such consolidating statements; and, concurrently with such financial statements, a copy of the opinion of the Borrower’s Accountants and the Borrower’s comparison to budget. Such opinion shall (i) state, in substance, that such accountants audited such consolidated financial statements in accordance with generally accepted auditing standards, that such accountants believe that such audit provides a reasonable basis for their opinion, and that in their opinion such consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Borrower and its Subsidiaries as at the end of such fiscal year and the consolidated results of their operations and cash flows for such fiscal year in conformity with GAAP, or (ii) contain such statements as are customarily included in unqualified reports of independent accountants in conformity with the recommendations and requirements of the American Institute of Certified Public Accountants (or any successor organization);

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provided, that, in the event that Borrower files a form 10-K with the SEC, such filing may be submitted to Lender for this annual submission;
(b)      as soon as available to the Borrower, but in any event within thirty (30) days after filing, copies of Borrower’s federal and state annual Tax returns;
(c)    concurrently with the delivery of each financial statement pursuant to subsection (a) of this Section 5.1, and as soon as available and in any event within forty-five (45) days after the end of each fiscal quarter, a fully and properly completed Compliance Certificate;
(d)    as soon as available, and in any event within forty-five (45) days after the end of each fiscal quarter, a management report describing the operations and financial condition of Borrower and its Subsidiaries for the applicable period then ended and the portion of the current fiscal year then elapsed (or for the fiscal year then ended) and discussing the reasons for any significant variations. Such management report shall be presented in reasonable detail and shall be certified by the chief financial officer of Borrower to the effect that such information fairly presents the results of operations and financial condition of Borrower and its Subsidiaries as at the dates and for the periods indicated; provided, that, in the event that Borrower files a form 10-Q with the SEC, such filing may be submitted to Lender for this quarterly submission;
(e)    promptly after the receipt thereof by the Borrower, copies of any reports (including any so-called management letters) submitted to the Borrower by independent public accountants in connection with any annual or interim review of the accounts of the Borrower made by such accountants;
(f)    promptly after the same are delivered to the Borrower’s equity holders, the Securities and Exchange Commission, copies of all proxy statements, financial statements and reports as the Borrower shall send to its equity holders or as the Borrower may file with the Securities and Exchange Commission or any Governmental Authority at any time having jurisdiction over the Borrower or its Subsidiaries; and
(g)    from time to time, subject to applicable Law, such other financial data and information about the Borrower or its Subsidiaries as the Lender may reasonably request.
5.2.      Conduct of Business .
(a)      The Borrower shall, and shall cause each of its Subsidiaries to, duly observe and comply with all laws, regulations, decrees, orders, judgments and valid requirements of any Governmental Authorities applicable to its legal existence, rights and franchises, to the conduct of its business and to its property and assets (including without limitation all Environmental Laws and ERISA), except where failure to observe or comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and (ii) maintain and keep in full force and effect and comply with all licenses and permits necessary to the proper conduct of its business, except where failure to maintain could not reasonably be expected to have a Material Adverse Effect ;

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(b)    The Borrower shall maintain its existence and remain or engage substantially in the same business as that in which it is now engaged.
(c)    The Borrower shall (i) perform and observe in all material respects all the terms and provisions of each material contract to be performed or observed by it, and will not take any action that would cause any such material contract to not be in full force and effect, and (ii) do, and cause its Subsidiaries to do, all things necessary to preserve and to keep unimpaired its rights under such contractual obligations; provided , however , that the foregoing shall not require Borrower nor any of its Subsidiaries to perform or observe any contractual obligation the nonperformance or nonobservation of which would have no Material Adverse Effect.
5.3.      Maintenance and Insurance .
(a)      The Borrower shall, and shall cause each of its Subsidiaries to, maintain their properties in good repair, working order and condition as required for the normal conduct of their business.
(b)    The Borrower shall comply with the insurance requirements set forth in Section 20.1 of the EPC Agreement and Section 7.2 of the Services Agreement. Borrower shall cause Lender to be named as a lender loss payee under such policies of casualty insurance and as an additional insured under such policies of liability insurance (but in either case, without any liability for any premiums) and Borrower shall obtain non-contributory lender’s loss payable endorsements to all insurance policies in form and substance satisfactory to Lender. Lender’s loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender as its interests may appear.
(c)    Borrower shall at all times preserve, renew and keep in full force and effect its limited liability company, corporate or other organizational existence and rights and franchises with respect thereto and maintain in full force and effect all permits, licenses, trademarks, trade names, approvals, authorizations, leases and contracts necessary to carry on the business as presently or proposed to be conducted. Borrower shall give Lender thirty (30) days prior written notice of any proposed change (a) in its company name, (b) in the location of Borrower’s chief executive office, its principal place of business, any office in which it maintains books or records relating to Collateral owned by it or any office or facility at which Collateral owned by it is located (including the establishment of any such new office or facility), (c) in Borrower’s organizational structure or jurisdiction of incorporation or formation, or (d) in Borrower’s federal taxpayer identification number or organizational identification number assigned to it by its state of organization.
5.4      Taxes . Borrower will, and will cause each of its Subsidiaries to, timely file all United States federal income Tax returns and all other material foreign, state and local Tax returns that are required to be filed by it and shall pay, collect, withhold and/or remit all material Taxes (whether or not shown on a Tax return), prior to the date on which any material penalties would attach thereto, and Borrower will, and will cause each of its Subsidiaries to, pay and discharge any assessments or governmental charges imposed in connection therewith, together with all lawful claims for labor, materials and supplies or otherwise which, if unpaid, would become a Lien (other than a Permitted Lien) upon any of its properties; provided , that neither Borrower nor its Subsidiaries shall be required to pay any such Tax, assessment, charge or claim that is being contested in good faith and by proper

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proceedings and as to which appropriate reserves are being maintained in conformity with GAAP. Without limiting the generality of the foregoing, the Borrower shall, and shall cause each of its Subsidiaries to, pay in full all of its wage obligations to its employees in accordance with the Fair Labor Standards Act (29 U.S.C. Sections 206‑207) and any comparable provisions of any applicable Law.
5.5      Inspection; Access; Involvement . The Borrower shall permit the Lender and its designees:
(a)
to participate in any pre-commissioning and post-commissioning walkdowns as contemplated by Article 25 of the EPC Agreement; and
(b)
at any reasonable time and at reasonable intervals of time, and upon at least five (5) Business Days notice (or if a Default shall have occurred and is continuing, at any time and without prior notice), subject to applicable confidentiality and nondisclosure agreements to (i) visit and inspect the properties of the Borrower and its Subsidiaries (ii) examine and make copies of and take abstracts from the books and records of the Borrower and its Subsidiaries, and (iii) discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with their appropriate officers, employees and independent accountants, including without limitation, all at the expense of the Borrower; provided , however , that if no Event of Default has occurred and is continuing, the Lender shall not conduct more than two (2) visits per calendar year. Each such inspection, appraisal or examination is a “Field Exam”.
5.6      Maintenance of Books and Records . The Borrower shall, and shall cause each of its Subsidiaries to, keep adequate books and records of account, in which true and complete entries will be made reflecting all of its business and financial transactions in accordance with GAAP consistently applied and applicable Law. The Borrower shall, and shall cause each of its Subsidiaries to, at all times keep correct and accurate records itemizing and describing the kind, type, quality and quantity of inventory, the Borrower’s or such Subsidiary’s cost therefor in accordance with the Borrower’s current procedures as heretofore described by the Borrower to the Lender, and withdrawals therefrom and additions thereto, all of which records shall be updated at least monthly (or more frequently if reasonably requested by the Lender) and shall be available during the Borrower’s usual business hours at the request of any of the Lender’s officers or Lender.
5.7     Use of Proceeds .
(a)      On the initial Disbursement Date, the Borrower shall use proceeds of the Loan to repay in full all of its obligations pursuant to the Pre-Development Loan;
(b)    The Borrower may use up to $5,000,000 of the proceeds of the Loan for its obligation in respect of the EPC Agreement to fund the Grantor Trust to provide credit support and security to Dominion Bridgeport Fuel Cell, LLC for Borrower’s performance under the EPC Agreement and the Services Agreement; provided, however, that for every $1 of the Loan used for such purposes, the Borrower must first contribute $2 of non-Loan funds to the Grantor Trust and document such contributions to Lender’s satisfaction; and

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(c)     The Borrower may use Loan proceeds up to the permitted amount set forth in Schedule 2.6.a to this Agreement to pay for expenditures relating to the Project, which are documented to the satisfaction of Lender and then payable or due within the succeeding thirty (30) days after Borrower provides such documentation to the Lender.
5.8     Further Assurances/ Additional Collateral .
The Borrower will execute and deliver, or cause to be executed and delivered, to the Lender such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements and other documents and such other actions or deliveries), that may be required by law or that the Lender may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure perfection and priority of the Liens created or intended to be created by the Security Documents, all at Borrower’s sole expense.

5.9.      Notification Requirements . The Borrower shall furnish to the Lender written notice of the following within three (3) Business Days following Knowledge of the Borrower thereof:
(a)      the occurrence of any Default and the action being or proposed to be taken with respect thereto, including any default by Borrower under any Project Agreement (including without limitation any “Contractor Event of Default,” as such term is defined in the EPC Agreement, and “Operator Event of Default,” as such term is defined in the Services Agreement);
(b)      any correspondence between parties to the Project Agreements relating to Borrower’s breach, default or events of default under such agreements;
(c)      any correspondence between parties to the Project Agreements relating to termination of any Project Agreement;

(d)      the occurrence of any force majeure events that impact performance under the Project Agreements;

(e)      any of the events or actions relating to the Project Agreement that are listed in Schedule 5.9 to this Agreement;
(f)      the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any of its Subsidiaries that could reasonably be expected to result in a Material Adverse Effect;
(g)      any other development that results in a Material Adverse Effect; and
(h)      the occurrence of any event that currently does or with the passage of time would constitute an Event of Default.

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Each notice delivered under this Section 5.9 shall be accompanied by a statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
5.10.      ERISA Compliance and Reports .
(a)     In the event that the Borrower or any of its ERISA Affiliates has adopted or established a Plan, such Plan shall comply in all material respects with ERISA and the Code, except to the extent failure to comply in any instance would not have a Material Adverse Effect.
(b)    With respect to any Plan adopted or established by the Borrower or any of its ERISA Affiliates, the Borrower shall, or shall cause its ERISA Affiliates to, furnish to the Lender promptly (i) as soon as possible and in any event within 10 days after the Borrower or any of its ERISA Affiliates knows that any ERISA Event has occurred or is expected to occur, a statement of the Responsible Officer describing such ERISA Event, including copies of any notice concerning such ERISA Event received from the PBGC, a plan administrator, or from a Multiemployer Plan sponsor, and the action, if any, the Borrower or such ERISA Affiliate proposes to take with respect thereto; and (ii) promptly after filing thereof, a copy of the annual report of each Pension Plan (Form 5500 or comparable form) required to be filed with the IRS and/or the Department of Labor. Promptly after the adoption of any Pension Plan, the Borrower shall notify the Lender of such adoption.
5.11.     Environmental Compliance .
(a)    The Borrower will, and will cause each of its Subsidiaries to, comply in all material respects with all applicable Environmental Laws in all jurisdictions in which any of them operates now or in the future, and the Borrower and its Subsidiaries will comply in all material respects with all such Environmental Laws that may in the future be applicable to the Borrower’s or any of its Subsidiaries’ business, properties and assets.
(b)    If the Borrower or any Subsidiaries of the Borrower shall (i) receive notice that any material violation of any Environmental Law may have been committed or is about to be committed by the Borrower or any of its Subsidiaries, (ii) receive notice that any administrative or judicial complaint or order has been filed or is about to be filed against the Borrower or any of its Subsidiaries alleging a material violation of any Environmental Law requiring the Borrower or any of its Subsidiaries to take any action in connection with the release of Hazardous Materials into the environment, (iii) receive any notice from a federal, state or local government agency or private party alleging that the Borrower or any of its Subsidiaries may be liable or responsible for any material amount of costs associated with a response to or cleanup of a release of Hazardous Materials into the environment or any damages caused thereby, (iv) become aware of any investigative action or proceedings by a Governmental Authority commenced or threatened against the Borrower or any of its Subsidiaries regarding any potential violation of Environmental Laws or any spill, release, discharge or disposal of any Hazardous Material or (v) notify any Governmental Authority regarding any potential violation of Environmental Laws or any spill, release, discharge or disposal of any Hazardous Material by the Borrower or any of its Subsidiaries, the Borrower shall promptly notify the Lender thereof (together with a copy of any such notice) and of any action being or proposed to be taken with respect thereto and

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thereafter shall continue to furnish to the Lender all further notices, demands, reports and other information regarding the foregoing.
(c)    Within thirty (30) days after the Borrower has received notice of any administrative or judicial complaint or order relating to a breach of any Environmental Law relating to the Project, which could reasonably be expected to result in any Material Adverse Effect, the Borrower shall deliver to the Lender a written report describing such administrative or judicial complaint or order.
5.12.      Subsidiaries . The Borrower shall promptly notify Lender following the formation or acquisition of any Subsidiary of the Borrower formed or acquired after the date of this Agreement and provide such information as Lender may reasonably request with respect to such Subsidiary.
5.13.      Nondiscrimination Certificate . Borrower shall at all times observe the provisions of the nondiscrimination certificate set forth in Exhibit E , attached hereto and made a part hereof.
5.16      Communications with Independent Public Accountants . At any reasonable time and from time to time, the Borrower shall provide the Lender and any agents or representatives of the Lender access to the Borrower’s Accountants to discuss the Borrower’s financial condition, including, without limitation any recommendations of the Borrower’s Accountants concerning the management, finances, financial controls or operations of the Borrower and its Subsidiaries. Affirmation of Applicable Executive Orders . To the extent applicable to this Agreement, Borrower acknowledges and agrees that it shall comply with the provisions of the following Executive Orders: Executive Order No. 7C of Governor M. Jodi Rell, promulgated July 13, 2006, concerning contracting reforms; Executive Order No. 14 of Governor M. Jodi Rell, promulgated April 17, 2006, concerning procurement of cleaning products and services; Executive Order No. 16 of Governor John G. Rowland, promulgated August 4, 1999, concerning violence in the workplace; Executive Order No. 17 of Governor Thomas J. Meskill, promulgated February 15, 1973, concerning the listing of employment openings; and Executive Order No. 3 of Governor Thomas J. Meskill, promulgated June 16, 1971, concerning labor employment practices.
5.17      Project Account . The Borrower shall cause all payments due to the Borrower pursuant to the Project Agreements to be paid directly into the Project Account, except for (a) those payments released to the Borrower from the Grantor Trust, which shall be paid by Borrower directly to Lender and (b) payments to the Borrower under the EPC Agreement that are deposited into the Grantor Trust.
SECTION VI.

INTENTIONALLY OMITTED

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SECTION VII.

NEGATIVE COVENANTS
The Borrower covenants that so long as the Loan or other Obligation remains outstanding:
7.1.      Indebtedness . Neither the Borrower nor any of its Subsidiaries shall create, incur, assume, guarantee, suffer to exist, or be or remain liable with respect to any Indebtedness other than the following:
(a)      Obligations;
(b)    Indebtedness existing as of the date of this Agreement and disclosed on Schedule 4.17 hereto and extensions, renewals and refinancings thereof, but not any increase in excess of $10,000,000 over the aggregate principal amount of such Indebtedness as of the date of this Agreement;
(c)    Indebtedness for Taxes, assessments or governmental charges to the extent that payment therefor shall at the time not be required to be made in accordance with Section 5.4;
(d)    current trade liabilities on open account for the purchase price of services, materials and supplies incurred by the Borrower or its Subsidiaries in the ordinary course of business (not as a result of borrowing), so long as all of such open account Indebtedness shall be promptly paid and discharged when due or in conformity with customary trade terms and practices, except for any such open account Indebtedness that is being contested in good faith by the Borrower or its Subsidiaries, as to which adequate reserves required by GAAP have been established and are being maintained and as to which no Lien has been placed on any property of the Borrower or any of its Subsidiaries;
(e)    purchase money Indebtedness or Indebtedness for capitalized lease obligations incurred in the ordinary course of business and renewals and refinancings thereof, provided that such Indebtedness does not exceed $10,000,000 in the aggregate at any time outstanding;
(f)    additional future Indebtedness that (i) is unsecured, (ii) is subordinated in priority of payment to the Obligations and (iii) does not exceed, in the aggregate, $10,000,000;
(g)    Indebtedness of the Borrower or its Subsidiaries with respect to transactions (including, but not limited to, short-term financing, accounts receivable financing, letters of credit or working capital financing) relating to power plant sales or other similar transactions between the Borrower or its Subsidiaries and its customers or clients in connection with the sale by the Borrower or its Subsidiaries of its power plant products to such customers or clients pursuant to the terms of a written sales contract, so long as, to the extent that such financed sale transactions are secured, such security shall be limited only to the assets or interest related to such sales transactions;
(h)    future equity or similar capital raises by the Borrower or its Subsidiaries, as well as the conversion by the Borrower or its Subsidiaries (or by the holders thereof) of redeemable minority interests and redeemable preferred stock to common stock of the Borrower or its Subsidiaries; and

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(i)    Guarantees permitted under Section 7.2 hereof.
7.2.      Contingent Liabilities . Neither the Borrower nor any of its Subsidiaries shall create, incur, assume, guarantee or be or remain liable with respect to any Guarantees other than (i) Guarantees existing on the date of this Agreement and disclosed on Schedule 7.2 hereto, (ii) Guarantees of the Obligations hereunder; and (iii) Guarantees resulting from the endorsement of negotiable instruments for deposit or collection in the ordinary course of business.
7.3.      Liens . The Borrower shall not create, incur, authorize the filing of, assume or suffer to exist any mortgage, pledge, security interest, lien or other charge of any kind, including the lien or retained security title of a conditional vendor, upon or with respect to any of the Collateral (“ Liens ”), whether now owned or hereafter acquired, or sell, assign, pledge or otherwise transfer for security any of the Collateral, with or without recourse, except the following (“ Permitted Liens ”):
(a)      Liens in favor of the Lender to secure Obligations;
(b)    Liens for Taxes, fees, assessments and other governmental charges to the extent that payment of the same may be postponed or is not required in accordance with the provisions of Section 5.4;
(c)    judgment liens securing judgments that (i) are fully covered by insurance, or (ii) have not been in existence for a period longer than thirty (30) days after the creation thereof or, if a stay of execution shall have been obtained, for a period longer than thirty (30) days after the expiration of such stay;
(d)    Liens securing Indebtedness described in Sections 7.1(b), (d), (e), (g) and (i); and
(e)    statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and suppliers and other Liens imposed by law or pursuant to customary reservations or retentions of title arising out of the ordinary course of business, provided that such Liens secure only amounts not yet due and payable, or if due and payable, are unfiled and no other actions has been taken to enforce the same or are being contested in good faith by appropriate proceedings for which adequate reserves have been established;
Nothing contained in this Section 7.3 shall permit the Borrower to incur any Indebtedness or take any other action or permit to exist any other condition which would be in contravention of any other provision of this Agreement.
7.4.      No Cancellation or Assignment of Rights, etc. Borrower will not cancel or assign its rights under the EPC Agreement, Asset Purchase Agreement or Services Agreement, nor shall Borrower assign its rights under the Grantor Trust Agreement or permit the release of funds from the Grantor Trust to anyone besides Dominion Bridgeport Fuel Cell, LLC or Lender until once the Obligations are repaid.
7.5.      Project Account Transfers and Withdrawals . The Borrower shall not direct or request any transfers or withdrawals from the Project Account that would cause the amount on deposit in the Project Account to fall below $300,000.00.

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7.6.      ERISA Compliance . To the extent that the Borrower or any of its ERISA Affiliates has adopted or established a Plan, except as would not reasonably result in a Material Adverse Effect, neither the Borrower nor any of its ERISA Affiliates nor any Plan shall (i) engage in any Prohibited Transaction, (ii) incur any “accumulated funding deficiency” (within the meaning of Section 412(a) of the Code and Section 302 of ERISA), whether or not waived, (iii) permit to exist any material amount of “unfunded benefit liabilities” (within the meaning of Section 4001(a)(18) of ERISA), (iv) terminate any Pension Plan in a manner which could result in the imposition of a lien on any property of the Borrower or any of its Subsidiaries, (v) fail to make any required contribution to any Multiemployer Plan or (vi) completely or partially withdraw from a Multiemployer Plan if such complete or partial withdrawal will result in any withdrawal liability under Title IV of ERISA.
7.7.      Transactions with Affiliates . The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into any transaction, including without limitation any purchase, sale, or lease of property or the rendering of any service, with any Affiliate except (i) transactions in the ordinary course of business on terms that are no less favorable to the Borrower than those which might be obtained at the time in a comparable arm’s-length transaction with any Person who is not an Affiliate; and (ii) employment contracts with senior management of the Borrower entered into in the ordinary course of business and consistent with prudent business practices. Except with respect to the foregoing, the Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any management, consulting, overhead, indemnity, guarantee or other similar fee or charge to any Affiliate.
7.8.      No Impairment . The Borrower shall not, directly or indirectly, enter into or become bound by any agreement, instrument, indenture or other obligation (other than the Loan Documents) that could directly or indirectly restrict, prohibit or require the consent of any Person with respect to Lender’s right to the Collateral.
7.9.      Charter Amendments . The Borrower will not amend its certificate of incorporation, articles of organization, certificate of formation, bylaws or operating agreement in any way except as would not adversely affect the Lender in any material respect. For avoidance of doubt, any amendment that effects a change of the Borrower’s name shall be considered to adversely affect the Lender hereunder.
7.10.      OFAC . The Borrower will not, and will not permit any of its Subsidiaries (i) to become a person whose property or interests in property are blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of September 23, 2001, Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) to engage in any dealings or transactions prohibited by Section 2 of such executive order or (iii) to otherwise become a person on the list of Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions under any other OFAC regulation or executive order.

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SECTION VII.

EVENTS OF DEFAULT AND REMEDIES
8.1.      Events of Default . There shall be an “Event of Default” hereunder if any of the following events occurs for any reason whatsoever and whether such occurrence is voluntary or involuntary or comes about or is effected by operation of law or otherwise:
(a)      the Project is terminated by either Borrower or Dominion Bridgeport Fuel Cell, LLC or Borrower fails to deliver a completed Project under the EPC Agreement; or
(b)    the occurrence of an Operator Event of Default (as defined in the Services Agreement) or a Contractor Event of Default (as defined in the EPC Agreement) or a material breach by the Borrower or default by the Borrower under the Asset Purchase Agreement; or
(c)    the Borrower shall fail to pay (i) any principal of any Loan when the same shall become due and payable, or (ii) any interest, fees or other amounts owing by it under any Loan Document or in respect of any Obligation within three (3) days of when the same shall become due and payable, in each case, whether at maturity or at any accelerated date of maturity or at any other date fixed for payment; or
(d)    the Borrower shall fail to perform or comply with any term, covenant or agreement applicable to it contained in Sections 5.7 and 7 of this Agreement; or
(e)    the Borrower shall fail to perform or comply with any term, covenant or agreement applicable to it (other than as specified in subsections 8.1(c) or (d) hereof) contained in this Agreement or any other Loan Document and such default shall continue for fifteen (15) days after the Borrower becomes aware of such breach or Default; provided, however, that no such fifteen (15) day period shall apply in the event such failure to perform or comply is not reasonably susceptible to being cured by the Borrower; or
(f)    any representation or warranty of the Borrower made in or in connection with this Agreement or any other Loan Document, or in any certificate, notice, financial statement or other writing furnished pursuant to or in connection with this Agreement or any other Loan Document, shall prove to have been false or misleading in any material respect upon the date when made or deemed to have been made, including without limitation that certain officer’s certificate delivered by the Borrower to the Lender on the Closing Date; provided, that an incorrect representation or warranty shall not constitute an Event of Default if the following three criteria ((i) through (iii)) all are satisfied:
(i)    the Borrower did not have Knowledge that such representation or warranty was incorrect or misleading at the time such representation or warranty was made or deemed repeated; and
(ii)    the fact, event or circumstance resulting in such incorrect or misleading representation or warranty is capable of being cured, corrected or otherwise remedied, and

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(iii)    such fact, event or circumstance resulting in such incorrect or misleading representation or warranty is cured, corrected or otherwise remedied within ten (10) days from the date that the Borrower obtains Knowledge thereof; or
(g)    the Borrower shall fail to (i) make any payment of principal of or interest on Indebtedness for money borrowed in excess of $250,000 by the Borrower or any Guaranty of money borrowed in excess of $250,000 (other than the Obligations) within five (5) days of when such payment is due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) or within any applicable grace period, or (ii) perform or observe any provision of any agreement or instrument relating to such Indebtedness, and such failure shall permit the holder(s) (or a trustee, agent or other representative of such holder(s)) to cause Indebtedness having an individual principal amount in excess of $250,000 or having an aggregate principal amount in excess of $250,000 to become or be declared due prior to their stated maturity; or
(h)    the Borrower or any of its Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar official of itself or of all or a substantial part of its property, (ii) make an assignment for the benefit of its creditors, (iii) commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect), (iv) take any action or commence any case or proceeding under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, or any other law providing for the relief of debtors, (v) fail to contest in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the United States Bankruptcy Code or other law, (vi) take any action under the laws of its jurisdiction of incorporation or organization similar to any of the foregoing, or (vii) take any action in furtherance of any of the foregoing; or
(i)    a proceeding or case shall be commenced against the Borrower or any of its Subsidiaries, without the application or consent of such Person in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding up, or composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets, or (iii) similar relief in respect of it, under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts or any other law providing for the relief of debtors, and such proceeding or case shall continue undismissed, or unstayed and in effect, for a period of sixty (60) days; or an order for relief shall be entered in an involuntary case under the United States Bankruptcy Code, against the Borrower or such Subsidiary; or action under the laws of the jurisdiction of incorporation or organization of the Borrower or any of its Subsidiaries similar to any of the foregoing shall be taken with respect to the Borrower or such Subsidiary and shall continue unstayed and in effect for a period of sixty (60) days; or
(j)    one or more judgments or orders for the payment of money shall be entered against the Borrower or any of its Subsidiaries by any court, or a warrant of attachment or execution or similar process shall be issued or levied against property of the Borrower or such Subsidiary, (i) that in the aggregate exceeds $250,000 in value, and such judgment is not paid by or fully covered by insurance (as to which the relevant insurance company has acknowledged coverage), and such judgment, order, warrant or process shall continue undischarged or unstayed for thirty (30) days, or (ii) could reasonably be expected to have a Material Adverse Effect upon the Borrower; or

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(k)    except to the extent such event could not reasonably be expected to result in a Material Adverse Effect, (i) there shall occur a cessation of a substantial part of the business of the Borrower or any of its Subsidiaries for a period that adversely affects Borrower’s or such Subsidiary’s capacity to continue its business on a profitable basis; (ii) the Borrower or any of its Subsidiaries shall suffer the loss or revocation of any license or permit now held or hereafter acquired which is necessary to the continued or lawful operation of its business; or (iii) the Borrower or any of its Subsidiaries shall be enjoined, restrained or in any other way prevented by a court, governmental or administrative order from conducting all or any material part of its business; or
(l)    to the extent that the Borrower or any of its ERISA Affiliates has adopted or established a Pension Plan, the Borrower or any of its ERISA Affiliates shall fail to pay when due any material amount that they shall have become liable to pay to the PBGC or to a Pension Plan under Title IV of ERISA, unless such liability is being contested in good faith by appropriate proceedings, the Borrower or the ERISA Affiliate, as the case may be, has established and is maintaining adequate reserves in accordance with GAAP and no lien shall have been filed to secure such liability; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Pension Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Pension Plan must be terminated; in each case, except to the extent such event would not reasonably result in a Material Adverse Effect; or
(m)    any of the Loan Documents shall be canceled, terminated, revoked, rescinded or fail to be in full force and effect otherwise than in accordance with the express terms thereof or with the express prior written agreement, consent or approval of the Lender, or any action at law or in equity or other legal proceeding to cancel, revoke or rescind any Loan Document shall be commenced by or on behalf of the Borrower or any of its Subsidiaries, or any court or other Governmental Authority of competent jurisdiction shall make a determination that, or shall issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof, or any Lien in favor of the Lender created under any of the Loan Documents shall at any time (other than by reason of the Lender relinquishing such Lien) cease to constitute a valid and perfected Lien on any portion of the Collateral; or
(n)    a Change in Control shall occur; or
(o)    there shall occur any material loss, theft, damage or destruction of any Collateral not fully covered (subject to such reasonable deductibles as the Lender shall have approved) by insurance; or
(p)    any Loan Document becomes unenforceable, is repudiated or the enforceability thereof is contested or disaffirmed by the Borrower.
8.2.     Remedies . Upon the occurrence of an Event of Default described in subsections 8.1(g) and (n), immediately and automatically, and upon the occurrence of any other Event of Default, at any time thereafter while such Event of Default is continuing, at the option of the Lender and upon the Lender’s declaration:

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(a)    the unpaid principal amount of the Loan together with accrued interest, and all Obligations shall become immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived; and
(b)    the Lender may exercise any and all rights they have under this Agreement, the other Loan Documents or at law or in equity, and proceed to protect and enforce their respective rights by any action at law or in equity or by any other appropriate proceeding.
No remedy conferred upon the Lender in the Loan Documents is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or by any other provision of law. Without limiting the generality of the foregoing or of any of the terms and provisions of any of the Security Documents, if and when the Lender exercises remedies under the Security Documents with respect to Collateral, the Lender may, in its sole discretion, determine which items and types of Collateral to dispose of and in what order and may dispose of Collateral in any order the Lender shall select in its sole discretion, and the Borrower consents to the foregoing and waives all rights of marshalling with respect to all Collateral.
SECTION VIII. ASSIGNMENT AND PARTICIPATION

Lender shall have the right to sell participation or assign its rights, interests and obligations, in whole or in part, in this Agreement, the Term Note, or any of the Loan Documents. Borrower shall at its cost and expense cooperate with the Lender and execute any agreements or documents in the event such agreements or documents are necessary in the opinion of the Lender or any participating bank or assignees. The Lender may also any time after the date of this Agreement appoint one or more security agents to hold the Collateral and any other security created by or pursuant to the Loan Documents for and on behalf of the Lender and any new lenders to whom the Lender has sold participation or assigned its rights, interests and obligations under any Loan Document and the Borrower shall execute and cause each other party to the Loan Documents to execute such agreements, documents and instruments as requested by the Lender or new lenders.
SECTION IX.

MISCELLANEOUS
10.1.      Notices . All notices, requests and demands to or upon the respective parties hereto shall be in writing and made to Lender or Borrower at their respective addresses set forth below, or to such other address as any party may designate by written notice to the others in accordance with this provision, and deemed to have been given or made: (a) if delivered in person, immediately upon delivery; (b) if by facsimile transmission, immediately upon sending and upon confirmation of receipt; (c) if by nationally recognized overnight courier service, when received; and (d) if by certified mail, return receipt requested, five (5) days after mailing.    

36


If to the Borrower, at:
FuelCell Energy, Inc.
3 Great Pasture Road
Danbury, CT 06810
ATTN: Michael Bishop, Chief Financial Officer
Phone: (203) 825-6049
Fax: (203) 825-6069

with a copy (which shall not constitute notice) to:
FuelCell Energy, Inc.
3 Great Pasture Road
Danbury, CT 06810
ATTN: Ross M. Levine, Esq., Vice President, Legal Affairs
Phone: (203) 825-6057
Fax: (203) 825-6069

If to the Lender, at:            
Clean Energy Finance and Investment Authority
865 Brook Street
Rocky Hill, Connecticut 06067
ATTN: Bryan Garcia, President and CEO
Fax: (860) 563-4877 

or at any other address specified by such party in writing.
10.2.      Expenses . The Borrower shall pay the reasonable, documented, out-of-pocket costs and fees of the security agent and any reasonable, documented, out-of-pocket costs and fees related to the preparation and negotiation of the documents and agreements related to matters herein; provided, that, the Borrower shall have no obligation to pay any out-of-pocket legal expenses of the Lender in excess of $15,000.
10.3.      Indemnification . Without limitation of any other obligation or liability of the Borrower or any right or remedy of the Lender contained herein, the Borrower agrees to indemnify and hold harmless the Lender, as well as its respective directors, officers, agents, subsidiaries and affiliates, from and against all damages, losses, settlement payments, obligations, liabilities, claims, suits, penalties, assessments, citations, directives, demands, judgments, actions or causes of action, whether statutorily created or under the common law, all costs and expenses (including, without limitation, reasonable fees and disbursements of attorneys, engineers and consultants) and all other liabilities whatsoever (including, without limitation, liabilities under Environmental Laws) which shall at any time or times be incurred, suffered, sustained or required to be paid by any such indemnified Person (except any of the foregoing which result from the gross negligence or willful misconduct of the indemnified Person) on account of or in relation to or any way in connection with any of the arrangements or transactions contemplated by, associated with or ancillary to this Agreement, the other Loan Documents or any other

37


documents executed or delivered in connection herewith or therewith, all as the same may be amended from time to time, whether or not all or part of the transactions contemplated by, associated with or ancillary to this Agreement, any of the other Loan Documents or any such other documents are ultimately consummated, resulting from any conduct, act or failure to act by the Borrower or its Subsidiaries. In any investigation, proceeding or litigation, or the preparation therefor, the Lender shall select its own counsel and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel. In the event of the commencement of any such proceeding or litigation, the Borrower shall be entitled to participate in such proceeding or litigation with counsel of its choice at its own expense, provided that such counsel shall be reasonably satisfactory to the Lender. The covenants of this Section 10.3 shall survive payment or satisfaction of payment of all amounts owing with respect to the Term Note, any other Loan Document or any other Obligation.
10.4.      Survival of Covenants, Etc . All covenants, agreements, representations and warranties made herein, in the other Loan Documents or in any documents or other papers delivered by or on behalf of the Borrower pursuant hereto or thereto shall be deemed to have been relied upon by the Lender, notwithstanding any investigation heretofore or hereafter made by any of them, and notwithstanding that the Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall survive the making by the Lender of the Loan as herein contemplated shall continue in full force and effect so long as any Obligation remains outstanding and unpaid. Notwithstanding the foregoing, the provisions of Sections 10.2 and 10.3 shall continue in full force and effect after the payment in full of all Obligations. All statements contained in any certificate or other writing delivered by or on behalf of the Borrower pursuant hereto or the other Loan Documents or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower hereunder.
10.5.      No Waivers . A breach by the Borrower of its obligations under this Agreement may be waived only by a written waiver executed by the Lender in accordance with Section 10.1. No failure or delay by the Lender in exercising any right, power or privilege hereunder, under the Term Note or under any other Loan Document 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 Lender’s waiver of the Borrower’s breach in one or more instances shall not constitute or otherwise be an implicit waiver of subsequent breaches. No course of dealing or omission on the part of the Lender in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrower shall entitle the Borrower to other or further notice or demand in similar or other circumstances. The Lender’s rights and remedies under this Agreement and under all subsequent agreements between the Lender and the Borrower shall be cumulative and any rights and remedies expressly set forth herein shall be in addition to, and not in limitation of, any other rights and remedies that may be applicable to the Lender in law or at equity. To the extent permitted by applicable Law, the Borrower hereby absolutely and irrevocably waives (a) all presentments, demands for performance, notices of protest and notices of dishonor in connection with any of the Indebtedness evidenced by the Term Note, (b) any requirement of diligence or promptness on Lender’s part in the enforcement of its rights under the provisions of this Agreement or any Loan Document, and (c) any and all notices of every kind and description which may be required to be given by any statute or rule of law with respect to its liability (i) under this Agreement or in respect of the Indebtedness evidenced by the Term Note or any other Obligation or (ii) under any other Loan Document.

38


10.6.      Amendments. Neither this Agreement nor the Term Note nor any other Loan Document nor any provision hereof or thereof may be amended, waived, discharged or terminated except by a written instrument signed by the Lender and also, in the case of amendments, by the Borrower.
10.7.      Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns; provided that the Borrower may not assign or transfer its rights or obligations hereunder.
10.8.      Lost Note, Etc. Upon receipt of an affidavit of an officer of the Lender as to the loss, theft, destruction or mutilation of the Term Note or any Security Document which is not a public record and, in the case of any such loss, theft, destruction or mutilation, upon cancellation of the Term Note or Security Document, if available, the Borrower will issue, in lieu thereof, a replacement Term Note or other Security Document in the same principal amount thereof and otherwise of like tenor.
10.9.      Table of Contents and Captions . The table of contents and captions in this Agreement are for convenience of reference only and shall not define or limit the provisions hereof.
10.10.      Counterparts . This Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, but all of which together shall constitute one instrument. In proving this Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought.
10.11.      Entire Agreement . The Loan Documents and any other documents executed in connection herewith or therewith express the entire final, complete and exclusive understanding of the parties with respect to the transactions contemplated hereby and supersede all prior agreements with respect to the subject matter hereof.
10.12.      Waiver of Jury Trial . EACH OF THE BORROWER AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE TERM NOTE OR ANY OF THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE LENDER RELATING TO THE ADMINISTRATION OR ENFORCEMENT OF THE LOAN AND THE LOAN DOCUMENTS, AND AGREES THAT IT WILL NOT SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE BORROWER (a) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (b) ACKNOWLEDGES THAT THE LENDER HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH EACH IS A PARTY

39


BECAUSE OF, AMONG OTHER THINGS, THE BORROWER’S WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
10.13.      No Consequential Damages . EXCEPT AS PROHIBITED BY LAW, EACH OF THE BORROWER AND THE LENDER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT THE LENDER HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH EACH IS A PARTY BECAUSE OF, AMONG OTHER THINGS, THE BORROWER’S WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
10.14.      Governing Law; Jurisdiction; Venue .
(a)    This Agreement and each of the other Loan Documents shall be construed in accordance with and governed by the laws of the State of Connecticut, without regard to the conflict of law principles thereof.
(b)    Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the State of Connecticut and of the United States District Court for the District of Connecticut, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Connecticut court (or, to the extent permitted by law, in such federal court). Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
(c)    Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any court referred to in paragraph (b) of this Section 10.14 (including without limitation the courts of the State of Connecticut located in New Haven County). Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d)    Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 10.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
10.15.      Patriot Act . The Lender hereby notifies the Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies the Borrower, which

40


information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Patriot Act.
10.16.      Severability . The provisions of this Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction.
10.17.      Termination . Notwithstanding the acceleration of the maturity of the Loan, this Agreement and the Lender’s lien on the Collateral shall continue in full force and effect after such acceleration or termination until all Obligations (other than contingent indemnity obligations) of the Borrower to the Lender shall have been indefeasibly paid in full in cash. The Lender agrees to take such actions as are reasonably requested by the Borrower and at the Borrower’s expense to terminate the Lender’s liens and security interests created by the Loan Documents when all the Obligations (other than contingent obligations) are indefeasibly paid in full in cash (including without limitation the filing of UCC-3 termination statements).
10.18.      Nature of Obligations . The obligations of the Borrower hereunder and under all of the Loan Documents to which Borrower or its Subsidiaries is a party, including without limitation in respect of the Obligations, and in respect of all representations, warranties, covenants and agreements of Borrower or its Subsidiaries contained in this Agreement or any of the other Loan Documents or any other agreement, instrument notice, consent or other document delivered in connection with the transactions contemplated by the Loan Documents, are joint and several primary obligations, whether not so expressed in any Loan Document. The obligations of Borrower under this section shall be unconditional and absolute and, without limiting the generality of the foregoing shall not be released, discharged or otherwise affected by the occurrence of any act or omission to act or delay of any kind by Borrower or any of its Subsidiaries, or the Lender or any other person or any circumstance whatsoever which might, but for the provisions of this section, constitute a legal or equitable discharge of Borrower’s or any of its Subsidiaries’ obligations under this section or the other provisions of any of the Loan Documents.
10.19.      Usury Limitation . All agreements between the Borrower and the Lender are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the Lender for the use or the forbearance of the Obligations exceed the maximum permissible under applicable Law. As used herein, the term “applicable Law” shall mean the Law in effect as of the date hereof; provided , however , that in the event there is a change in the law which results in a higher permissible rate of interest, then this provision shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of the Borrower and the Lender in the execution, delivery and acceptance of this Agreement and the other Loan Documents to contract in strict compliance with the laws of the State of Connecticut from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the Loan Documents at the time of performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable Law, then the obligation to be fulfilled shall automatically be reduced to the

41


limits of such validity, and if under or from any circumstances whatsoever the Lender should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance of the Obligations, as determined by the Lender, and not to the payment of interest. This provision shall control every other provision of all Loan Documents.
10.20.      Headings . Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
10.21.      Subordination by Borrower . The Borrower hereby agrees that all present and future Indebtedness of the Borrower to a Subsidiary (“ Intercompany Indebtedness ”) shall be subordinate and junior in right of payment and priority to the Obligations, and the Borrower agrees not to make, demand, accept or receive any payment in respect of any present or future Intercompany Indebtedness, including, without limitation, any payment received through the exercise of any right of setoff, counterclaim or cross claim, or any collateral therefor, unless and until such time as the Obligations shall have been indefeasibly paid in full; provided that, so long as the Loan shall not have been declared to be due and payable, the Borrower may make and receive such payments as shall be customary in the ordinary course of the Borrower’s business. Without in any way limiting the foregoing, in the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization, dissolution or other similar proceedings relative to the Borrower or to its businesses, properties or assets, the Lender shall be entitled to receive payment in full of all of the Obligations before the Borrower shall be entitled to receive any payment in respect of any present or future Intercompany Indebtedness.
[ Signature page follows ]












42


IN WITNESS WHEREOF, the undersigned have duly executed this Loan Agreement under seal as of the date first above written.

FUELCELL ENERGY, INC.


By:__ /S/ Michael S. Bishop ________
Name: Michael S. Bishop
Title: Senior Vice President and CFO


CLEAN ENERGY FINANCE AND INVESTMENT AUTHORITY



By:___ /s/ Bryan T. Garcia ____________
Name: Bryan T. Garcia
Title: President and CEO



43




Schedule 2.6.(a)
Schedule of Planned Drawdowns

 
Advance
Schedule
Cumulative
Advance
March-13*
$873,188.45
$873,188.45
March-13
$2,250,000.00
$3,123,188.45
April-13
$375,000.00
$3,498,188.45
May-13
$ -
$3,498,188.45
June-13
$375,000.00
$3,873,188.45
July-13
$500,000.00
$4,373,188.45
August-13
$250,000.00
$4,623,188.45
September-13
$250,000.00
$4,873,188.45
October-13
$750,000.00
$5,623,188.45
November-13
$250,000.00
$5,873,188.45
December-13
 
 



* Transfer of prior loan balance


Schedule 4.1
Jurisdictions in which FuelCell Energy, Inc. is required to Maintain Foreign Qualification to do Business

United States
1. Connecticut.







2. California
3. Illinois
4. Indiana
5. New Jersey
6. Michigan
7. District Of Columbia
8. Montana
9. New York
10. Arizona
11. Delaware
12. Maryland
13. Massachusetts
14. Colorado (Versa Power Systems Inc. Subsidiary)

Canada
1. Alberta (Versa Power Systems Ltd. Subsidiary)

Germany
1. Ottobrunn (FuelCell Energy Solutions GmbH Subsidiary)
2. Dresden (FuelCell Energy Solutions GmbH Subsidiary)




Republic of Korea

1. Korea (FCE Korea Ltd. Subsidiary)

Schedule 4.4
Consents Required

1. Consent of J.P. Morgan to the grant of a first priority lien in the Collateral.












EXPORT-IMPORT BANK
OF THE UNlTED STATES

February 15,2013

Randall Mascorro
Vice President
J P Morgan Chase Bank, N.A. Global Trade Services
Mail Code TXI-2805
2200 Ross A venue, 6th Floor
Dallas, Texas 75201


Re:
Working Capital Guarantee No.: AP085877XA Delegated Authority Letter Agreement: TX-DA-05-010
Borrower: FuelCell Energy, Inc. ("Fuel Cell" or "Borrower) Loan Facility: $5,000,000

Dear Mr. Mascorro:

Thank you for your letter of February 11,2013 regarding the above-referenced proposed Loan Facility and Borrower. As an accommodation to the Borrower and based upon the information provided, Ex-Im Bank consents to the following:

Ex-Im Bank understands that Fuel Cell has been awarded a $69MM contract with Dominion to develop a 15 megawatt fuel cell park in Bridgeport, Connecticut. Additionally Dominion will pay Fuel Cell $68MM over the next 15 years under a long term service contract. Fuel Cell is in the process of finalizing a new $5.8 million long term loan, and a $l.5 million grant from the State of Connecticut's Clean Energy and Finance Authority for this project. The term loan will be secured with a first priority security interest in all future project cash flows limited to those generated specifically by the Bridgeport Power Plant project and its rights to receive project funds that will be escrowed. .








Notwithstanding Section 2.22(d) of the Borrower Agreement, Ex-Im Bank will allow the creation of lien on the collateral limited to the future cash flows specific to the Bridgeport project.

This waiver is granted solely with respect to the subject Loan Facility, and shall not be deemed to apply to any other loan or Borrower, without Ex-Im Bank's prior written consent. All other terms and conditions of the Master Guarantee Agreement and the Delegated Authority Letter Agreement shall remain in full force and effect.







811 VERMONT AVENUE, N.W WASHINGTON, 20571


Sincerely,


/s/ Pamela S.Bowers
Vice President
Business Credit Division






Agreed to:


Name of Lender: J P Morgan Chase Bank, N.A.
Name: /s/ Randall Mascorro
Title: Vice President










Schedule 4.5
Real Property Owned or Leased by FuelCell Energy, Inc.

The following is a summary of FuelCell Energy, Inc. offices and locations:

 
 
 
 
Square
 
Lease
Expiration
Location
 
Business Use
 
Footage
 
Dates
Danbury, Connecticut
 
Corporate Headquarters, Research and Development, Sales, Marketing, Purchasing and Administration
 
72,000
 
 
Company owned
Torrington, Connecticut
 
Manufacturing and administrative
 
65,000
 
 
December-2015
Danbury, Connecticut
 
Manufacturing and Operations
 
38,000
 
 
October-2014
Ottobrunn, Germany
 
Manufacturing and administrative
 
20,000
 
 
June-2014

The acquisition of Versa Power Systems, Inc. adds 70,684 square feet. This includes a leased property in Littleton, CO of approximately 18,464 square feet with a lease that expires on August 1, 2018 and a leased property in Calgary, Canada of approximately 52,220 square feet with a lease that expires on January 31, 2014.

We have also entered into a new lease effective February 1, 2013 for 62,225 square feet in a warehouse located in New Hartford, CT. The lease expires on January 31, 2014.








Schedule 4.6
Other Liabilities Not Set Forth on Initial Financial Statement


A summary of our significant future commitments and contractual obligations as of October 31, 2012 not set forth on the initial financial statements and the related payments by fiscal year is summarized as follows:

 
 
 
 
Payments Due by Period
 
 
 
 
 
 
 
Less than
 
1 - 3
 
3 - 5
 
More Than
Contractual Obligations
 
 
 
Total
 
1 year
 
years
 
years
 
5 years
Purchase Commitments
 
 
 
 
$
54,895

 
 
$
50,180

 
 
$
4,715

 
 
$

 
 
$

 
Capital and operating lease commitments
 
 
 
 
3,171
 
 
 
1,203
 
 
 
1,874
 
 
 
94
 
 
 
 
 
Series B Preferred dividends (a) ((a)(apayable
 
 
 
 
19,200
 
 
 
3,200
 
 
 
6,400
 
 
6,400
 
 
 
3,200
 
 
Total
 
 
 
$
77,266

 
 
$
54,583

 
 
$
12,989

 
 
$
6,494

 
 
$
3,200

 

(a)
Payments represent cumulative annual dividends of $50 per share payable quarterly (total shares issued and outstanding are 64,020). Shares of the Series B Preferred Stock can be automatically converted into that number of shares of our common stock that are issuable at the then prevailing conversion rate. The exercise of the conversion right can only be made if the closing price of our common stock exceeds 150 percent of the then prevailing conversion price ($11.75 at October 31, 2012) for 20 trading days during any consecutive 30 trading day period.

Schedule 4.10
Tax Contests

None.








Schedule 4.12
Subsidiaries

Subsidiaries of the Registrant



Entity Name
State / Country of Incorporation
FCE FuelCell Energy, Ltd. *
Canada
Alliance Star Energy, LLC **
California
Bridgeport Fuel Cell Park, LLC *
Connecticut
DFC ERG-Milford, LLC *
Connecticut
DFC ERG-Connecticut, LLC *
Connecticut
Star Energy East, LLC *
Connecticut
Long Beach Clean Energy, LLC *
New York
FuelCell E