FUELCELL ENERGY INC (Form: 10-Q, Received: 03/12/2009 17:03:33)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended January 31, 2009


o		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		(I.R.S. Employer Identification Number)
incorporation or organization)

3 Great Pasture Road
Danbury, Connecticut		06813
(Address of Principal Executive Offices)		Zip Code

(203) 825-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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 definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Small reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Number of shares of common stock, par value $.0001 per share, outstanding at March 9, 2009: 69,017,261

FUELCELL ENERGY, INC.

FORM 10-Q

As of and For the Three Month Period Ended January 31, 2009

Table of Contents


	Page

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (unaudited)

Consolidated Balance Sheets as of January 31, 2009 and October 31, 2008		3

Consolidated Statements of Operations for the three months ended January 31, 2009 and 2008		4

Consolidated Statements of Cash Flows for the three months ended January 31, 2009 and 2008		5

Notes to Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3. Quantitative and Qualitative Disclosures about Market Risk		28

Item 4. Controls and Procedures		29

PART II. OTHER INFORMATION

Item 6. Exhibits		30

Signature		31

Exhibit 4.2
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

FUELCELL ENERGY, INC.

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except share and per share amounts)


	January 31,			October 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	16,298		$	38,043
Investments: U.S. treasury securities		27,270			30,406
Accounts receivable, net		30,376			16,096
Inventories, net		26,074			24,523
Other current assets		8,754			8,952

Total current assets		108,772			118,020

Property, plant and equipment, net		37,302			38,259
Investments: U.S. treasury securities		7,196			18,434
Investment and loan to affiliate		10,689			10,405
Other assets, net		399			358

Total assets	$	164,358		$	185,476


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and other liabilities	$	821		$	795
Accounts payable		15,361			16,287
Accounts payable due to affiliate		909			724
Accrued liabilities		10,452			11,023
Deferred revenue and customer deposits		27,716			29,585

Total current liabilities		55,259			58,414

Long-term deferred revenue		2,220			2,672
Long-term debt and other liabilities		4,434			4,075

Total liabilities		61,913			65,161

Redeemable minority interest		13,800			13,307
Redeemable preferred stock ($0.01 par value, liquidation preference of $64,120 at January 31, 2009 and October 31, 2008.)		59,950			59,950
Shareholders’ equity:
Common stock ($.0001 par value); 150,000,000 shares authorized at January 31, 2009 and October 31, 2008; 69,008,280 and 68,782,446 shares issued and outstanding at January 31, 2009 and October 31, 2008, respectively.)		7			7
Additional paid-in capital		579,893			578,337
Accumulated deficit		(551,205	)		(531,286	)
Treasury stock, Common, at cost (8,981 shares at January 31, 2009 and October 31, 2008.)		(90	)		(90	)
Deferred compensation		90			90

Total shareholders’ equity		28,695			47,058

Total liabilities and shareholders’ equity	$	164,358		$	185,476

See accompanying notes to consolidated financial statements.

FUELCELL ENERGY, INC.

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except share and per share amounts)


	Three Months Ended
	January 31,
	2009			2008
Revenues:
Product sales and revenues	$	19,031		$	9,768
Research and development contracts		2,692			5,251

Total revenues		21,723			15,019


Costs and expenses:
Cost of product sales and revenues		28,937			19,410
Cost of research and development contracts		2,238			4,440
Administrative and selling expenses		4,246			4,812
Research and development expenses		5,737			5,485

Total costs and expenses		41,158			34,147


Loss from operations		(19,435	)		(19,128	)

Interest expense		(60	)		(32	)
Loss from equity investments		(346	)		(444	)
Interest and other income, net		415			1,125


Loss before redeemable minority interest		(19,426	)		(18,479	)

Redeemable minority interest		(493	)		(438	)


Loss before provision for income taxes		(19,919	)		(18,917	)

Provision for income taxes		—			—


Net loss		(19,919	)		(18,917	)

Preferred stock dividends		(802	)		(802	)


Net loss to common shareholders	$	(20,721	)	$	(19,719	)


Loss per share basic and diluted:
Net loss per share to common shareholders	$	(0.30	)	$	(0.29	)
Basic and diluted weighted average shares outstanding		68,831,033			68,204,735

See accompanying notes to consolidated financial statements.

FUELCELL ENERGY, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)


	Three Months Ended
	January 31,
	2009			2008
Cash flows from operating activities:
Net loss	$	(19,919	)	$	(18,917	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		1,451			1,254
Loss from equity investments		346			443
Loss on redeemable minority interest		493			438
Interest receivable on loan to affiliate		(39	)		(43	)
Impairment of long-lived assets		—			179
Gain on derivative		(58	)		(45	)
Depreciation		2,179			2,173
Amortization of bond premium		374			—
Provision for doubtful accounts		(5	)		(26	)
(Increase) decrease in operating assets:
Accounts receivable		(14,275	)		(313	)
Inventories		(1,551	)		(5,830	)
Other assets		554			(184	)
Increase (decrease) in operating liabilities:
Accounts payable		(741	)		(1,279	)
Accrued liabilities		(470	)		1,108
Deferred revenue, license fee income and customer deposits		(2,321	)		6,800

Net cash used in operating activities		(33,982	)		(14,242	)


Cash flows from investing activities:
Capital expenditures		(1,192	)		(1,467	)
Convertible loan to affiliate		(600	)		—
Treasury notes matured		14,000			17,100
Treasury notes purchased		—			(13,180	)

Net cash provided by investing activities		12,208			2,453


Cash flows from financing activities:
Repayment of debt		(53	)		(122	)
Proceeds from debt		436			—
Payment of preferred dividends		(802	)		(802	)
Net proceeds from sale of common stock		433			837
Common stock issued for option plans		15			744

Net cash provided by financing activities		29			657


Net decrease in cash and cash equivalents		(21,745	)		(11,132	)


Cash and cash equivalents-beginning of period		38,043			92,997

Cash and cash equivalents-end of period	$	16,298		$	81,865

See accompanying notes to consolidated financial statements.

FUELCELL ENERGY, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Tabular amounts in thousands, except share and per share amounts)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation — Interim Consolidated Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position as of January 31, 2009 have been included. The consolidated balance sheet as of October 31, 2008 has been derived from the audited financial statements at that date. Certain reclassifications have been made to our prior year amounts to conform to the 2009 presentation.

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates.

The results of operations and cash flows for the three months ended January 31, 2009 are not necessarily indicative of the results to be expected for the full year. The reader should supplement the information in this document with prior disclosures in our 2008 Annual Report on Form 10-K.

Foreign Currency Translation

Our Canadian subsidiary, FuelCell Energy, Ltd., is financially and operationally integrated and therefore the temporal method of translation of foreign currencies is followed. The functional currency is U.S. dollars. We recognized foreign currency losses of approximately $60 thousand during the three months ended January 31, 2009 and 2008. These amounts have been classified in interest and other income on our consolidated statements of operations.

Comprehensive Loss

Our comprehensive loss equals net loss (as reported before preferred dividends) on our consolidated statements of operations of $19.9 million and $18.9 million for the three months ended January 31, 2009 and 2008, respectively. Comprehensive income (loss) is defined as the increase or decrease in equity from sources other than owners.

Recent Accounting Pronouncements

In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations (“SFAS No. 141R”), and Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS No. 160”). SFAS No. 141R requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. This Statement also requires the fair value measurement of certain other assets and liabilities related to the acquisition such as contingencies and research and development. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the noncontrolling interest with disclosure of both amounts on the consolidated statement income. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. The effective date for both Statements is the beginning of our fiscal year 2010. The impact on our consolidated financial statements upon adopting SFAS No. 141R and SFAS No. 160 will be determined based on future acquisitions, if any.

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

In April 2008, the FASB issued Financial Staff Position (“FSP”) No. FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP No. FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” The intent of the position is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R, and other U.S. generally accepted accounting principles. The provisions of FSP No. FAS 142-3 are effective for fiscal years beginning after December 15, 2008. FSP No. FAS142-3 is effective for the Company’s fiscal year beginning November 1, 2009. We have not yet determined the impact, if any, that the adoption of FSP No. FAS 142-3 could have on our consolidated financial statements.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). This Statement defines fair value and expands disclosures about fair value measurements. These methods will apply to other accounting standards that use fair value measurements and may change the application of certain measurements used in current practice. In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). FSP FAS 157-2 partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. FSP FAS 157-2 is effective for us beginning November 1, 2009. On November 1, 2008, the Company adopted the provisions of SFAS No. 157 that were not deferred with the issuance of FSP FAS 157-2 and determined that there was no impact on the fair value measurements the Company had been applying under existing accounting standards. The Company measures its financial assets and liabilities in accordance with accounting principles generally accepted in the U.S. The carrying amounts of the Company’s financial instruments including cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the relatively short period to maturity for these instruments. The Company has not yet determined the impact, if any, that the adoption of SFAS No. 157 for nonfinancial assets and liabilities could have on our consolidated financial statements upon adoption in fiscal 2010.

In February 2007, the FASB issued Statement No. 159, the Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). This Statement permits entities to measure most financial instruments at fair value if desired. It may be applied on a contract by contract basis and is irrevocable once applied to those contracts. The Statement may be applied at the time of adoption for existing eligible items, or at initial recognition of eligible items. After election of this option, changes in fair value are reported in earnings. The items measured at fair value must be shown separately on the balance sheet. The Company adopted SFAS No. 159 on November 1, 2008, but has decided not to apply the fair value option to any of its existing financial instruments recorded on its consolidated balance sheet as of January 31, 2009.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities” by establishing, among other things, the disclosure requirements for derivative instruments and hedging activities. This Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The provisions of SFAS No. 161 are effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 is effective for the Company’s second quarter of fiscal year ending October 31, 2009. The Company does not expect a material impact on its consolidated financial statements resulting from the adoption of SFAS No. 161.

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

Note 2. Equity investments

Versa Power Systems, Inc. (“Versa”) is one of our sub-contractors under the Department of Energy’s large-scale hybrid project to develop a coal-based, multi-megawatt solid oxide fuel cell-based (“SOFC”) hybrid system. Versa is a private company founded in 2001 that has been developing advanced SOFC systems for various stationary and mobile applications. In November 2008, the Company invested $0.6 million in Versa in the form of a convertible note. If not converted, the $0.6 million note and all accrued interest thereon is due November 2018 unless certain prepayment events occur. In conjunction with this investment the Company also received warrants for the right to purchase 822 shares of common stock with an exercise price of $146 per share. We have determined that these warrants represent derivatives. The fair value of the warrants is based on the Black-Scholes valuation model using historical stock price, volatility (based on a peer group since Versa’s common stock is not publicly traded) and risk-free interest rate assumptions. The fair value was not material to the consolidated financial statements as of January 31, 2009. Under the terms of the convertible notes held by the Company, the principal and interest shall be repaid in cash upon a change of control or certain other significant events.

Our total investment in Versa, which includes equity and convertible debt instruments, was approximately $10.7 million and $10.4 million as of January 31, 2009 and October 31, 2008, respectively. Our current ownership interest is approximately 39 percent and we account for Versa under the equity method of accounting. The Company recorded a $0.3 million loss from this equity investment during the three months ended January 31, 2009 and a loss of $0.4 million for the three months ended January 31, 2008.

Note 3. Investments

Our short and long-term investments are in U.S. Treasury securities, which are held to maturity. The following table summarizes the amortized cost basis and fair value at January 31, 2009 and October 31, 2008:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		(Losses)		Value
*At January 31, 2009*
U.S. government obligations	$	34,466	$	349	$	—	$	34,815

*At October 31, 2008*
U.S. government obligations	$	48,840	$	304	$	—	$	49,144

Reported as:


	January 31,		October 31,
	2009		2008
Short-term investments	$	27,270	$	30,406
Long-term investments		7,196		18,434

Total	$	34,466	$	48,840

As of January 31, 2009, short-term investment securities have maturity dates ranging from February 15, 2009 to December 31, 2009 and estimated yields ranging from 1.54 percent to 2.35 percent. We have long-term investment securities with maturity dates ranging from February 15, 2010 to April 30, 2010 and estimated yields ranging from 2.44 percent to 2.46 percent. Our weighted average yield on our short and long-term investments was 2.14 percent as of January 31, 2009.

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

Note 4. Accounts Receivable

Accounts receivable at January 31, 2009 and October 31, 2008 consisted of the following:


	January 31,		October 31,
	2009		2008
U.S. Government:
Amount billed	$	260	$	199
Unbilled recoverable costs		825		406

		1,085		605

Commercial Customers:
Amount billed ⁽¹⁾		22,414		4,584
Unbilled recoverable costs		6,877		10,907

		29,291		15,491

	$	30,376	$	16,096


(1)		Amounts billed relate to one contract containing retainage provisions (amounts withheld until contract completion) totaling $0.7 million and $0.6 million as of January 31, 2009 and October 31, 2008, respectively. This contract is scheduled to be completed in March 2009 at which time retainage is expected to be remitted to the Company.

The Company bills customers for power plant sales based on certain milestones being reached. The Company bills the U.S. government for research and development contracts based on actual costs incurred, typically in the month subsequent to incurring costs. Unbilled recoverable costs relate to revenue recognized on customer contracts that have not been billed as of January 31, 2009 and October 31, 2008. The allowance for doubtful accounts was $0.05 million at January 31, 2009 and October 31, 2008.

Note 5. Inventories

The components of inventory at January 31, 2009 and October 31, 2008 consisted of the following:


	January 31,		October 31,
	2009		2008

Raw materials	$	14,499	$	18,952
Work-in-process		11,575		5,571

Total	$	26,074	$	24,523

Our inventories are stated at the lower of recoverable cost or market price. Our lower of cost or market adjustment, reducing gross inventory values to the reported amounts, was approximately $9.4 million and $11.4 million at January 31, 2009 and October 31, 2008, respectively.

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

Note 6. Share-Based Compensation

The Company has shareholder approved equity incentive plans and a shareholder approved Section 423 Stock Purchase Plan (the “ESPP”), which are described in more detail below.

Equity Incentive Plans

The Board adopted the 1998 and 2006 Equity Incentive Plans (collectively, “the Plans”). Under the terms of the Plans, 8.5 million shares of common stock may be granted as options or stock to our officers, key employees and directors. As of January 31, 2009, 871,802 shares were available for grant. Pursuant to the Plans, the Board is authorized to grant incentive stock options or nonqualified options and stock appreciation rights to our officers and key employees and may grant nonqualified options and stock appreciation rights to our directors. Stock options and stock appreciation rights have restrictions as to transferability. The option exercise price shall be fixed by the Board but in the case of incentive stock options, shall not be less than 100 percent of the fair market value of the shares on the date the option is granted. Stock appreciation rights may be granted in conjunction with options granted under the Plans. Stock options that have been granted are generally exercisable commencing one year after grant at the rate of 25 percent of such shares in each succeeding year and have a ten-year maximum term. There were no stock appreciation rights outstanding at January 31, 2009.

The compensation expense for Share-Based Plans is recognized on a straight-line basis over the vesting period of each award. Share-based compensation included in the Consolidated Statements of Operations for the three months ended January 31, 2009 and 2008 was as follows:


	Three months ended
	January 31,
	2009		2008
Cost of product sales and revenues	$	304	$	223
Cost of research and development contracts		52		74
General and administrative expense		834		711
Research and development expense		246		232

Total share-based compensation	$	1,436	$	1,240

Certain share-based compensation is capitalized and included on the Consolidated Balance Sheets as of January 31, 2009 and October 31, 2008. These amounts were not material during either period presented above. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatility is based on a combination of the historical volatility of the Company’s stock and the implied volatility from traded options. We use historical data to estimate the expected term of options granted.


	Three months ended
	January 31,
	2009			2008
Expected life (in years)		6.8			6.7
Risk-free interest rate		2.29	%		3.69	%
Volatility		63.7	%		63.6	%
Dividend yield		—			—

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

The following table summarizes the Plans’ stock option activity for the three months ended January 31, 2009.


				Weighted
	Number of			average
	options			option price

Outstanding at October 31, 2008		5,967,213		$	10.99
Granted		5,200			4.25
Exercised		(6,000	)		1.63
Forfeited/Cancelled		(43,935	)		10.17

Outstanding at January 31, 2009		5,922,478			11.00

The weighted average grant-date fair value of options granted during the three months ended January 31, 2009 and 2008 was $2.62 and $5.54, respectively. The total intrinsic value of options outstanding and options exercisable at January 31, 2009 was $0.2 million. There was not a material amount of intrinsic value for options exercised during either the three months ended January 31, 2009 or 2008.

The following table summarizes information about stock options outstanding and exercisable at January 31, 2009:


	Options Outstanding						Options Exercisable
			Weighted
			average		Weighted				Weighted
			remaining		average				average
Range of exercise	Number		contractual		exercise		Number		exercise
prices	outstanding		life		price		exercisable		price
$0.26 – $5.10		105,200		0.6		1.76		100,000		1.63
$5.11 – $9.92		3,462,887		7.3		7.95		1,828,237		7.84
$9.93 – $14.74		1,570,773		5.3		12.17		1,252,595		12.58
$14.75 – $19.56		310,618		2.2		16.85		310,618		16.85
$19.57 – $24.39		219,000		2.2		23.01		219,000		23.01
$24.40 – $29.21		27,000		2.0		26.15		27,000		26.15
$29.22 – $34.03		163,000		1.8		29.91		163,000		29.91
$34.04 – $48.49		64,000		1.7		38.50		64,000		38.50

		5,922,478		6.0		11.00		3,964,450		12.25

As of January 31, 2009, total compensation cost related to nonvested stock options was $7.6 million, which is expected to be recognized over the next 2.5 years on a weighted-average basis.

Employee Stock Purchase Plan

Our shareholders adopted the ESPP on April 30, 1993, which has been amended from time to time by the Board. The total shares allocated to the ESPP are 900,000. Under the ESPP, eligible employees have the right to purchase shares of common stock at an exercise price for each offering period equal to the lesser of (i) 85 percent of the last reported sale price of the Company’s common stock on the first business day of the offering period, or (ii) 85 percent of the last reported sale price of the common stock on the last business day of the offering period, in either case rounded up to avoid impermissible trading fractions.

Any shares issued pursuant to the ESPP shall contain a legend restricting the transfer or sale of such common stock for a period of six months after the date of purchase.

As of January 31, 2009, there were 242,383 shares of Common Stock reserved for issuance under the ESPP. These shares may be adjusted for any future stock splits.

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

Activity in the ESPP for the three months ended January 31, 2009 was as follows:


	Number of
	Shares
Balance at October 31, 2008		267,217
Issued @ $4.06		(24,834	)

Balance at January 31, 2009		242,383

The fair value of shares under the ESPP are determined at the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:


	Three months ended
	January 31, 2009
Expected life (in years)		.5
Risk-free interest rate		1.07	%
Volatility		116	%
Dividend yield		—

During the three months ended January 31, 2009, the weighted-average fair value of shares expected to be issued under the current ESPP offering period ending April 30, 2009 was $2.44.

Note 7. Shareholders’ Equity

Changes in shareholders’ equity were as follows for the three months ended January 31, 2009:


Balance at October 31, 2008	$	47,058
Increase in additional paid-in-capital for stock-based compensation		1,451
Increase in additional paid-in-capital for stock issued under employee benefit plans		119
Common stock sales		788
Series B preferred dividends		(802	)
Net loss		(19,919	)

Balance at January 31, 2009	$	28,695

Note 8. Segment Information and Major Customers

Under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” we use the “management” approach to reporting segments. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of reportable segments. SFAS No. 131 also requires disclosures about products and services, geographic areas, and major customers. Under SFAS No. 131, we have identified one business segment: fuel cell power plant production and research.

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

Enterprise-wide Information

Enterprise-wide information provided on geographic revenues is based on the customer’s ordering location. The following table presents revenues (greater than ten percent of our total revenues) by geographic area:


	Three months ended
	January 31,
Revenues:	2009		2008
United States	$	7,004	$	9,752
Korea		13,699		4,727

Total	$	20,703	$	14,479

Information about Major Customers

We contract with a small number of customers for the sales of our products or research and development contracts. During the three months ended January 31, 2009, we had two individual customers that accounted for $13.7 million and $2.6 million of total revenues. During the three months ended January 31, 2008, we had three individual customers that accounted for $5.1 million, $4.7 million and $2.5 million of total revenues.

Note 9. Earnings Per Share

Basic and diluted earnings per share are calculated using the following data:


	Three months ended
	January 31,
	2009		2008
Weighted average basic common shares		68,831,033		68,204,735
Effect of dilutive securities ⁽¹⁾		—		—

Weighted average basic common shares adjusted for diluted calculations		68,831,033		68,204,735


(1)		We computed earnings per share without consideration to potentially dilutive instruments because losses incurred would make them antidilutive. Future potentially dilutive stock options that were in-the-money at January 31, 2009 and 2008 totaled 101,200 and 1,656,773, respectively. Future potentially dilutive stock options that were not in-the-money at January 31, 2009 and 2008 totaled 5,821,278 and 4,372,718, respectively. We also have future potentially dilutive warrants issued, which vest and expire over time. As of January 31, 2009, 7,500 warrants were vested with an exercise price of $9.89 and we also had 500,000 unvested warrants.

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

Note 10. Supplemental Cash Flow Information

The following represents supplemental cash flow information:


	Three Months Ended
	January 31,
	2009		2008
Cash paid during the period for:
Interest	$	60	$	32

Supplemental disclosure of non-cash investing and financing activities:
Accrued sales of common stock ⁽¹⁾	$	355	$	400
Accrued Employee Stock Purchase Plan	$	101	$	146


(1)		Sales of common stock confirmed during the prior period and settled in the current period.

Note 11. Commitments and Contingencies

Cash and cash equivalents

Approximately $3.9 million of our cash and cash equivalents have been pledged as collateral for certain banking requirements and customer contracts, of which approximately $0.6 million supported letters of credit that expire on various dates through November 15, 2009.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 MD&A is organized as follows:

Caution concerning forward-looking statements. This section discusses how certain forward-looking statements made by us throughout the MD&A are based on management’s present expectations about future events and are inherently susceptible to uncertainty and changes in circumstances.

Overview and recent developments. This section provides a general description of our business. We also briefly summarize any significant events occurring subsequent to the close of the reporting period.

Critical accounting policies and estimates. This section discusses those accounting policies and estimates that are both considered important to our financial condition and operating results and require significant judgment and estimates on the part of management in their application.

Results of operations. This section provides an analysis of our results of operations for the three months ended January 31, 2009 and 2008. In addition, a description is provided of transactions and events that impact the comparability of the results being analyzed.

Liquidity and capital resources. This section provides an analysis of our cash position and cash flows.

Recent accounting pronouncements. This section summarizes recent accounting pronouncements and their impact on the Company.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto included within our 2008 Form 10-K. In addition to historical information, this Form 10-Q and the following discussion contain forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Factors that could cause such a difference include, without limitation, general risks associated with product development, manufacturing, changes in the utility regulatory environment, potential volatility of energy prices, rapid technological change, ability to reach product cost objectives, and competition, as well as under the caption “Risk Factors” within our 2008 Form 10-K.

OVERVIEW AND RECENT DEVELOPMENTS

Overview

FuelCell Energy is the world leader in the development and production of stationary fuel cells for commercial, industrial, government, and utility customers. FuelCell Energy’s ultra-clean and high efficiency DFC ^® power plants are generating power at approximately 50 locations worldwide. The Company’s power plants have generated more than 275 million kWh of power using a variety of fuels including renewable wastewater gas, biogas from beer and food processing, as well as natural gas and other hydrocarbon fuels.

Our Company was founded in 1969. Our core fuel cell products (“Direct FuelCell ^® ” or “DFC ^® Power Plants”) offer stationary power generation applications for customers. In addition to our commercial products, we continue to develop our carbonate fuel cells, planar solid oxide fuel cell (“SOFC”) technology and other fuel cell technology with our own and government research and development funds.

Our proprietary carbonate DFC power plants electrochemically (without combustion) produce electricity directly from readily available hydrocarbon fuels such as natural gas and biogas. Customers buy fuel cells to reduce cost and pollution, and improve power reliability. Electric generation without combustion significantly reduces harmful pollutants such as NOX and particulates. Higher fuel efficiency results in lower emissions of carbon dioxide (“CO2”), a major component of harmful greenhouse gases, and also results in less fuel needed per kWh of electricity generated and Btu of heat produced. Greater efficiency reduces customers’ exposure to volatile fuel costs and minimizes operating costs. Our fuel cells operate 24/7 providing reliable power to both on-site customers and for grid-support applications.

Compared to other power generation technologies, our products offer significant advantages including:

•

Virtually zero emissions

•

High fuel efficiency

•

Ability to site units locally as distributed power generation

•

Potentially lower cost power generation

•

Byproduct heat ideal for cogeneration applications

•

Reliable, 24/7 baseload power

•

Quiet operation

Typical customers for our products include manufacturers, mission critical institutions such as correction facilities and government installations, hotels, and customers who can use renewable gas for fuel such as breweries, food processors and wastewater treatment facilities. Our MW-class products are also used as grid support applications for utility customers. With increasing demand for renewable and ultra-clean power options and increased volatility in electric markets, our customers gain control of power generation economics, reliability, and emissions. Our fuel cells also offer flexible siting, easy permitting, and the ability to use multiple fuels.

Recent Developments

Connecticut Project 150 Program

On March 10, 2009, the Connecticut Department of Public Utility Control (DPUC) issued a revised draft decision for Project 150 Round 3 approving a total of 27.3 MW of projects incorporating FuelCell Energy power plants. This revision supersedes the prior draft issued in January 2009 that approved 6.6 MW.

The approved projects include a 14.3 MW power plant for Bridgeport FuelCell Park, 3.4 MW DFC-ERG power plant for a natural gas distribution station in Bloomfield, Conn., 3.2 MW DFC-ERG for Trumbull, Conn., 3.2 DFC-ERG for Glastonbury, Conn., and a 3.2 MW DFC/Turbine (DFC/T) for an electrical substation in Danbury, Conn. The final DPUC decision is scheduled for April 2009 and the sales value of the contracts, if finalized, is an estimated $84 million.

Under Connecticut’s Project 150 Round 2, we are negotiating contracts for a 9.0 MW DFC-ERG system to be located in Milford, Conn., a 4.8 MW DFC power plant at Stamford Hospital, and a 2.4 MW power plant at Waterbury Hospital.

Cash Management Plan

In response to current economic conditions, the Company reduced operating costs in February 2009. This included a six percent workforce reduction, suspension of employer contributions to the 401(k) plan, a freeze on the level of salaries for all employees except for production employees, and other expense reductions. The Company expects cash use for fiscal 2009 to be significantly lower than fiscal 2008 as a result of these actions taken in February 2009 as well as expected order flow at or above the Company’s 30 MW production rate, lower capital spending and improvement in working capital and operating margins.

The American Recovery and Reinvestment Act

The American Recovery and Reinvestment Act (ARRA), enacted in February 2009, directs more than $30 billion dollars for energy initiatives and another $20 billion in tax incentives for renewable energy and energy efficiency over the next 10 years. Projects using FuelCell Energy’s stationary fuel cells may be eligible to receive benefits under the following provisions of the ARRA:

•

A new federal Investment Tax Credit (ITC) grant provision allows project developers to fund projects by applying for a grant through the Department of the Treasury. Previously the ITC could only be used as a credit against taxable income;

•

The ARRA repeals certain ITC limitations and now allows the credit to be taken on a greater percentage of total project costs;

•

For certain projects put in service during 2009, developers can claim accelerated depreciation up to 50 percent of the adjusted cost basis of the property. For projects beginning operation between 2009 and January 1, 2011, developers can claim the adjusted basis of the project as of January 1, 2010 and receive the same accelerated depreciation benefits. For developers using the ITC or cash grant, 42.5 percent can be deducted immediately;

•

An additional $3.2 billion was allocated for the U.S. Department of Energy’s Energy Efficiency and Renewable Energy (EERE) program to apply to state block grants. These funds are for clean energy programs and include installation of high efficiency fuel cell power plants to provide ultra-clean, reliable electricity;

•

$300 million was directed to the U.S. Department of Defense for research, development, evaluation, and demonstration of projects that employ fuel cell, solar, and wind sources for energy generation;

•

A $1.6 billion bond program was included that provides new clean energy bonds to finance facilities that generate electricity from ultra-clean sources such as fuel cells.

Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge through the Investor Relations section of our website (www.fuelcellenergy.com) as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. Material contained on our website is not incorporated by reference in this report. Our executive offices are located at 3 Great Pasture Road, Danbury, CT 06813.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to Critical Accounting Policies and Estimates in our 2008 Form 10-K for information on accounting policies and estimates that we consider critical in preparing our consolidated financial statements. Our accounting policies include significant estimates we make using information available at the time the estimates are made. However, these estimates could change materially if different information or assumptions were used.

RESULTS OF OPERATIONS

Management evaluates the results of operations and cash flows using a variety of key performance indicators. Indicators that management uses include 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, 2009 and January 31, 2008

Revenues and costs of revenues

The following tables summarize the components of our revenues and cost of revenues for the three months ended January 31, 2009 and 2008 (dollar amounts in thousands), respectively:


	Three Months Ended					Three Months Ended
	January 31, 2009					January 31, 2008					Percentage
			Percent of					Percent of			Increase in
Revenues:	Revenues		Revenues			Revenues		Revenues			Revenues
Product sales and revenues	$	19,031		88	%	$	9,768		65	%		95	%
Research and development contracts		2,692		12	%		5,251		35	%		(49	%)

Total	$	21,723		100	%	$	15,019		100	%		45	%


	Three Months Ended					Three Months Ended
	January 31, 2009					January 31, 2008					Percentage
			Percent of					Percent of			Increase
	Cost of		Cost of			Cost of		Cost of			in Cost of
Cost of revenues:	Revenues		Revenues			Revenues		Revenues			Revenues
Product sales and revenues	$	28,937		93	%	$	19,410		81	%		49	%
Research and development contracts		2,238		7	%		4,440		19	%		(50	%)

Total	$	31,175		100	%	$	23,850		100	%		31	%

Total revenues for the three months ended January 31, 2009 increased by $6.7 million, or 45 percent, to $21.7 million from $15.0 million during the same period last year. Total cost of revenue for the three months ended January 31, 2009 increased by $7.3 million or 31 percent to $31.2 million.

Product sales and revenues

The Company has historically sold its fuel cell products below cost while the market develops and product costs are reduced. We have been engaged in a formal commercial cost-out program since 2003 to reduce the total life cycle costs of our power plants. We have made significant progress primarily through value engineering our products, manufacturing process improvements and higher production levels, technology improvements and global sourcing.

We currently estimate that product sales and revenues will be gross margin profitable when the Company achieves production volumes in the 35 to 70 MW range depending on product mix. Our current annual production volume is approximately 30 MW. As a measure of cost reduction progress prior to achieving positive margins, the Company calculates a cost-to-revenue ratio which is cost divided by revenue. Refer to the liquidity and capital resources section of this document for future discussion of the Company’s plans for implementing our cost reduction efforts and increasing annual order volume.

Analysis for the comparable periods ended January 31, 2009 and 2008:


	Three Months Ended			Three Months Ended			Percentage
	January 31, 2009			January 31, 2008			Change
Product sales and revenues	$	19,031		$	9,768			95	%
Cost of Product sales and revenues		28,937			19,410			49	%

Loss on product sales and revenues	$	(9,906	)	$	(9,642	)		3	%

Cost-to-revenue ratio		1.52			1.99			(24	)%

Product sales and revenue increased $9.3 million to $19.0 million for the three months ended January 31, 2009 compared to $9.8 million for the same period in the prior year. Revenue in the first quarter included approximately $15.1 million of power plant sales, $1.3 million related to site engineering and construction work for projects where the Company is responsible for complete power plant system installation, $2.1 million related to service agreements and component sales and approximately $0.6 million of revenue related to power purchase agreements. Revenues are higher due to increased orders for our fuel cell power plants. Our annual production rate in the first quarter in fiscal 2009 was approximately 30 MW of fuel cell products compared to approximately 12 MW in 2008. The Company expects to operate at a 30 MW run-rate during 2009. POSCO Power, one of our strategic distribution partners, accounted for approximately 72 percent and 48 percent of total product sales and revenues for the periods ended January 31, 2009 and 2008, respectively. In 2007, we entered into a 10-year manufacturing and distribution agreement with POSCO Power at which time it invested in FuelCell Energy, Inc. and is currently a 5.5 percent owner of the Company’s common stock.

Cost of product sales and revenues increased to $28.9 million for the quarter ended January 31, 2009 compared to $19.4 million the first quarter of 2008. The ratio of product cost to sales was 1.52 to 1 compared to 1.99 to 1 during the same period a year ago and 1.54 to 1 in the fourth quarter of 2008. The cost ratio has been favorably impacted by the shift to MW production, lower unit costs across all product lines and lower service agreement costs due to the timing of stack replacements, compared to the prior year quarter. Net of revenues, service agreements and aftermarket costs totaled approximately $2.7 million in the first quarter of fiscal 2009 compared to $3.5 million in the same period of the prior year.

Cost of product sales and revenues includes costs to manufacture and ship our power plants and power plant components to customers, site engineering and construction costs where the Company is responsible for complete power plant system installation, warranty costs, and costs to service power plants for customers with long-term service agreements (including maintenance and stack replacement costs incurred during the period). Cost of sales also includes Power Purchase Agreement (“PPA”) operating costs and adjustments required to value our inventory at the lower of cost or market. As our fuel cell products are in their initial stages of development and market acceptance, we have not historically provided for a loss reserve estimate on product or service contracts.

Research and development contracts

Research and development revenue decreased to $2.7 million for the three months ended January 31, 2009 compared to $5.3 million for the same period in 2008. Cost of research and development contracts decreased to $2.2 million during the first quarter of 2009 compared to $4.4 million for 2008. Margin from research and development contracts for the first quarter was approximately $0.5 million or 17 percent compared to $0.8 million or 15 percent in the first quarter of 2008. The decline in revenue compared to the prior year is due to the completion of several government programs in the second half of fiscal 2008 and transition to the Phase II coal-based SOFC contract which was awarded late in the first quarter of fiscal 2009. In January, the U.S. Department of Energy (DOE) awarded the Company Phase II of the MW-class coal-based SOFC contract, a $30.2 million contract of which the DOE has agreed to fund $21.0 million with the remaining amount to be funded by the Company.

Research and development contract backlog was $23.1 million of which Congress has authorized funding of $6.0 million as of January 31, 2009 compared to $13.2 million ($7.0 million funded) at January 31, 2008.

Administrative and selling expenses

Administrative and selling expenses for the quarter ended January 31, 2009 totaled $4.2 million, a decrease of $0.6 million compared to $4.8 million in the same period of the prior year. This decrease is primarily due to lower sales and marketing expenses related to the Connecticut Project 150 program compared to the comparable period in the prior year.

Research and development expenses

Research and development expenses totaled $5.7 million during the three months ended January 31, 2009, an increase of $0.2 million compared to $5.5 million recorded in the same period of the prior year. The increase is related primarily to product development and cost reduction.

Loss from operations

Loss from operations for the three months ended January 31, 2009 totaled $19.4 million, approximately two percent higher than the $19.1 million loss from operations recorded in the comparable period last year. The increase in loss from operations is due to higher product sales, lower margins on research and development contracts, increased spending on product development, and cost reduction. Although the loss on product sales and revenues was higher in the first quarter of 2009, cost reductions across all product lines and a shift to MW-class production have enabled the Company to nearly double product sales and revenues over the prior year while only increasing loss on product sales by $0.3 million due to lower cost of products. Partially offsetting these items was lower sales and marketing costs.

Loss from equity investments

Our ownership interest in Versa at January 31, 2009 was 39%. We account for Versa under the equity method of accounting. Our share of equity losses for the three months ended January 31, 2009 and 2008 were $0.3 million and $0.4 million, respectively. This decrease is due to lower research and development activity at Versa.

Interest and other income, net

Interest and other income, net, decreased to $0.4 million for the three months ended January 31, 2009 compared to $1.1 million for the same period in 2008. The decrease is due to lower interest income on lower average invested balances and lower interest rates.

Provision for income taxes

We believe that due to our commercialization efforts, our DFC products will continue to incur losses. Based on projections for future taxable income over the period in which the deferred tax assets are realizable, management believes that significant uncertainty exists surrounding the recoverability of the deferred tax assets. Therefore, no tax benefit has been recognized related to current or prior year losses and other deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents, and investments in U.S. treasuries totaled approximately $50.8 million as of January 31, 2009 compared to $86.9 million as of October 31, 2008. Net cash and investments used during the quarter was $36.1 million. In fiscal 2008, the average quarterly use of cash and investments totaled approximately $16.7 million. The high quarter cash use in the first quarter of 2009 was caused by delays in customer milestone payments resulting in an increase of accounts receivable to $30.4 million as of January 31, 2009 compared to $16.1 million at October 31, 2008. The Company received the delayed milestone payments in February 2009. As a result of market conditions, the Company also experienced delays finalizing customer contracts in the first quarter and did not receive initial milestone payments on these contracts. The Company expects to close these contracts in the second quarter, which will add to backlog and drive additional customer milestone payments. During the second quarter of 2009, the Company expects to hold cash and investments at or above the January 31, 2009 balance.

We are targeting fiscal 2009 use of cash and investments in a range of $35 million to $45 million compared to the prior year total of $66.7 million. This reduction in cash use is expected to be achieved through order flow at or above the Company’s 30 MW production rate, lower capital spending, and other company-wide cost reductions. In February 2009, the Company initiated a six percent workforce reduction, a suspension of employer contributions to the 401(k) plan and a salary freeze except for production employees.

The fundamentals of the Company are solid with products expected to turn gross margin positive this fiscal year and with near term opportunities to increase product backlog in our key markets of Korea, California and Connecticut. In addition to operating cash flow, the Company is evaluating external financing options. The timing and size of these financings will depend on multiple factors including the impact of the global recession, future order flow and the need to increase production capacity among others.

Cash Inflows and Outflows

Cash and cash equivalents as of January 31, 2009 totaled $16.3 million, reflecting a decrease of $21.7 million from the balance reported as of October 31, 2008. The key components of our cash inflows and outflows were as follows:

Operating Activities : During the first quarter of 2009, we used $34.0 million in cash for operating activities compared to operating cash usage of $14.2 million during the same period in 2008. The increase over the prior year period was driven primarily by a higher net working capital usage of approximately $18.8 million compared with a benefit of $0.3 million in the 2008 period. Driving this usage was higher accounts receivable of approximately $14.3 million, higher inventory of approximately $1.6 million, lower deferred revenue of $2.3 million, and other changes of $0.6 million, net.

We bill customers based on time phased milestones established in customer contracts. The Company expects accounts receivable to be in the $15 million — $20 million range at our current production level.

Investing Activities : During the first quarter of 2009, net cash provided by investing activities totaled $12.2 million. During the first quarter of 2009, $14.0 million of investments in U.S. treasury securities matured or were sold. Offsetting this increase were capital expenditures totaling $1.2 million and a convertible debt investment in Versa Power Systems, Inc. totaling $0.6 million. The Company’s forecasted capital spending for fiscal 2009 is in the $3.5 million to $4.5 million range.

Financing Activities : During the first quarter of 2009, net cash provided by financing activities was approximately $0.03 million compared to $0.7 million in the prior year. Activity in 2009 included $0.8 million for the payment of dividends on preferred stock and repayment of debt of $0.1 million. These cash outflows in fiscal 2009 were offset by receipts of $0.4 million from the sale of common stock and $0.4 million of cash borrowed from the Connecticut Development Authority.

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. Our operations are funded primarily through sales of equity securities, cash generated from product sales, service contracts and PPAs, incentive funding, government research and development contracts, and interest earned on investments. We anticipate that our existing capital resources, together with our current order backlog and anticipated orders, will be adequate to satisfy our financial requirements and agreements through at least the next twelve months.

Increasing annual order volume

In addition to the cost reduction initiatives discussed above, we need to increase annual order volume. Increased production volumes lower costs by leveraging supplier/purchasing opportunities, creating opportunities for incorporating manufacturing process improvements, and spreading fixed costs over more units. Our overall manufacturing process (module manufacturing, final assembly, and test and conditioning) has a production capacity of 50 MW per year. We believe we can increase capacity to 70 MW per year with capital investments of approximately $4.0 million to $7.0 million. To expand to a production capacity of 150 MW, we would need to make capital investments of approximately $35 million to $45 million. Based upon existing backlog, we increased our production volumes to an annual rate of 30 MW during 2008. Future production volumes will be matched against order flow. Opportunities for increasing order volume in our key markets, including South Korea, California and Connecticut are as follows:

South Korea: POSCO Power opened its 50 MW fuel cell balance-of-plant manufacturing facility in September 2008 and is planning to manufacture the balance of plant surrounding a fuel cell module beginning in the latter half of 2009. In the interim, POSCO Power and FuelCell Energy are working together to set up an in-country service and maintenance organization and train POSCO Power personnel.

California: In February, we announced the sale of a 300 kW DFC300 power plant to the U.S. Marine Corps Air Ground Combat Center at Twentynine Palms, Calif. The DFC power plant will supply onsite baseload power for the facility’s electricity requirements and the fuel cell’s surplus heat will be fed into the base’s main steam line for hot water and space heating.

Connecticut: On March 10, 2009, the Connecticut Department of Public Utility Control (DPUC) issued a revised draft decision for Project 150 Round 3 approving a total of 27.3 MW of projects incorporating FuelCell Energy power plants. This revision supersedes the prior draft issued January 2009 that approved 6.6 MW.

We have approximately 65 MW of DFC power plants installed or in backlog in Asia, North America (primarily the U.S.) and Europe. Of this, over 38 MW were ordered by POSCO Power, the Company’s manufacturing and distribution partner for South Korea. California is the Company’s next largest market with over 15 MW installed or in backlog. Our current product sales backlog is approximately 25 MW and totals approximately $51.4 million. Included in backlog are 8.4 MW of module only sales orders.

We sell both completed power plants and fuel cell modules. Of the current product backlog, over 90 percent is for MW-class power plants and fuel cell modules. Based on the current backlog, we expect the mix of production to move primarily to DFC3000 power plants and fuel cell modules in fiscal 2009. Our current annual production volume is approximately 30 MW. We believe we can reach gross margin breakeven at a sustained annual order and production volume of approximately 35 to 70 MW and we believe that net income breakeven can be achieved at a sustained annual order and volume production of approximately 75 to 125 MW. The low end for each of these ranges requires sustained annual production primarily of our DFC3000 power plants and fuel cell modules and the high end if the range includes a mix of our DFC1500 and DFC300 power plants. Actual results will depend on product mix, volume, mix of full power plants vs. modules only, future service costs, and market pricing.

Implementing cost reduction efforts on our fuel cell products

Reducing product cost is essential for us to more fully penetrate the market for our fuel cell products. Cost reductions will reduce and may eliminate the need for incentive funding programs and are critical to our attaining profitability. Currently available incentives allow our product pricing to compete with grid-delivered power and other distributed generation technologies. Product cost reductions come from several areas:

•

engineering improvements;

•

technology advances;

•

supply chain management;

•

production volume; and

•

manufacturing process improvements.

We have reduced the cost of our MW-class power plants by approximately 85 percent since our ‘proof-of-concept’ 2 MW Santa Clara project in 1996-1997. In 2003, we implemented our commercial cost-out program, hiring additional engineers who focused on reducing the total life cycle costs of our power plants. We have made significant progress primarily through value engineering our products, manufacturing process improvements, technology improvements, and global sourcing.

In 2008, we also completed the design of our newest MW-class power plants that are expected to go into production in the third fiscal quarter of 2009. The new design produces 350 kW per stack compared to the current 300 kW design. With these new models, we expect future MW-class orders to be gross margin positive.

The life of our stacks impacts the service costs associated with our power plants. Extending stack life reduces services costs for the Company. In 2008, we began manufacturing our five-year stacks, compared to our previous stacks which had a life of approximately three years. The Company is developing and expects to bring to market products with a stack life of greater than five-years.

Future involvement in research and development contracts

Our research and development contracts are generally multi-year, cost reimbursement contracts. The majority of these are U.S. Government contracts that are dependent upon the government’s continued allocation of funds and may be terminated in whole or in part at the convenience of the government. We will continue to seek research and development contracts. To obtain these contracts, we must continue to prove the benefits of our technologies and be successful in our competitive bidding.

Commitments and Significant Contractual Obligations

A summary of our significant future commitments and contractual obligations as of January 31, 2009 and the related payments by fiscal year is summarized as follows (in thousands):


	Payments Due by Period
			Less						More
			than		1 – 3		3 – 5		than
Contractual Obligation:	Total		1 Year		Years		Years		5 Years
Capital and Operating lease commitments ⁽¹⁾	$	3,914		987		1,171		897		859
Term loans (principal and interest)		5,706		885		1,157		1,157		2,507
Purchase commitments ⁽²⁾		36,391		35,937		188		266		—
Series I Preferred dividends payable ⁽³⁾		20,142		405		10,624		2,025		7,088
Series B Preferred dividends payable ⁽⁴⁾		3,251		3,206		45		—		—


Totals	$	69,404		41,420		13,185		4,345		10,454


(1)		Future minimum lease payments on capital and operating leases.

(2)		Purchase commitments with suppliers for materials supplies, and services incurred in the normal course of business.

(3)		Quarterly dividends of Cdn.$312,500 accrue on the Series 1 preferred shares (subject to possible reduction pursuant to the terms of the Series 1 preferred shares on account of increases in the price of our common stock). We have agreed to pay a minimum of Cdn.$500,000 in cash or common stock annually to Enbridge, Inc., the holder of the Series 1 preferred shares, so long as Enbridge holds the shares. Interest accrues on cumulative unpaid dividends at a 2.45 percent quarterly rate, compounded quarterly, until payment thereof. Using an exchange rate of Cdn.$0.81 to U.S.$1.00 (exchange rate on January 31, 2009), cumulative unpaid dividends and accrued interest of approximately $7.2 million on the Series 1 preferred shares were outstanding as of January 31, 2009. For the purposes of this disclosure, we have assumed an exchange rate of Cdn.$0.81 to U.S.$1.00 (exchange rate on January 31, 2009) and that the minimum dividend payments would be made through 2010. In 2010, we would be required to pay any unpaid and accrued dividends. Subsequent to 2010, we would be required to pay annual dividend amounts totaling Cdn.$1.25 million. We have the option of paying these dividends in stock or cash.

(4)		Dividends on Series B Preferred Stock accrue at an annual rate of 5% paid quarterly. The obligations schedule assumes we will pay preferred dividends on these shares through November 20, 2009, at which time the preferred shares may be subject to mandatory conversion at the option of the Company.

In April 2008, we entered into a new 10-year loan agreement with the CDA allowing for a maximum amount borrowed of $4.0 million. At January 31, 2009, we had an outstanding balance of $4.0 million on this loan. The stated interest rate is 5 percent and the loan will be collateralized by the assets procured under this loan as well as $4.0 million of additional machinery and equipment. Repayment terms require (i) interest only payments on outstanding balances through November 2009 and (ii) interest and principal payments commencing in December 2009 through May 2018.

In April 2006, Bridgeport FuelCell Park, LLC (“BFCP”), one of our wholly-owned subsidiaries, entered into a loan agreement for $0.5 million, secured by assets of BFCP. Loan proceeds were designated for pre-development expenses associated with the development, construction, and operation of a fuel cell generation facility in Bridgeport, Connecticut (the “Project”). The outstanding balance on this loan was $0.6 million, including accrued interest, as of January 31, 2009.

We have pledged approximately $3.9 million of our cash and cash equivalents as collateral and letters of credit for certain banking requirements and customer contracts, of which approximately $0.6 million supported letters of credit that expire on various dates through November 15, 2009.

FuelCell adopted FIN 48 as of November 1, 2007. In connection with the adoption of FIN 48, the Company identified uncertain tax positions aggregating $15.7 million and reduced its net operating loss carryforwards (NOL’s) by this amount. At October 31, 2008, the Company had available for federal and state income tax purposes, NOL’s of approximately $448 million and $343 million, respectively. Because of the level of NOL’s and valuation allowances, unrecognized tax benefits, even if not resolved in the Company’s favor, would not result in any cash payment or obligation and therefore have not been included in the contractual obligation table above.

Product sales contracts

Through fiscal 2008, the costs to manufacture and install our products exceeded market prices. As of January 31, 2009, we had product sales backlog of approximately $51.4 million. We do not expect the Company to achieve gross margin profitability until we achieve sustained annual production volume of approximately 35 to 70 MW, depending on product mix, geographic location, incentives and credits, service costs and other variables such as fuel prices. In mid-2008, we ramped to an annual production rate of approximately 30MW in response to worldwide demand for the Company’s MW-class power plants. We also now have in backlog orders for the Company’s newest 2.8 MW product design which is expected to be gross margin profitable on a per unit basis. As order flow increases, we expect a mix primarily of 2.8 MW modules and power plants.

Actual production was approximately 11 MW in fiscal 2007 and 22 MW in 2008.

Long-term service agreements

We have contracted with certain customers to provide long-term service for fuel cell power plants ranging from one to 13 years. Our standard service agreement term is five years and may be renewed if the parties mutually agree on future pricing. Pricing for service contracts is based on the markets in which we compete as well as estimates of future costs. Given our products’ early stage of development, actual expenses could be materially different than the contract price resulting in a loss.

Under the provisions of these contracts, we provide services to maintain, monitor, and repair customer power plants to meet minimum operating levels. Should the power plant not meet the minimum operating levels, the Company may be required to replace the fuel cell stack with a new or used replacement. Our contractual liability under service agreements is limited to amount of service fees payable under the contract. We have incurred and expect to continue to incur costs in excess of revenues in order to maintain customer power plants under its service agreements.

We expect the replacement of three-year life stacks will continue over the next several years. As a result, we expect to continue to incur losses in order to maintain power plants. Future costs for maintaining legacy service agreements will be determined by a number of factors including life of the stack, used replacement stacks available, the Company’s limit of liability on service agreements and future operating plans for the power plant. Given these considerations, the Company expects a similar impact in fiscal 2009 as was reported in fiscal 2008 and then expects the impact to decline in fiscal 2010 and 2011.

In fiscal 2008, our new five-year fuel cell stack went into production, extending the expected life by two years. Service agreements related to power plants that have our new five-year stack design are not expected to require a stack change to continue to meet minimum operating levels although the Company has limited operating experience with these products. Power plants that do not have our new design may require a stack replacement and we expect to continue to incur costs for stack changes as the older three-year stacks reach end of life.

Power purchase agreements

As of January 31, 2009, we had 3 MW of power plant installations under PPAs ranging in duration from five to ten 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, natural gas, to run the power plants.

We qualified for incentive funding for these projects in California under the state’s Self-Generation Incentive Funding Program and from other government programs. Funds are payable upon commercial installation and demonstration of the plant and may require return of the funds for failure of certain performance requirements during the period specified by the government program. Revenue related to these incentive funds is recognized ratably over the performance period. As of January 31, 2009 we had deferred revenue totaling $3.9 million on the consolidated balance sheet related to incentive funding received on PPAs.

Research and development cost-share contracts

We have contracted with various government agencies as either a prime contractor or sub-contractor on cost-share contracts and agreements. Cost-share terms require that participating contractors share the total cost of the project based on an agreed upon ratio with the government agency. As of January 31, 2009, our research and development sales backlog totaled $23.1 million. We will incur additional research and development cost-share related to this backlog totaling approximately $9.4 million that will not be reimbursed by the government.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued Statement No. 141 (revised 2007), Business Combinations (“SFAS No. 141R”), and Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS No. 160”). SFAS No. 141R requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. This Statement also requires the fair value measurement of certain other assets and liabilities related to the acquisition such as contingencies and research and development. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the noncontrolling interest with disclosure of both amounts on the consolidated statement income. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. The effective date for both Statements is the beginning of fiscal year 2010. We have not yet determined the impact, if any, that the adoption of SFAS No. 141R and SFAS No. 160 could have on our consolidated financial statements.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“SFAS No. 157”). This Statement defines fair value and expands disclosures about fair value measurements. These methods will apply to other accounting standards that use fair value measurements and may change the application of certain measurements used in current practice. In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). FSP FAS 157-2 partially defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. FSP FAS 157-2 is effective for us beginning November 1, 2009. On November 1, 2008, the Company adopted the provisions of SFAS No. 157 that were not deferred with the issuance of FSP FAS 157-2 and determined that there was no impact on the fair value measurements the Company had been applying under existing accounting standards. The Company measures its financial assets and liabilities in accordance with accounting principles generally accepted in the U.S. The carrying amounts of the Company’s financial instruments including cash, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the relatively short period to maturity for these instruments. The Company has not yet determined the impact, if any, that the adoption of SFAS No. 157 could have on our consolidated financial statements upon adoption in fiscal 2010.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities” by establishing, among other things, the disclosure requirements for derivative instruments and hedging activities. This Statement requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The provisions of SFAS No. 161 are effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. SFAS No. 161 is effective for the Company’s second quarter of fiscal year ending October 31, 2009. We have not yet determined the impact, if any, that the adoption of SFAS No. 161 could have on our consolidated financial statements.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Exposure

Our exposures to market risk for changes in interest rates relate primarily to our investment portfolio and long term debt obligations. Our investment portfolio as of January 31, 2009 includes short-term U.S. Treasury instruments with maturities ranging from February 2009 to December 2009, as well as U.S. Treasury notes with fixed interest rates with maturities ranging from February 2010 to April 2010. Cash is invested overnight with high credit quality financial institutions. Based on our overall interest exposure at January 31, 2009, including all interest rate sensitive instruments, a near-term change in interest rate movements of 1 percent would affect our results of operations by approximately $0.2 million annually.

Foreign Currency Exchange Risk

As of January 31, 2009, approximately $0.1 million (less than one percent) of our total cash, cash equivalents and investments was in currencies other than U.S. dollars. We also 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

We have determined that our Series 1 Preferred shares include embedded derivatives that require bifurcation from the host contract and separate accounting in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities . Specifically, the embedded derivatives requiring bifurcation from the host contract are the conversion feature of the security and the variable dividend obligation. The aggregate fair value of these derivatives included within Long-term debt and other liabilities on our Consolidated Balance Sheet as of January 31, 2009 was $0.3 million. The fair value of these derivatives is 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 will result in fluctuations in the derivative value and will impact the Consolidated Statement of Operations. For example, a 25 percent increase from the closing price of our common stock at January 31, 2009 would result in an increase in the fair value of these derivatives and a charge to the Consolidated Statement of Operations of approximately $0.1 million assuming all other assumptions remain the same.

We have determined that the 3,108 warrants received in conjunction with our investment in Versa during the third fiscal quarter of 2008 and the first fiscal quarter of 2009 represent derivatives. The fair value of the warrants is based on the Black-Scholes valuation model using historical stock price, volatility (based on a peer group since Versa’s common stock is not publicly traded) and risk-free interest rate assumptions. The fair value of these derivatives included within Investment and loan to affiliate on our Consolidated Balance Sheet as of January 31, 2009 was $0.4 million. Changes in any of these assumptions will result in fluctuations in the derivative value and will impact the Consolidated Statement of Operations. For example, a 10 percent increase in the volatility assumption used at January 31, 2009 would result in an increase in the fair value of these derivatives and a charge to the Consolidated Statement of Operations of approximately $25 thousand, assuming all other assumptions remain the same.

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 Securities and Exchange Commission (“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.

PART II — OTHER INFORMATION

Item 6. EXHIBITS


Exhibit No.		Description

	4.1	Certificate of Designation for the 5% Series B Cumulative Convertible Perpetual Preferred Stock (Liquidation Preference $1,000) (incorporated by reference to Exhibit 3.1 contained in the Company’s Form 8-K, dated November 22, 2004)

	4.2	Schedule A to Articles of Amendment of FuelCell Energy, Ltd., setting forth the rights, privileges, restrictions and conditions of Class A Cumulative Redeemable Exchangeable Preferred Shares

	10.1	Alliance Agreement between FuelCell Energy, Inc. and POSCO Power, dated as of February 7, 2007

	10.2	Technology Transfer, License and Distribution Agreement between FuelCell Energy, Inc. and POSCO Power, dated as of February 7, 2007

	10.3	Loan agreement, dated April 29, 2008, between the Company and the Connecticut Development Authority.

	14	Code of Ethics applicable to the Company’s principal executive officer, principal financial officer and principal accounting officer (incorporated by reference to exhibit of the same number contained in the Company’s 10-K for the year ended October 31, 2003)

	31.1	CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1	CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2	CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				FUELCELL ENERGY, INC. (Registrant)

March 12, 2009 Date				/s/ Joseph G. Mahler Joseph G. Mahler
				Senior Vice President, Chief Financial Officer,
				Treasurer and Corporate Secretary
				(Principal Financial Officer and Principal Accounting Officer)

INDEX OF EXHIBITS


Exhibit No.		Description

	4.2	Schedule A to Articles of Amendment of FuelCell Energy, Ltd., setting forth the rights, privileges, restrictions and conditions of Class A Cumulative Redeemable Exchangeable Preferred Shares

	10.1	Alliance Agreement between FuelCell Energy, Inc. and POSCO Power, dated as of February 7, 2007

	10.2	Technology Transfer, License and Distribution Agreement between FuelCell Energy, Inc. and POSCO Power, dated as of February 7, 2007

	10.3	Loan agreement, dated April 29, 2008, between the Company and the Connecticut Development Authority.

	31.1	CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2	CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1	CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2	CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 4.2

SCHEDULE “A”

attached to and forming part of the
Articles of Amendment
of

FuelCell Energy, Ltd.
(the “Corporation”)

1,000,000 CLASS A CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED SHARES (the “Class A Preferred Shares”), which shall have attached thereto the following rights, privileges, restrictions and conditions:

DEFINITIONS:

For the purposes of these share conditions the following definitions shall apply:

1.1

“accrued and unpaid dividends” means an amount computed at the rate of dividend from time to time attaching to the Class A Preferred Shares as though dividends on such shares had been declared every Calendar Quarter and were accruing on a day to day basis from the date of issue to the date to which the computation of accrued dividends is to be made, after deducting all dividend payments made on such shares, as adjusted by Section 2.5;

1.2		“Board of Directors” means the board of directors of the Corporation;

1.3		“Calendar Quarter” means each of the three month periods ended March 31, June 30, September 30 and December 31 in each year;

1.4		“Common Shares” means only common shares of FuelCell as constituted on May 27, 2004 or as subsequently consolidated or subdivided and any other shares resulting from reclassification or change of such common shares or amalgamation, consolidation, merger or sale, all as referred to in Section 5.5;

1.5		“Current Exchange Basis” means the number of Common Shares into which each Preferred Share, Class A is exchangeable, which number is equal at any particular time to the result obtained (expressed to the nearest thousandth of a Common Share) by dividing (a) the sum of $25.00 plus all accrued and unpaid dividends by (b) the Current Exchange Price;

1.6

“Current Exchange Price” means, in Canadian currency:

	(a)		$110.97 per Common Share until July 31, 2005;

	(b)		$120.22 per Common Share after July 31, 2005 until July 31, 2010;

(c)

$129.46 per Common Share after July 31, 2010, until July 31, 2015;

(d)

$138.71 per Common Share after July 31, 2015 until July 31, 2020; or

(e)

at any time after July 31, 2020 the price equal to 95% of the Current Market Price at the time of exchange (the “Final Exchange Price”), subject to adjustments as provided in Section 5.5;

1.7

“Current Market Price” as at any date when the Current Market Price is to be determined, means the volume weighted average price in U.S. dollars at which board lots of the Common Shares have been traded on NASDAQ during the 20 consecutive trading days commencing 30 trading days before such date converted into Canadian dollars using the Bank of Canada’s noon rate of exchange on the date of determination. In the event the Common Shares are not listed on NASDAQ but are listed on another stock exchange or stock exchanges in Canada or the United States, any references to NASDAQ shall be deemed to be references to such other stock exchange, or, if more than one, to such one on which the greatest volume of trading of Common Shares occurred during such 20 consecutive trading days. In the event Common Shares are not so traded on any stock exchange in Canada or the United States, the Current Market Price thereof shall be determined by the Board of Directors, which determination shall be conclusive;

1.8

“Dividend Commencement Date” means May 27, 2004;

1.9

“Dividend Payment Date” means the 10th day of January, April, July and October in each year with the first such date to be July 10, 2004;

1.10

“FuelCell” means FuelCell Energy, Inc., a corporation existing under the laws of the State of Delaware and includes any successor corporation;

1.11

“Market Price” means the volume weighted average price in U.S. dollars at which board lots of the Common Shares have been traded on NASDAQ during the Calendar Quarter and converted into Canadian dollars using the Bank of Canada’s noon rate of exchange on the last day of the Calendar Quarter. In the event the Common Shares are not listed on NASDAQ but are listed on another stock exchange or stock exchange in Canada or the United States, any reference to NASDAQ shall be deemed to be references to such other stock exchange, or, if more than one, to such one on which the greatest volume of trading of Common Shares occurred during such Calendar Quarter. In the event Common Shares are not so traded on any stock exchange in Canada or the United States, the Market Price thereof shall be determined by the Board of Directors, which determination shall be conclusive;

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1.12

“NASDAQ” means NASDAQ Stock Market Inc.; and

1.13

“Tax Act” means the Income Tax Act (Canada), and the regulations thereunder as such act and regulations may be amended, superseded or replaced from time to time.

DIVIDENDS

2.1

The holders of Class A Preferred Shares shall be entitled to receive, and the Corporation shall pay, preferential cumulative dividends, as and when declared by the Board of Directors, out of the assets of the Corporation properly applicable to the payment of dividends, at a rate per annum on the issue price of the Class A Preferred Shares determined for each Calendar Quarter as follows:


Market Price, in Canadian	Annual Dividend Rate Applicable
currency, in the Calendar Quarter	to that Calendar Quarter

Less than or equal to $128.89		5	%

$128.90 to $146.81		4	%

$146.82 to $164.73		3	%

$164.74 to $182.65		2	%

greater than $182.65		1	%

		Such dividends shall accrue and be cumulative from the Dividend Commencement Date. Such dividends shall be payable on the Dividend Payment Dates to shareholders of record on the immediately preceding Calendar Quarter end date. The rate of any dividend declared and paid for a portion of a Calendar Quarter shall be prorated accordingly.

2.2		If on any Dividend Payment Date the dividend payable on such date is not declared and paid in full on all of the Class A Preferred Shares then issued and outstanding, such dividend or the unpaid part thereof shall be paid on a subsequent date or dates determined by the Board of Directors on which the Corporation shall have sufficient monies properly applicable to the payment of the same. When any such dividend is not paid in full, the Class A Preferred Shares shall participate ratably with the preferred shares of all other shares, if any, which rank on a parity with the Class A Preferred Shares with respect to the payment of dividends, in respect of such dividends including accumulations, if any, in accordance with the sums which would be payable on the Class A Preferred Shares and such other shares if all such dividends were declared and paid in full in accordance with their terms. The holders of Class A Preferred Shares shall not be entitled to any dividends other than or in excess of the dividends hereinbefore provided for.

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2.3

The Board of Directors is entitled at its discretion to determine with respect to any dividend on Class A Preferred Shares that all holders of Class A Preferred Shares receive such dividend in the form of a dividend-in-kind payable in Common Shares. In the event the Corporation elects to pay a dividend by delivering Common Shares to the holders of Class A Preferred Shares the price of the Common Shares shall be calculated to be 95% of the volume weighted average price in U.S. dollars at which board lots of the Common Shares have been traded on NASDAQ during the 20 consecutive trading days preceding the end of the Calendar Quarter for which such dividend-in-kind is to be paid converted into Canadian dollars using the Bank of Canada’s noon rate of exchange on the day of determination. In the event the Common Shares are not listed on NASDAQ but are listed on another stock exchange or stock exchanges in Canada or the United States, any reference to NASDAQ shall be deemed to be references to such other stock exchange, or, if more than one, to such one on which the greatest volume of trading of Common Shares occurred during such 20 consecutive trading days. In the event Common Shares are not so traded on any stock exchange in Canada or the United States, the price thereof shall be determined by the Board of Directors, which determination shall be conclusive.

2.4

Subject to Section 2.3, dividends (less any tax required to be withheld by the Corporation) on the Class A Preferred Shares shall be paid by electronic funds transfer or by cheque payable in lawful money of Canada, at any branch in Canada of the Corporation’s bankers. The mailing of such cheque from the Corporation’s head office on or before the date on which such dividend is to be paid to a holder of Class A Preferred Shares shall be deemed to be payment of the dividends represented thereby and payable on such date unless the cheque is not paid upon presentation.

2.5

Notwithstanding the provisions of Section 2.1 but subject to Section 2.8, at all times prior to January 1, 2011 the Corporation shall declare and pay a dividend on the Class A Preferred Shares in respect of a Calendar Quarter ending in a particular fiscal year of the Corporation only to the extent that the Corporation would not be liable to pay tax under Part VI. I of the Tax Act in respect of such dividend other than tax that would be fully recovered by means of the deduction under paragraph 110(1)(k) of the Tax Act for that fiscal year. On each Dividend Payment Date, the Corporation shall estimate the amount of its taxable income for the fiscal year which includes such Dividend Payment Date and shall compute the amount of the dividend which it is obliged to declare and pay accordingly. Once the actual amount of taxable income for such fiscal year is established by means of the filing of the relevant tax return, or if a previous estimate thereof has been revised by a subsequent estimate thereof made by the Corporation, such adjustment as is appropriate to achieve the result expressed herein shall be made to the amount of the dividend required to be declared and paid on the next Dividend Payment Date, whether that date falls within the same or a subsequent fiscal year. The Corporation shall deliver to the holders of the Class A Preferred Shares, on such Dividend Payment Date, a calculation in writing showing the amount of the Corporation’s taxable income for its fiscal year that includes that Dividend Payment Date as so estimated or as finally determined by the Corporation, as well as the dividend that such holders are entitled to receive on that Dividend Payment Date having regard to such estimated or actual taxable income, as the case may be.

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		If the Corporation does not declare and pay dividends on the Class A Preferred Shares as a consequence of the provisions of this Section 2.5, dividends shall continue to accrue at the rate or rates provided in these share conditions and the amount of any such unpaid dividend or the unpaid part thereof, shall be adjusted upward by a multiplicative factor equal to 1.0245 raised to an exponent equal to the number of Calendar Quarters, including decimal fractions thereof based on 91 days per Calendar Quarter, between the 10th day following the Calendar Quarter in which the unpaid dividend originally accrued and the date actually paid assuming, for these calculations, that the Class A Preferred Shares were issued on July 31, 2000 and that the Corporation paid $125,000 in dividends per Calendar Quarter from the notional issue date until the Calendar Quarter ended December 31, 2003. By way of illustration, for greater certainty, if the Board of Directors determines to declare and pay on November 25, 2005, a dividend which originally accrued in respect of the Calendar Quarter ending September 30, 2000, then the dividend which originally accrued would be multiplied by 1.643 (i.e. 1.0245 to the exponent 20.51) to determine the adjusted amount of the dividend to be declared. Any dividends declared and paid on the Class A Preferred Shares, shall always be in respect of the earliest Calendar Quarter for which the original accrued dividend, or any part thereof, remains unpaid. The Corporation shall maintain in its books of account at the end of each Calendar Quarter a record of the adjusted amount of each accrued and unpaid dividend, calculated on the basis of the amount that would be payable as of the 10th business day following the Calendar Quarter, and the aggregate adjusted amount of all such accrued and unpaid dividends.

2.6		The Corporation shall take into account the amount of any dividend allowance available to it under subsection 191.1(2) of the Tax Act in determining the amount of the dividend which it is required to declare and pay under Section 2.5 and, in the event the Corporation is or becomes “associated” for purposes of the Tax Act with any other corporation prior to January 1, 2011, no portion of the said dividend allowance shall be allocated to such associated corporation under Subsection 191.1(3) of the Tax Act.

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2.7

The Corporation shall have full flexibility in planning its tax affairs so as to reduce its taxable income for a particular fiscal year as it sees fit, including the claiming of all discretionary deductions, notwithstanding that this will have the effect of reducing the amount of the dividends to actually be declared and paid to the holders of the Class A Preferred Shares in that fiscal year, by virtue of the operation of Section 2.5.

2.8

Notwithstanding Section 2.5, the Corporation may, in its sole discretion, on any Dividend Payment Date, declare and pay dividends, up to the amount of the then accrued and unpaid dividends, without regard to the limitation imposed under Section 2.5.

2.9

On December 31, 2010 the amount of all accrued and unpaid dividends shall be paid to the holders of Class A Preferred Shares.

LIQUIDATION

3.1

In the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or any other distribution of assets of the Corporation among its shareholders for the purposes of winding up its affairs, the holders of Class A Preferred Shares, shall be entitled to receive the amount paid up on such shares together with an amount equal to all accrued and unpaid dividends thereon, which amounts shall be calculated as if such dividend were accruing for the period from the expiration of the last Calendar Quarter for which the dividends thereon have been paid in full up to the date of such event, the whole before any amount shall be paid or any property or assets of the Corporation shall be distributed to the holders of the common shares of the Corporation or to the holders of any other shares of the Corporation ranking junior to the Class A Preferred Shares in any respect. If such amounts are not paid in full, the Class A Preferred Shares shall participate ratably with all preferred shares and all other shares, if any, which rank on a parity with the preferred shares with respect to the return of capital or any other distribution of the assets of the Corporation, in respect of any return of capital in accordance with the sums which would be payable on such preferred shares and such other shares on such return capital, if all sums so payable were paid in full in accordance with their terms. After payment to the holders of the Class A Preferred Shares of the amounts so payable to them they shall not be entitled to share in any other distribution of the property or assets of the Corporation.

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REDEMPTION

4.1

The Class A Preferred Shares are not redeemable by the Corporation on or prior to July 31, 2004.

4.2

On or after July 31, 2004, and subject to the Business Corporations Act, (Alberta), the Corporation may redeem the whole or any part of the Class A Preferred Shares if on the day that the requisite notice of redemption is first given, the volume weighted average price in U.S. Dollars at which the Common Shares have traded on NASDAQ during the 20 consecutive trading days ending on a date not earlier than the fifth preceding date on which the notice of redemption is given converted into Canadian dollars using the Bank of Canada’s noon rate of exchange on such day was not less than a 20% premium to the Current Exchange Price on payment of $25.00 per Preferred Share, Class A to be redeemed, together with an amount equal to all accrued and unpaid dividends to the date fixed for redemption, the whole constituting the redemption price. In the event the Common Shares are not listed on NASDAQ but are listed on another stock exchange or stock exchanges in Canada or the United States, any reference to NASDAQ shall be deemed to be references to such other stock exchange, or, if more than one, to such one on which the greatest volume of trading of Common Shares occurred during such 20 consecutive trading days. In the event Common Shares are not so traded on any stock exchange in Canada or the United States, the price thereof shall be determined by the Board of Directors, which determination shall be conclusive.

4.3

On or after July 31, 2010, the Class A Preferred Shares are redeemable by the Corporation at any time on payment of $25.00 per Preferred Share, Class A to be redeemed together with an amount equal to all accrued and unpaid dividends to the date fixed for redemption, the whole constituting the redemption price.

4.4

In case a part only of the then outstanding Class A Preferred Shares is at any time to be redeemed, the shares so to be redeemed shall be selected by lot in such manner as the Board of Directors in its discretion shall decide or, if the Board of Directors so determines, may be redeemed pro rata, disregarding fractions, and the Board of Directors may make such adjustments as may be necessary to avoid the redemption of fractional parts of shares.

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4.5

On any redemption of Class A Preferred Shares, the Corporation shall give in the manner provided in Section 11 at least 30 days prior notice to each person who, at the date of giving such notice, is the holder of Class A Preferred Shares to be redeemed, of the intention of the Corporation to redeem such shares. Such notice shall set out the redemption price and the date on which the redemption is to take place and, unless all the Class A Preferred Shares held by the holder to whom it is addressed are to be redeemed, shall also set out the number of such shares so held which are to be redeemed. On and after the date so specified for redemption the Corporation shall pay, or cause to be paid to the holders of such Class A Preferred Shares to be redeemed, the redemption price on presentation and surrender at the head office of the Corporation or at any other place or places within Canada designated by such notice, of the certificate or certificates for such Class A Preferred Shares so called for redemption. Such payment shall be made by cheque payable at par at any branch in Canada of the Corporation’s bankers. If a part only of the Class A Preferred Shares represented by any certificate shall be redeemed, a new certificate for the balance shall be issued at the expense of the Corporation. From and after the date specified in any such notice, the Class A Preferred Shares called for redemption shall cease to be entitled to dividends and the holders thereof shall not be entitled to exercise any of the rights of shareholders in respect thereof unless payment of the redemption price shall not be duly made by the Corporation. On or after the date specified for redemption of Class A Preferred Shares by the Corporation, the Corporation shall have the right to deposit the redemption price of any or all Class A Preferred Shares called for redemption with any chartered bank or banks or with any trust company or trust companies in Canada named for such purpose in the notice of redemption to the credit of a special account or accounts in trust for the respective holders of such shares, to be paid to them respectively upon surrender to such bank or banks or trust company or trust companies of the certificate or certificates representing the same. Upon such deposit or deposits being made, such shares shall be deemed to be redeemed and the rights of the holders of such shares shall be limited to receiving the proportion of the amounts so deposited applicable to their respective shares without interest. Any interest allowed on such deposit or deposits shall belong to the Corporation.

4.6

Class A Preferred Shares which are redeemed or deemed to be redeemed in accordance with this Section 4 shall be and be deemed to be cancelled and shall not be reissued.

EXCHANGE PRIVILEGE

5.1

A holder of Class A Preferred Shares has the right, at the holder’s option, to exchange, subject to the terms and provisions hereof, such Class A Preferred Shares into fully paid and non-assessable Common Shares at the then Current Exchange Basis; except that, in the case of Class A Preferred Shares which shall have been called for redemption pursuant to Section 4, such right shall terminate with respect thereto at the close of business on the third business day prior to the date fixed for such redemption. If payment of the redemption price of Class A Preferred Shares which have been called for redemption is not paid on due surrender of the certificate for such Class A Preferred Shares the right of exchange shall revive and continue from the time of the failure to pay as if such Class A Preferred Shares had not been called for redemption.

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5.2

In the event the Class A Preferred Shares are to be exchanged by a holder at the Final Exchange Price the Corporation may satisfy its exchange obligations pursuant to this Section 5 by the payment of cash to the holder in the amount calculated by determining the number of Common Shares that would be deliverable in accordance with the Current Exchange Basis and multiplying this number by the Current Market Price. Such payment shall be made by cheque payable at par at any branch in Canada of the Corporation’s bankers.

5.3

The exchange of Class A Preferred Shares may be effected by the surrender of the certificate or certificates representing the same at any time during usual business hours at the option of the holder at the head office of the Corporation accompanied by: (1) payment or evidence of payment of the tax (if any) payable as provided in Section 5.10; and (2) a written instrument of surrender in form satisfactory to the Corporation duly executed by the registered holder, or the holder’s attorney duly authorized in writing, in which instrument such holder may also elect to exchange part only of:

	(a)		the Class A Preferred Shares represented by such certificate or certificates not theretofore called for redemption, in which event such holder shall be entitled to receive, at the expense of the Corporation, a new certificate representing the Class A Preferred Shares represented by such certificate or certificates which have not yet been exchanged;

	(b)		the Class A Preferred Shares represented by such certificate or certificates, theretofore called for redemption, in which event on the date specified for the redemption of such Class A Preferred Shares such holder, shall be entitled to payment of the redemption price of the Class A Preferred Shares represented by such certificate or certificates which have been called for redemption and which have not been exchanged, and to receive, at the expense of the Corporation, a certificate representing Class A Preferred Shares represented by such certificate or certificates which have been neither exchanged nor redeemed. As promptly as practicable after the surrender of any Class A Preferred Shares for exchange, the Corporation shall deliver to or upon the written order of the holder of the Class A Preferred Shares so surrendered, a certificate or certificates issued in the name of, or in such name or names as may be directed by, such holder representing the number of Common Shares to which such holder is entitled together with a payment by cheque in respect of any fraction of a Common Share that would be issuable on such exchange as provided in Section 5.9. Such exchange shall be deemed to have been made at the close of business on the date such Class A Preferred Shares shall have been surrendered for exchange, so that the rights of the holder of such Class A Preferred Shares as the holder thereof shall cease at such time and the person or persons entitled to receive Common Shares upon such exchange shall be treated for all purposes as having become the holder or holders of record of such Common Shares at such time and such exchange shall be on the Current Exchange Basis as at such time; provided that no such surrender on any date when FuelCell’s registers of transfers of Common Shares shall be properly closed shall be effective to constitute the person or persons entitled to receive Common Shares upon such exchange as the holder or holders of record of such Common Shares on such date, but such surrender shall be effective to constitute the person or persons entitled to receive such Common Shares as the holder or holders of record thereof for all purposes at, and such exchange shall be on the Current Exchange Basis as at, the close of business on the next succeeding day on which such registers of transfers are open. In no event shall the Corporation’s or FuelCell’s registers of transfers of Common Shares be closed at any time during normal business hours during the 30 days immediately preceding any exchange or redemption date. The date of surrender of any Class A Preferred Shares for exchange shall be deemed to be the date when the certificate representing such Class A Preferred Shares is received by the Corporation.

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5.4

The registered holder of any Preferred Share, Class A on the record date for any dividend declared payable on such share shall be entitled to such dividend notwithstanding that such share is exchanged after such record date and before the payment date of such dividend. The registered holder of any Common Share resulting from any exchange shall be entitled to rank equally with the registered holders of all other Common Shares in respect of all dividends declared payable to holders of Common Shares of record on any date on or after the date of exchange. Subject as aforesaid and subject to the provisions hereof, upon the exchange of any Class A Preferred Shares the Corporation shall make no payment or adjustment on account of any dividends on the Class A Preferred Shares so exchanged or on account of the dividends on the Common Shares deliverable upon such exchange.

5.5

The Current Exchange Price shall be subject to adjustment from time to time as follows:

(a)

In case FuelCell shall:

	(i)		subdivide its outstanding Common Shares into a greater number of shares;

	(ii)		combine or consolidate its outstanding Common Shares into a smaller number of shares; or

	(iii)		issue Common Shares (or securities convertible into Common Shares) to the holders of any of its outstanding Common Shares by way of a stock dividend (other than an issue to shareholders pursuant to their exercise of options to receive dividends in the form of Common Shares or securities convertible into Common Shares), in lieu of cash dividends declared payable by the Corporation on such shares);

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the Current Exchange Price in effect on the effective date of such subdivision or combination or consolidation or on the record date of such issuance of Common Shares (or securities convertible into Common Shares) by way of a stock dividend, as the case may be, shall, in the case of events referred to in Sections 5.5(a)(i) and 5.5(a)(iii) be decreased in proportion to the increase in the number of outstanding Common Shares resulting from such subdivision or such dividend (including, in the case where securities convertible into Common Shares are issued, the number of Common Shares that would be outstanding had such securities been converted into Common Shares on such record date), or, in the case of Section 5.5(a)(ii) shall be increased in proportion to the decrease in the number of outstanding Common Shares resulting from the combination or consolidation. Such adjustment will be made successively whenever any event referred to in this Section 5.5(a) shall occur. Any such issue of Common Shares (or securities convertible into Common Shares) by way of stock dividend shall be deemed to have been made on the record date of the stock dividend for the purpose of calculating the number of outstanding Common Shares under this Section 5.5(a).

(b)

In case FuelCell shall fix a record date for the issuance of rights, options or warrants to all or substantially all the holders of its outstanding Common Shares entitling them for a period expiring not more than 45 days after such record date, to subscribe for or purchase Common Shares (or securities convertible into Common Shares) at a price per share (or having a conversion price per share) less than 95% of the Current Market Price on such record date, the Current Exchange Price shall be adjusted immediately after such record date so that it shall equal a price determined by multiplying the Current Exchange Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date plus a number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares offered for subscription or purchase (or the aggregate conversion price of the convertible securities so offered) by the Current Market Price of a Common Share, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares offered for subscription or purchase (or into which the convertible Securities so offered are convertible). Any Common Shares owned by or held for the account of FuelCell shall be deemed not to be outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed. If all such rights, options or warrants are not so issued or if all such rights, options or warrants are not exercised prior to the expiration thereof, the Current Exchange Price shall be readjusted to the Current Exchange Price which would then be in effect if such record date had not been fixed, and the Current Exchange Price shall be further adjusted based upon the number of Common Shares (or securities convertible into Common Shares) actually delivered upon the exercise of such rights, options or warrants, as the case may be.

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(c)

In case FuelCell shall fix a record date for the making of a distribution (including a distribution by way of a stock dividend) to all or substantially all the holders of its outstanding Common Shares of:

	(i)		shares of any class other than Common Shares (excluding shares convertible into Common Shares referred to in Section 5.5.(a)); or

	(ii)		rights, options or warrants (excluding those referred to in Section 5.5(b)); or

	(iii)		evidence of its indebtedness (excluding indebtedness convertible into Common Shares referred to in Section 5.5(a)); or

	(iv)		assets (excluding Common Shares issued by way of a stock dividend and cash dividends paid in the ordinary course);

then in such case the Current Exchange Price shall be adjusted immediately after such record date so that it shall equal the rate determined by multiplying the Current Exchange Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date multiplied by the Current Market Price per Common Share on such record date, less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of such shares or rights, options or warrants or evidences of indebtedness or assets so distributed, and of which the denominator shall be the total number of Common Shares outstanding on such record date multiplied by such Market Price per Common Share; any Common Shares owned by or held for the account of FuelCell shall be deemed not to be outstanding for the purpose of any such computation; such adjustment shall be made successively whenever such a record date is fixed, to the extent that such distribution is not so made, the Current Exchange Price shall be readjusted to the Current Exchange Price which would then be in effect based upon such shares or rights, options or warrants or evidences of indebtedness or assets actually distributed.

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5.6

No adjustments of the Current Exchange Price shall be made pursuant to subsection 5.5(b) or 5.5(c) if the holders of the Class A Preferred Shares were permitted to participate in the issue of such rights, options or warrants or such distribution, as the case may be, as though and to the same effect as if they had exchanged their Class A Preferred Shares into Common Shares prior to the issue of such rights, options or warrants or such distribution as the case may be.

5.7

No adjustment of the Current Exchange Price shall be made (i) in respect of the issue of Common Shares pursuant to the exchange of Common Shares, or (ii) in any case in which the resulting increase or decrease in the Current Exchange Price would be less than 1% of the then Current Exchange Price, but in such case any adjustment that would otherwise have been required then to be made shall be carried forward and made at the time of and together with, the next subsequent adjustment to the Current Exchange Price which, together with any and all such adjustments so carried forward, shall result in an increase or decrease in the Current Exchange Price by not less than 1%.

5.8

The Corporation shall give notice of any adjustment of the Current Exchange Price and the resulting adjustment of the Current Exchange Basis to the holders of Class A Preferred Shares in the manner provided in Section 11. The Corporation may retain a firm of independent chartered accountants (who may be the auditors of the Corporation) to make any computation required under Section 5.5, and any computation so made shall be final and binding on the Corporation and the holders of the Class A Preferred Shares. Such firm of independent chartered accountants may as to questions of law, request and rely upon an opinion of counsel (who may be counsel for the Corporation).

5.9

Upon the surrender of any Class A Preferred Shares for exchange, the number of full Common Shares issuable upon the exchange shall be computed on the basis of the aggregate number of such Class A Preferred Shares to be exchanged in any case where a fraction of a Common Share is involved the Corporation shall pay for such fractional interest by payment by cheque of an amount equal to the then value of such fractional interest computed on the basis of the Current Market Price for the Common Shares in lieu of the issuance of a fractional share.

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5.10

The issuance of certificates for Common Shares upon the exchange of Class A Preferred Shares shall be made without charge to the holders of the Class A Preferred Shares so exchanged for any fee or tax imposed on the Corporation in respect of the issuance of such certificates for the Common Shares represented thereby; provided that the Corporation shall not be required to pay any tax which may be imposed upon the person or persons to whom such Common Shares are issued in respect of the delivery of such Common Shares or the certificate therefor or which may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name or names other than that of the holder of the Class A Preferred Shares exchanged, and the Corporation shall not be required to issue or deliver such certificate unless the person or persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

5.11

In case of any reclassification or change (other than a change resulting only from consolidation or subdivision) of the Common Shares, or in the case of any consolidation, amalgamation, or merger of FuelCell or the Corporation with or into any other corporation, or in the case of any sale of their respective properties and assets as, or substantially as, an entirety to any other corporation, each Class A Preferred Shares shall, after such reclassification, change, consolidation, amalgamation, merger or sale, be exchangeable into the number of shares or other securities or property of FuelCell, or such continuing, successor or purchasing corporation, as the case may be, to which a holder of the number of Common Shares as would have been issued if such Class A Preferred Shares had been exchanged immediately prior to such reclassification, change, consolidation, amalgamation, merger or sale would have been entitled upon such reclassification, change, consolidation, amalgamation, merger or sale. The Board of Directors may accept the certificate of any firm of independent chartered accountants (who may be the auditors of the Corporation) as to the foregoing calculation, and the Board of Directors may determine such entitlement on the basis of such certificate. Any such determination shall be conclusive and binding on the Corporation and the holders of the Class A Preferred Shares. No such reclassification, change, consolidation, amalgamation, merger or sale shall be carried into effect unless, in the opinion of the Board of Directors, all necessary steps shall have been taken to ensure that the holders of the Class A Preferred Shares shall thereafter be entitled to receive such number of shares or other securities or property of the Corporation, FuelCell, or such continuing, successor or purchasing corporation, as the case my be, subject to adjustment thereafter in accordance with provisions similar, as nearly as may be, to those contained in this Section 5.

5.12

If in the opinion of the Board of Directors the provisions of this Section 5 are not strictly applicable or if strictly applicable would not fairly protect the rights of the holders of the Class A Preferred Shares or the Corporation in accordance with the intent and purposes hereof, the Board of Directors shall make any adjustment in such provisions as the Board of Directors deems appropriate.

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5.13

If the Corporation intends to take any action which would require an adjustment of the Current Exchange Price pursuant to Sections 5.5(a), 5.5(b), or 5.5(c) hereof (other than the subdivision or consolidation of the outstanding Common Shares), the Corporation shall, at least 14 days prior to the earlier of any record date fixed for any action or the effective date for such action notify the holders of Class A Preferred Shares by written notice setting forth the particulars of such action to the extent that such particulars have been determined at the time of giving the notice.

PRE-EMPTIVE RIGHTS

6.1

Holders of Class A Preferred Shares shall not be entitled as of right to subscribe for or purchase or receive any shares, bonds, debentures, or other securities of the Corporation now or hereafter authorized, other than shares receivable upon the exercise of the right of exchange as provided herein.

RESTRICTIONS

7.1

So long as any Class A Preferred Shares are outstanding, the Corporation shall not, without the approval of the holders of the Class A Preferred Shares given in the same manner as provided under Section 11:

	(a)		issue any shares ranking in priority to or pari passu with the Class A Preferred Shares as to the payment of dividends or the distribution of assets in the event of liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, or other distribution of the assets of the Corporation among its shareholders for the purpose of winding up its affairs;

	(b)		pay any dividends on any shares of the Corporation which by their terms rank junior to the Class A Preferred Shares;

	(c)		redeem or purchase or make any capital distribution in respect of any shares of the Corporation ranking junior to the Class A Preferred Shares (except out of net cash proceeds of a substantially concurrent issue of shares of the Corporation which by their terms rank junior to the Class A Preferred Shares);

	(d)		redeem or purchase any other shares of the Corporation ranking pari passu with the Class A Preferred Shares; or

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(e)

set aside any money or make any payments for any sinking fund or other retirement fund applicable to any shares of the Corporation ranking junior to the Class A Preferred Shares;

		unless all dividends up to, and including, the Dividend Payment Date for the last completed Calendar Quarter for which dividends shall be payable shall have been declared and paid or set apart for payment in respect of the Class A Preferred Shares and all other shares ranking on a parity with or in priority to the Class A Preferred Shares.

7.2		Nothing in Section 7.1 shall apply to, hinder or prevent, and authorization is hereby given for, any of the actions referred to in such Section if consented to, or approved, by the holders of the Class A Preferred Shares in the manner hereinafter specified or if all the outstanding Class A Preferred Shares have been duly called for redemption and adequate provision has been made assuring that they will be redeemed or deemed to be redeemed on or before the date specified for redemption.

8		VOTING RIGHTS

8.1		Subject to the provisions of the Business Corporations Act (Alberta), the holders of the Class A Preferred Shares shall not be entitled as such to any voting rights or to receive notice of or to attend any meeting of the shareholders of the Corporation or to vote at any such meeting (but shall be entitled to receive notice of meetings of shareholders of the Corporation called for the purpose of authorizing the dissolution of the Corporation or the sale of its undertakings or a substantial part thereof).

9		AMENDMENTS

9.1		The rights, privileges, restrictions and conditions attached to the Class A Preferred Shares may not be amended, modified, suspended, altered or repealed unless consented to, or approved by, the holders of the Class A Preferred Shares in the manner set out in Section 11 and in accordance with any requirements of the of the Business Corporations Act (Alberta), or any Act enacted in substitution therefor or in addition thereto applicable to the Corporation, and any amendments thereto from time to time.

10		APPROVAL BY HOLDERS OF CLASS A PREFERRED SHARES

10.1		Any consent or approval required or permitted to be given by the holders of Preferred Shares, Class A shall be deemed to have been sufficiently given if it shall have been given in writing by the holders of all of the outstanding Class A Preferred Shares.

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11		NOTICES

11.1		Any notice required to be given under the provisions attaching to the Class A Preferred Shares to the holders thereof shall be given by posting same in postage paid envelope addressed to each holder at the last address of such holder as it appears on the books of the Corporation or, in the event of the address of any such holder not so appearing, then to the address of such holder last known to the Corporation; provided that accidental failure or omission to give any notice as aforesaid to one or more of such holders shall not invalidate any action or proceeding founded thereon.

12		TAX ELECTION

		The Corporation shall elect, in the manner and within the time provided under Section 191.2 of the Tax Act, to pay tax at a rate, and to take all other necessary action under the Tax Act, such that no holder of Class A Preferred Shares will be required to pay tax on dividends received or deemed to be received on Class A Preferred Shares under Section 107.2 of Part IV.1 of the Tax Act.

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Exhibit 10.1

[Execution Copy]

ALLIANCE AGREEMENT

dated as of February 7, 2007

between

FUELCELL ENERGY, INC.

and

POSCO POWER

Confidential treatment requested as to certain portions of this exhibit. Such portions have been redacted and filed separately with the SEC.


ARTICLE I
DEFINITIONS			2
SECTION 1.1. Certain Definitions			2

ARTICLE II
THE ALLIANCE			5
SECTION 2.1. Alliance Scope			5
SECTION 2.2. License and Distribution Rights			6
SECTION 2.3. Additional Agreements			6
SECTION 2.4. Mutual Covenants			6
SECTION 2.5. FCE Obligations			7
SECTION 2.6. POSCO Power Obligations			8
SECTION 2.7. Fuel Cell Stack Module Order Requirements			9

ARTICLE III
REPRESENTATIONS AND WARRANTIES			10
SECTION 3.1. Representations and Warranties of FCE			10
SECTION 3.2. Representations and Warranties of POSCO Power			11

ARTICLE IV
CERTAIN COVENANTS			12
SECTION 4.1. Post-Execution Covenants			12

ARTICLE V
TERM AND TERMINATION			13
SECTION 5.1. Term			13
SECTION 5.2. Extension			13
SECTION 5.3. Termination			13
SECTION 5.4. Effect of Termination; Survival			14

ARTICLE VI
DISPUTES AND ARBITRATION			14
SECTION 6.1. Efforts to Resolve by Mutual Agreement			14
SECTION 6.2. Arbitration			15
SECTION 6.3. Limitation on Recoverable Damages			15
SECTION 6.4. Specific Performance			15

ARTICLE VII
CONFIDENTIALITY			16

ARTICLE VIII
INDEMNIFICATION			16
SECTION 8.1. Claims			16
SECTION 8.2. Indemnification by POSCO			16
SECTION 8.3. Indemnification by FCE			17
SECTION 8.4. Indemnification Procedure			17


ARTICLE IX MISCELLANEOUS			17
SECTION 9.1. Certain Expenses			17
SECTION 9.2. Independent Contractors			17
SECTION 9.3. Entire Agreement			18
SECTION 9.4. Amendments; Waiver			18
SECTION 9.5. Binding Nature; Assignment			18
SECTION 9.6. No Third Party Beneficiaries			18
SECTION 9.7. Notices			18
SECTION 9.8. Publicity			19
SECTION 9.9. Use of Name			20
SECTION 9.10. Severability			20
SECTION 9.11. Governing Law			20
SECTION 9.12. Counterparts			20


Exhibits

Exhibit A:		Securities Purchase Agreement
Exhibit B:		Technology Transfer, License and Distribution Agreement
Exhibit C:		Form of DOE Approval
Exhibit D:		Form of MTU Consent
Exhibit E:		Form of Marubeni Settlement

Schedules

Schedule A:		POSCO Affiliates
Schedule B:		Non-Exclusive Territory

ALLIANCE AGREEMENT

THIS ALLIANCE AGREEMENT (this “ Agreement ”), dated as of February 7, 2007, is made and entered into by and between FUELCELL ENERGY, INC., a Delaware corporation having a place of business at 3 Great Pasture Rd., Danbury, Connecticut 06813, U.S.A. (“ FCE ”) and POSCO POWER, a Korean corporation having a place of business at Dacom Building 10th Floor, 706-1 Yeoksam-dong, Kangnam-gu, Seoul 135-987, Korea (“ POSCO Power ”).

RECITALS:

A. FCE manufactures and sells, directly and indirectly through a third party distributor, the FCE Products throughout the world.

B. POSCO Power and FCE have determined that it is in their best interest to have POSCO Power to sell, import, distribute, maintain, service and/or repair the FCE Products in the Korean Market and in the Non-Exclusive Territory, in accordance with the terms and conditions of the Technology Transfer Agreement.

C. FCE desires to provide POSCO Power with, and POSCO Power desires to obtain, all relevant technology and “know-how” and licenses and other assistance necessary for POSCO Power and POSCO Affiliates to construct, assemble, manufacture, use, sell, import, distribute, maintain, service and/or repair the POSCO Products and POSCO Parts, all in accordance with the terms and conditions of the Technology Transfer Agreement.

D. FCE and POSCO Power also have determined that it is mutually beneficial for FCE to issue and sell, and POSCO Power to purchase, such number of shares of the common stock of FCE in an amount equal to US$29,000,000, in accordance with the terms of the Securities Purchase Agreement.

E. In order to effectuate the purpose of this Agreement, POSCO Power intends to use commercially reasonable efforts to establish a company in Korea, which will be a Subsidiary of POSCO Power (“ NewCo ”), to construct, assemble, manufacture, use, sell import, distribute, maintain, service and/or repair the POSCO Products and POSCO Parts within two years from the Effective Date.

F. In connection with the transactions contemplated in this Agreement, FCE and POSCO entered into the Memorandum of Agreement on January 10, 2007.

G. Simultaneously herewith, the parties hereto have entered into the Securities Purchase Agreement and the Technology Transfer Agreement.

ARTICLE I
DEFINITIONS

SECTION 1.1. Certain Definitions.

As used in this Agreement, the capitalized terms set forth below shall have the following respective meanings:

“ Additional Term ” shall have the meaning set forth in Section 5.2 .

“ Agreement ” shall mean this Alliance Agreement, as it may be amended, modified or supplemented from time to time in accordance with its terms.

“ Applicable Laws ” shall mean all applicable laws, treaties, ordinances, judgments, decrees, injunctions, writs, orders, rules, regulations, orders, interpretations and permits of any Governmental Authority.

“ BOP ” shall have the meaning set forth in the Technology Transfer Agreement.

“ Claim ” shall have the meaning set forth in Section 8.1 .

“ Contract ” shall mean any contract, lease, sales order, purchase order, agreement, indenture, mortgage, note, bond, warrant or instrument.

“ Customer ” shall mean any Person (wherever located) who has contracted with POSCO Power for the purchase of electric power pursuant to a power supply agreement or the purchase or lease of a DFC Power Plant.

“ Damages ” shall have the meaning set forth in Section 8.2 .

“ Dispute ” shall have the meaning set forth in Section 6.1 .

“ DFC Power Plant ” shall have the meaning set forth in the Technology Transfer Agreement.

“DOE Approval” shall have the meaning set forth in Section 4.1(a) .

“ Effective Date ” shall mean the date that is no later than thirty (30) days from the date hereof on which all the obligations of FCE set forth in Section 4.1(a) , (b) and (f) have been satisfied or waived.

“ Facility ” shall mean the site at which the DFC Power Plant will be installed and operated by the end user.

“ FCE ” shall have the meaning set forth in the preamble.

“ FCE Products ” shall have the meaning set forth in the Technology Transfer Agreement.

“ FCE Technology ” shall have the meaning set forth in the Technology Transfer Agreement.

“ Force Majeure ” shall mean unforeseen circumstances beyond the reasonable control and without the fault or negligence of either party and which such party is unable to prevent or provide against by the exercise of reasonable diligence including, but not limited to, acts of God, any acts or omissions of any civil or military authority, earthquakes, strikes or other labor disturbances, wars (declared or undeclared), terrorist and similar criminal acts, epidemics, civil unrest and riots.

“ Fuel Cell Stack Module ” shall have the meaning set forth in the Technology Transfer Agreement.

“ Governmental Authority ” shall mean any supranational, national, federal, state, municipal or local government or quasi-governmental or regulatory authority (including a national securities exchange or other self-regulatory body), agency, court, commission or other similar entity, domestic or foreign.

“ Governmental Order ” shall mean any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

“ ICC ” shall have the meaning set forth in Section 6.2 .

“ Indemnified Party ” shall have the meaning set forth in Section 8.4 .

“ Indemnifying Party ” shall have the meaning set forth in Section 8.4 .

“ Initial Term ” shall have the meaning set forth in Section 5.1 .

“ Korean Company ” shall have the meaning set forth in the Technology Transfer Agreement.

“ Korean Market ” shall have the meaning set forth in the Technology Transfer Agreement.

“ Legal Proceeding ” shall mean any judicial, administrative or arbitral action, suit or proceeding (whether public or private and whether civil, criminal or administrative) by or before any court or other Governmental Authority.

“ Long Term Service Agreement ” or “ LTSA ” shall have the meaning set forth in the Technology Transfer Agreement.

“ Marubeni ” shall mean Marubeni Corporation, a Japanese corporation having its principal office at 4-2 Ohtemachi-I-Chome, Dhiyoda-ku, Tokyo, Japan.

“ Marubeni Distribution Right ” shall have the meaning set forth in Section 4.1(f) .

“ Marubeni Settlement ” shall have the meaning set forth in Section 4.1(f) .

“ Memorandum of Agreement ” shall mean that certain Memorandum of Agreement dated January 10, 2007 between FCE and POSCO.

“ MTU ” shall mean MTU CFC SOLUTIONS, GmbH, a German limited liability entity.

“ MTU Consent ” shall have the meaning set forth in Section 4.1(b) .

“ MTU-FCE BOP License ” shall mean the license agreement between MTU and FCE dated July 16, 1998, for the cross licensing of certain balance of plant technology.

“ NewCo ” shall have the meaning set forth in the Recitals.

“NewCo Stock” shall have the meaning set forth in Section 2.5(g) .

“ New DFC-Based Products ” shall mean, as currently designated by FCE, the “DFC/T Products” and the “DFC/H2 Products,” and any modifications and derivation in whole or in part of thereof, regardless of designation.

“ New DFC-Based Technology ” shall mean all technical information, know-how, inventions (whether patented or not) or trade secrets, which relate to the New DFC-Based Products.

“ New POSCO Parts ” shall mean any parts or components of the New POSCO Products other than the Fuel Cell Stack Module.

“ New POSCO Products ” shall mean any products, regardless of designation, which is the same as, or modification or derivation in whole or in part of the New DFC Based-Products.

“ Non-Exclusive Territory ” shall mean the jurisdictions listed in Schedule B attached hereto, it being understood and agreed that additional jurisdictions may be added, as mutually agreed by the parties from time to time.

“ Person ” shall mean any natural person, firm, partnership, association, corporation, company, joint venture, trust, business trust, Governmental Authority or other entity.

“ POSCO Affiliate ” shall have the meaning set forth in the Technology Transfer Agreement, a list of which is set forth in Schedule A attached hereto.

“ POSCO Power Facility Completion Date ” shall have the meaning set forth in Section 2.6(a) .

“ POSCO Power Facility ” shall mean the factory constructed by POSCO Power at which POSCO Parts are manufactured and POSCO Products are assembled.

“ POSCO Technology ” shall have the meaning set forth in the Technology Transfer Agreement.

“ Purchase Orde r” shall have the meaning set forth in the Technology Transfer Agreement.

“ Rules ” shall have the meaning set forth in Section 6.2 .

“ SEC Documents ” shall mean any and all reports required to be filed by FCE under the U.S. Securities Act of 1933 and Exchange Act of 1934, as amended, including all exhibits and financial statements and other documents incorporated by reference therein.

“ Securities Purchase Agreement ” shall mean that certain Securities Purchase Agreement dated as of the date hereof between FCE and POSCO, in the form attached hereto as Exhibit A .

“ Subsidiary ” shall mean, with respect to any Person (for the purposes of this definition, the “parent”), any other Person (other than a natural person), whether incorporated or unincorporated, of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect or appoint a majority of the board of directors, senior management or other persons performing such similar functions is directly or indirectly owned by the parent or by one or more of its respective Subsidiaries or by the parent and any one or more of its respective Subsidiaries.

“ Technology Transfer Agreement ” shall mean that certain Technology Transfer, License and Distribution Agreement dated as of the date hereof between FCE and POSCO, in the form attached hereto as Exhibit B .

“ Technology Transfer Program ” or “TTP” shall have the meaning set forth in the Technology Transfer Agreement.

“ Term ” shall have the meaning set forth in Section 5.2 .

“ Transaction Agreements ” shall mean this Agreement, the Securities Purchase Agreement and the Technology Transfer Agreement, and any other documents or agreements to effectuate the transactions contemplated herein.

ARTICLE II
THE ALLIANCE

SECTION 2.1. Alliance Scope . The scope of this Alliance Agreement shall be limited to the FCE Products and FCE Technology, except to the extent the New DFC-Based Products and the New DFC-Based Technology are addressed in Section 2.2(b) . Each party shall have the right to pursue any opportunities that are not in conflict with or expressly subject to the provisions of this Agreement in the same manner in which it has previously pursued such opportunities or in any other manner in such party’s own discretion, including, without limitation, entering into a partnership, alliance, distribution or other sales and marketing arrangements with any third party.

SECTION 2.2. License and Distribution Rights .

(a) FCE Technology; FCE Products, POSCO Parts and POSCO Products . FCE, in consideration of payments and other amounts payable as specified in this Agreement and the other Transaction Agreements, agrees to grant to POSCO Power, and POSCO Power agrees to accept, certain licenses and distribution rights with respect to the FCE Technology, FCE Products, POSCO Parts and POSCO Products, it being understood and agreed that FCE shall not, during the Term, grant any right or license in or relating to the FCE Technology or FCE Products to any other Korean Companies, or grant any new distribution rights in respect of the Korean Market or renew any existing distribution rights in respect of the Korean Market, all in accordance with, and subject to, the terms and conditions of the Technology Transfer Agreement

(b) New DFC-Based Technology and New DFC-Based Products . FCE agrees that it (i) will provide to POSCO Power the New DFC-Based Technology during the Term and (ii) will grant to POSCO Power certain exclusive and non-exclusive distribution rights with respect to, and licenses to use the New DFC-Based Technology for POSCO Power and/or POSCO Affiliates to construct, assemble, manufacture, sell, use, import, distribute, maintain, service and/or repair, the New DFC-Based Products in the Korean Market and to sell, use, import, distribute, maintain, service and/or repair the New DFC-Based Products in the Non-Exclusive Territory, when such technology is developed and such products and parts are commercialized by FCE, on terms and conditions, including compensation, to be mutually agreed in a separate agreement, using their commercially reasonable good faith efforts, it being understood and agreed that FCE will not grant any right or license in or relating to the New DFC-Based Technology and New DFC-Based Products to any other Korean Company during the Term, as long as POSCO Power is using commercially reasonable efforts to actively and diligently commercialize the New DFC-Based Technology in the Korean Market.

(c) POSCO Power agrees that it will grant to FCE certain licenses and rights with respect to the POSCO Technology developed by POSCO Power or any POSCO Affiliate, in accordance with and subject to the terms and conditions of the Technology Transfer Agreement, and on terms and conditions, including compensation, to be mutually agreed in a separate agreement using their commercially reasonable good faith efforts.

SECTION 2.3. Additional Agreements . Simultaneously with the execution of this Agreement, and subject to the terms hereof, the parties shall enter into the Technology Transfer Agreement and the Securities Purchase Agreement, and, within sixty (60) days of thereof, the parties shall use commercially reasonable efforts to finalize the terms and conditions of the Technology Transfer Program, LTSA and the Purchase Order. In addition, from time to time, the parties shall use commercially reasonable efforts to enter into any other agreements, as needed, to effectuate the purposes of this Agreement.

SECTION 2.4. Mutual Covenants .

(a) Cooperation; Alliance Management . The parties shall use commercially reasonable good faith efforts to cooperate with each other to effectuate the transactions contemplated by this Agreement and any other Transaction Agreements. In order to ensure such cooperation, each of the parties shall designate at least two representatives for the purpose of coordinating the implementation and performance of this Agreement and the other Transaction Agreements. The representatives shall meet on a quarterly basis and on an as needed basis at the request of either party.

(b) Good Faith and Fair Dealing . Each of the parties acknowledges and agrees that all aspects of the performance by the parties under the terms of this Agreement and the other Transaction Agreements, and all other dealings between the parties in connection therewith, shall be governed by the principle of good faith and fair dealing. Further, each party agrees that it will perform its functions under this Agreement and the other Transaction Agreements in cooperation with the other party and in accordance with prevailing industry standards.

(c) Reputation . Each of the parties agrees to conduct its respective businesses prudently and in a manner that does not attract unfavorable publicity, a negative reputation in the energy industry or enforcement activity by a Governmental Authority having jurisdiction over POSCO Power or FCE, which in each case would be reasonably expected to have a material adverse effect on the transactions contemplated herein.

(d) Compliance . Each of the parties shall comply with all Applicable Laws relating to its activities contemplated by this Agreement and the other Transaction Agreements. In performing their respective obligations under this Agreement and the other Transaction Agreements, neither party shall be required to undertake any activity that would violate any Applicable Laws. In addition, each of the parties shall, at its own cost and expense, obtain and maintain any and all licenses and registrations, and cause each of its employees to obtain any and all licenses and registrations, that are necessary or, in such party’s reasonable discretion, desirable in the performance of the services to be provided by such party pursuant to this Agreement and the other Transaction Agreements.

SECTION 2.5. FCE Obligations .

(a) Technical Assistance, Advertising and Marketing . FCE shall provide commercially reasonable good faith technical assistance and support in connection with POSCO Power’s performance of the transactions contemplated hereby in accordance with the terms and conditions of the Technology Transfer Agreement, including the Technology Transfer Program. FCE shall, at its own cost, provide commercially reasonable good faith support to POSCO Power’s marketing and sales activities, including, but not limited to, supplying information to POSCO Power for POSCO Power to prepare general marketing materials.

(b) FCE Product Literature and Marketing Materials . FCE shall provide POSCO Power with (i) appropriate instructions regarding the use of the FCE Products, including, but not limited to, warning labels, disclaimers of warranty and any other related documentation, (ii) available literature, data, price lists, promotional materials, or any other similar materials regarding the FCE Products, (iii) documents to manufacture, install, service and repair the FCE Products, POSCO Products and POSCO Parts in accordance with the terms and conditions of the Technology Transfer Agreement, including the Technology Transfer Program and (iv) (A) preventative maintenance procedures for the FCE Products, (B) suggested and necessary repair parts and (C) estimated prices and replacements schedules for standard wear and tear items, in accordance with the terms and conditions of the Technology Transfer Agreement, including the Technology Transfer Program. Any materials provided in accordance with this Section 2.5(b) shall be in the English language. POSCO Power shall have the right to reproduce the materials and, where appropriate, translate such materials into other languages.

(c) Referrals . FCE agrees to refer to POSCO Power all demonstration projects or orders from any Korean company for FCE Products to be sited in the Korean Market.

(d) Inspection and Testing . FCE shall provide from time to time to POSCO Power the acceptance criteria that must be met or exceeded at either the FCE factory and at each Facility before POSCO Power and/or its Customers will be deemed to have accepted delivery of the relevant FCE Product.

(e) Construction and Installation Duties . FCE shall advise POSCO Power with respect to the determination and design of site requirements, permitting, grid interface and controlled designs, BOP, installation, start-up services, training and data collection for DFC Power Plants.

(f) Performance Standards . Each Purchase Order will set forth the design specifications for the FCE Products ordered thereby.

(g) Transfer of NewCo Stock . In the event FCE desires to transfer to any third party all or any portion of the capital stock of NewCo (the “ NewCo Stock ”) received as royalties pursuant to the Technology Transfer Agreement, FCE shall deliver to POSCO Power within thirty (30) days prior to the proposed date of transfer a written notice setting forth the price and any other relevant terms of its proposed transfer of such NewCo Stock. POSCO Power shall then be entitled to purchase all or any portion of such NewCo Stock proposed to be transferred on the same terms and conditions set forth in the notice provided by FCE, by delivering notice to FCE within fifteen (15) days of notice from FCE of such proposed transfer. To the extent that any portion of the NewCo Stock is not purchased pursuant to the terms in this clause, the proposed transfer may proceed so long as such transfer is effected in accordance with Applicable Law, and, in which case, POSCO Power shall provide commercially reasonable assistance to FCE to effect the sale of NewCo Stock.

SECTION 2.6. POSCO Power Obligations .

(a) Completion of POSCO Power Facility . POSCO Power shall use its commercially reasonable efforts to complete the construction of the POSCO Power Facility within two (2) years of the Effective Date (the “ POSCO Power Facility Completion Date ”); provided , however , that the failure by POSCO Power to complete such construction by the POSCO Power Facility Completion Date shall not be considered a material breach or failure of this Agreement (including Article IV ) or any other Transaction Agreement.

(b) Manufacturing, Marketing and Sale of FCE Products . POSCO Power shall, at its sole expense, use its commercially reasonable good faith efforts to manufacture, promote, market, distribute, sell or otherwise commercialize the BOP technology in the Korean Market and distribute, sell, or otherwise commercialize the BOP technology in the Non-Exclusive Territory, in accordance with the terms of this Agreement and the other Transaction Agreements. POSCO Power shall comply with all FCE Product quality measures provided by FCE to POSCO Power from time to time.

(c) Marketing Plan . POSCO Power, at its sole expense, agrees to develop a marketing plan to advertise, promote and publicize the FCE Products in the Korean Market.

(d) Service Capability . POSCO Power has, or within 36 months of the Effective Date will develop, the necessary skills and capability to provide service for the FCE Products, POSCO Products and POSCO Parts to the Customers. Without limiting the foregoing and solely by way of example, such skills shall include the ability to perform, consistent with its commercial reasonable efforts, the following services: applications engineering, balance of plant service, power plant operations and control, installation services, troubleshooting, and maintenance services. The skills described in this section shall not include the performance of service within the Fuel Cell Stack Module, which shall be performed by FCE.

(e) FCE Fuel Cell Stack Module Integrity . POSCO Power shall not, and shall not permit its employees, subcontractors, Facility operators, site owners or agents, or those of its affiliates or Subsidiaries to, open any Fuel Cell Stack Modules or otherwise attempt to view the interiors of the Fuel Cell Stack Module without the prior written permission of FCE. Any violation of this section shall be deemed a material breach of the confidentiality provisions set forth herein and void all warranties contained in the related Purchase Order. POSCO Power may open a Fuel Cell Stack Module or allow a Fuel Cell Stack Module to be opened if there occurs an emergency condition, at POSCO Power’s reasonable judgment, involving the Fuel Cell Stack Module that imperils human life or threatens substantial property damage or bodily harm. If POSCO Power opens a Fuel Cell Stack Module or allows a Fuel Cell Stack Module to be opened pursuant to this Section, POSCO Power shall limit such intrusion into the Fuel Cell Stack Module as narrowly as possible, and treat any information learned thereby as confidential information in accordance with this Agreement. POSCO Power shall require, as a condition precedent to any agreement with respect to the sale, lease or such similar transaction of any FCE Product or POSCO Product, the purchaser, lessor, customer or any such party of such transaction to agree to accept the terms of this clause (e) and to agree to require any subsequent purchaser, lessor, customer or such similar party thereof to accept the terms hereof.

SECTION 2.7. Fuel Cell Stack Module Order Requirements .

(a) Order Requirements . During the Term of this Agreement, POSCO Power agrees to purchase from FCE, and FCE agrees to sell to POSCO, Fuel Cell Stack Modules that are capable of producing certain specified megawatts (on a cumulative basis) as follows (for the purpose of this section, the term “Year” means the 12-month period ending in each year on the anniversary of the Effective Date):


Year		Total Megawatts (cumulative)

(b) Price . The parties acknowledge and agree that the price and terms of each order shall be negotiated separately in a commercially reasonable good faith manner, subject to the pricing guidelines agreed to by the parties pursuant to Section 4.1 (c) below.

(c) Joint Review . Notwithstanding any provision to the contrary herein, any failure by POSCO Power to purchase the Fuel Cell Stack Modules, as set forth in Section 2.7 shall not constitute a material breach of this Agreement. The parties shall undertake a joint performance review at the end of years 3 and 5 from the Effective Date to determine the desirability of continuation of this Agreement, in the event the cumulative order requirements set forth in Section 2.7 were not met.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

SECTION 3.1. Representations and Warranties of FCE . FCE represents and warrants to POSCO that as of the date hereof, and as of the Effective Date:

(a) It has all requisite right, power and authority, to execute and deliver this Agreement and the other Transaction Agreements, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby;

(b) The execution, delivery and performance by FCE of this Agreement and the other Transaction Agreements, and the consummation by FCE of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of FCE and no other corporate actions or proceedings on the part of FCE are necessary to authorize this Agreement, the other Transaction Agreements and the transactions contemplated hereby and thereby. Assuming due authorization, execution and delivery of this Agreement and the other Transaction Agreements by POSCO Power hereto and thereto, each of this Agreement and the other Transaction Agreements constitute a legal, valid and binding obligation of FCE enforceable against it in accordance with its terms;

(c) The execution, delivery and performance by FCE of this Agreement and the other Transaction Agreements, and the consummation by FCE of the transactions contemplated hereby and thereby, do not: (i) violate any Applicable Law; (ii) violate or conflict with any Contract to which FCE is a party, including, but not limited to, any Contract with Marubeni and MTU, upon receipt of the Marubeni Settlement and MTU Consent; (iii) violate any Governmental Order; (iv) require the approval, consent or permission of any Governmental Authority having authority over FCE, other than the DOE Approval (as hereinafter defined); or (v) violate FCE’s organizational documents;

(d) Neither FCE or any of its Subsidiaries nor any director, officer, agent, employee or other Person acting on behalf of FCE or its Subsidiaries has, in the course of its actions for, or on behalf of, FCE or any of its Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of in any material respect any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made or received any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to or from any foreign or domestic government official or employee;

(e) To FCE’s knowledge, there is no pending or threatened any suit, action or proceeding (i) by any Governmental Authority challenging the transactions contemplated herein or in the other Transaction Agreements by FCE, seeking to restrain or prohibit the consummation of the transactions contemplated hereby or thereby, or (ii) by any Person which has not been disclosed in the SEC Documents; and

(f) As of their respective dates, the financial statements set forth in the SEC Documents fairly present in all material respects the consolidated financial position of FCE as of the dates thereof and, since October 31, 2006, and except as noted in the SEC Documents, FCE’s business has been operated in the ordinary course of business and there has not been any event or condition that would reasonably be expected to result, individually or in the aggregate, in a material adverse event.

SECTION 3.2. Representations and Warranties of POSCO Power . POSCO Power represents and warrants to FCE that, as of the date hereof and as of the Effective Date:

(a) It has all requisite right, power and authority to execute and deliver this Agreement and the other Transaction Agreements, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby;

(b) The execution, delivery and performance by POSCO Power of this Agreement and the other Transaction Agreements, and the consummation by POSCO Power of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate action on the part of POSCO Power and no other corporate actions or proceedings on the part of POSCO Power are necessary to authorize this Agreement, the other Transaction Agreements and the transactions contemplated hereby and thereby. Assuming due authorization, execution and delivery of this Agreement and the other Transaction Agreements by FCE hereto and thereto, each of this Agreement and the other Transaction Agreements constitute a legal, valid and binding obligation of POSCO Power enforceable against it in accordance with its terms;

(c) The execution, delivery and performance by POSCO Power of this Agreement and the other Transaction Agreements, and the consummation by POSCO Power of the transactions contemplated hereby and thereby, do not: (i) violate any Applicable Law; (ii) violate or conflict with any Contract to which POSCO Power is a party; (iii) violate any Governmental Order; (iv) require the approval, consent or permission of any Governmental Authority having authority over POSCO Power; or (v) violate POSCO Power’s organizational documents;

(d) Neither POSCO Power nor any director, officer, agent, employee or other Person acting on behalf of POSCO Power has, in the course of its actions for, or on behalf of, POSCO Power (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (iii) violated or is in violation of in any material respect any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or (iv) made or received any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to or from any foreign or domestic government official or employee; and

(e) To POSCO Power’s knowledge, there is no pending or threatened any suit, action or proceeding by any Governmental Authority challenging the transactions contemplated herein or in the other Transaction Agreements by POSCO Power, seeking to restrain or prohibit the consummation of the transactions contemplated hereby or thereby.

ARTICLE IV
CERTAIN COVENANTS

SECTION 4.1. Post-Execution Covenants .

(a) DOE Approval . FCE shall use its reasonable best efforts to obtain all necessary consent or approval from the U.S. Department of Energy, in form substantially similar to the form of DOE Approval set forth in Exhibit C attached hereto (the “ DOE Approval ”) .

(b) MTU Consent . FCE shall use its reasonable best efforts to obtain the consent, approval and/or agreement, in form substantially similar to the form of consent set forth in Exhibit D attached hereto (the “ MTU Consent ”).

(c) Form of Purchase Order and LTSA; Accounting . Within sixty (60) days of the Effective Date, the parties shall use commercially reasonable good faith efforts to finalize (i) the terms and conditions of the LTSA and the Purchase Order, (ii) the pricing guidelines of the Fuel Cell Stack Modules and/or FCE Products and (iii) certain accounting issues relating to, and the components or items that comprise, the Net Sales.

(d) Technology Transfer Program . The parties shall use commercially reasonable good faith efforts to negotiate, prepare and finalize the terms and conditions of the Technology Transfer Program within sixty (60) days of the date hereof.

(e) Closing of Securities Purchase Agreement . The parties shall use commercially reasonable good faith efforts to effect the closing of the Securities Purchase Agreement as soon as practicable, but no earlier than the Effective Date.

(f) Marubeni Settlement . The parties shall use their reasonable best efforts to secure a waiver from Marubeni, pursuant to which Marubeni waives its distribution rights in the Korean Market, in form substantially similar to the form of waiver set forth in Exhibit E attached hereto (“ Marubeni Settlement ”). POSCO Power hereby agrees to comply with the provisions in the Marubeni Settlement to the extent applicable to POSCO Power.

ARTICLE V
TERM ANDTERMINATION

SECTION 5.1. Term . The initial term of this Agreement (the “ Initial Term ”) shall commence on the Effective Date and shall continue, unless earlier terminated in accordance with the provisions set forth herein, for a period of ten (10) years from the date hereof.

SECTION 5.2. Extension . The Initial Term may be extended for additional terms, each for a period of three (3) years, as mutually agreed (each such additional term referred to herein as the “ Additional Term ”; together with the Initial Term, the “ Term ”); provided , that the first Additional Term shall be on terms and conditions no less favorable to POSCO Power than those set forth in this Agreement and the other Transaction Agreements; provided , further , that any Additional Term after the first Additional Term shall be on terms and conditions as mutually agreed upon by the parties. This Agreement shall be extended only if the other Transaction Agreements other than the Securities Purchase Agreement are extended for the same period.

SECTION 5.3. Termination . This Agreement may be terminated:

(a) by mutual written agreement of FCE and POSCO Power;

(b) by either party (i) if the parties fail to agree to the continuation of this Agreement as set forth in Section 2.7(c) ; (ii) if the terms and conditions set forth in Section 4.1(a) , (b) and (f) have not been satisfied (or waived in writing by POSCO Power) by April 7, 2007; or (iii) if a change in any Applicable Law would materially and adversely affect any rights or obligations of any party and the parties in their exercise of commercially reasonable good faith efforts, failed to agree to an appropriate modification or an amendment of the terms and conditions of this Agreement, after complying with the procedures set forth in Section 6.1 below.

(c) (i) by FCE, by written notice to POSCO Power, if (A) POSCO Power shall have materially breached or failed to perform any of its representations, warranties, covenants or agreements of, or an event of default has occurred under, this Agreement or any of the other Transaction Agreements and (B) such breach, failure or default is not fully cured within sixty (60) days after receiving notice thereof; provided, however, that the parties acknowledge and agree that the failure by POSCO Power to meet the order requirements set forth in Section 2.7(a) shall not be deemed to be a material breach or failure of this Agreement or any other Transaction Agreements; or

(ii) by POSCO Power, by written notice to FCE, if (A) FCE shall have materially breached or failed to perform any of its representations, warranties, covenants or agreements of, or an event of default has occurred under, this Agreement or any of the other Transaction Agreements, and (B) such breach, failure or default is not fully cured within sixty (60) days after receiving notice thereof.

The parties acknowledge and agree that any decision on the part of either party to terminate this Agreement shall be subject to the procedures set forth in Article VI.

SECTION 5.4. Effect of Termination; Survival .

(a) Upon any termination of this Agreement pursuant to Section 5.3(a) or (b) hereof, all further obligations of the parties hereunder shall terminate without any further liability of either party, except as provided in this Section 5.4(a) . Each party, if so requested by the other party, will re-deliver promptly every document furnished to it by the other party in connection with the transactions contemplated hereby, whether obtained before or after the execution of this Agreement, and any copies thereof which may have been made.

(b) Upon any termination of this Agreement due to a material breach or failure to perform any of the representations, warranties, covenants or agreements of this Agreement or the Technology Transfer Agreement pursuant to Section 5.3(c)(i) hereof, the parties hereby agree that the remedies set forth in Article IX of the Technology Transfer Agreement shall govern.

(c) Upon any termination of this Agreement due to a material breach or failure to perform any of the representations, warranties, covenants or agreements of this Agreement or the Technology Transfer Agreement pursuant to Section 5.3(c)(ii) , the parties hereby agree that the remedies set forth in Article IX of the Technology Transfer Agreement shall govern.

(d) No termination under this Agreement shall limit or otherwise affect the other rights and remedies of either party arising prior to the termination.

(e) Upon the expiration or termination of this Agreement for any reason, the provisions of this Section 5.4 , Section 6.2 , and Articles VII , VIII and IX shall survive indefinitely.

(f) For the avoidance of doubt, the parties hereto acknowledge and agree that, except as provided in this Section 5.4(b) and (c) , the remedies set forth in any other Transaction Agreements shall govern, as applicable.

ARTICLE VI
DISPUTES AND ARBITRATION

SECTION 6.1. Efforts to Resolve by Mutual Agreement .

Any dispute, action, claim or controversy of any kind arising from or in connection with this Agreement or the relationship of the parties under this Agreement (the “Dispute”) whether based on contract, tort, common law, equity, statute, regulation, order or otherwise, shall be resolved as follows:

(a) Upon written request of either FCE or POSCO Power, the parties shall meet and attempt to resolve any such Dispute. Such meetings may take place via teleconference or videoconference.

(b) The parties shall meet as often as the parties reasonably deem necessary to discuss the problem in an effort to resolve the Dispute without the necessity of any formal proceeding.

(c) Formal proceedings for the resolution of a Dispute may not be commenced until the earlier of (i) the Parties concluding in good faith that amicable resolution through continued negotiation of the matter does not appear likely; or (ii) the expiration of a sixty (60) day period immediately following the initial request by either party to resolve the Dispute; provided , however , that this Section 6.1 will not be construed to prevent a party from instituting formal proceedings earlier to avoid the expiration of any applicable limitations period, to preserve a superior position with respect to other creditors or to seek temporary or preliminary injunctive relief.

SECTION 6.2. Arbitration . If the Parties are unable to resolve any Dispute, pursuant to Section 6.1 above and except as otherwise specified in Section 6.4 , the Dispute shall be finally settled under the Rules of Arbitration (the “ Rules ”) of the International Chamber of Commerce (“ ICC ”) by three (3) arbitrators designated by the parties. Each party shall designate one arbitrator. The third arbitrator shall be designated by the two arbitrators designated by the parties. If either party fails to designate an arbitrator within thirty (30) days after the filing of the Dispute with the ICC, such arbitrator shall be appointed in the manner prescribed by the Rules. An arbitration proceeding hereunder shall be conducted in London, U.K., and shall be conducted in the English language. The decision or award of the arbitrators shall be in writing and is final and binding on both parties. The arbitration panel shall award the prevailing party its attorneys’ fees and costs, arbitration administrative fees, panel member fees and costs, and any other costs associated with the arbitration; provided , however , that if the claims or defenses are granted in part and rejected in part, the arbitration panel shall proportionately allocate between the parties those arbitration expenses in accordance with the outcomes. The arbitration panel may only award damages as provided for under the terms of this Agreement and in no event may punitive, consequential and special damages (or as otherwise specified in this Agreement, including, without limitation, Section 6.3 ) be awarded. In the event of any conflict between the Rules and any provision of this Agreement, this Agreement shall govern.

SECTION 6.3. Limitation on Recoverable Damages . In no event shall the measure of damages payable by either party under or in connection with this Agreement or the transactions or arrangements contemplated hereby include, nor will either party be liable for, any amounts for loss of income, profit or savings or indirect, incidental, consequential, exemplary, punitive or special damages of any party, including third parties, whether or not foreseeable, even if such party has been advised of the possibility of such damages in advance, and all such damages are expressly disclaimed. Notwithstanding anything contained herein to the contrary, the parties hereto shall be entitled to seek specific performance or injunctive relief in connection with any material breach by another party of its obligations under this Agreement.

SECTION 6.4. Specific Performance . The parties acknowledge and agree that the FCE Technology is unique and further acknowledge and agree that POSCO Power will suffer irreparable harm, which is not compensable by monetary damage, in the event the FCE Technology has not been fully transferred to POSCO Power at the time of the termination of this agreement due to a material breach by FCE of this Agreement. Accordingly, the parties agree that POSCO Power shall be entitled to an injunction or injunctions to enforce specifically the transfer of the FCE Technology to POSCO Power in accordance with Article IX of the Technology Transfer Agreement, in addition to any other remedy to which it may be entitled under this Agreement.

ARTICLE VII
CONFIDENTIALITY

This confidentiality provision supplements, but does not replace, the confidentiality provisions of the other Transaction Agreements. As used in this Agreement, the term “confidential information” means any and all trade secrets and other confidential information and know-how related directly or indirectly to a party’s business or its products and services, which is not covered by the confidentiality provisions of other Transaction Agreements. Each party shall hold each other’s confidential information in confidence and shall not use or disclose any confidential information, or permit any person to examine or copy any confidential information, regardless of the manner in which such party gained access to it, except as necessary for the performance of its obligations under this Agreement, including, without limitation, to such party’s legal advisors, financial advisors and accountants. Each party’s obligation of confidentiality with respect to confidential information supplied by the other hereunder shall not include or extend to information which: (i) at the date such information is disclosed to the recipient is generally known by or available to the public; (ii) after such information is disclosed to the recipient becomes generally known or available to the public, through no fault of the recipient; (iii) becomes available or is known to the recipient prior to the time of it being disclosed to the recipient as evidenced by the written records of the recipient and was not received directly or indirectly from the provider; (iv) became or becomes available to the recipient from an independent third party who is not bound by a confidentiality agreement with the provider; or (v) is required to be disclosed by the recipient to a third party in response to a subpoena or order of a court or an administrative agency, provided that the recipient shall inform the provider promptly so that the provider shall have an opportunity to seek a protective order and the recipient shall not interfere with the provider’s lawful efforts to obtain said protective order. POSCO Power shall use best efforts to require, as a condition precedent to any agreement with respect to the sale, lease or such similar transaction of any FCE Product or POSCO Product, the purchaser, lessor, customer or any such party of such transaction (x) to agree and (y) to use such party’s good faith efforts to cause any subsequent purchaser, lessor, customer or such similar party thereof, in each case, to be bound to confidentiality obligations substantially similar to the terms hereof.

ARTICLE VIII

INDEMNIFICATION

SECTION 8.1. Claims . This indemnification provision supplements, but does not replace, the indemnification provisions of the other Transaction Agreements. For purposes of this Agreement, “ Claim ” shall mean any liability, claim, suit, demand, loss, damage, judgment, and expense (including reasonable attorneys’ fees and costs and the cost of settlement), that is not covered by the indemnification provisions of other Transaction Agreements.

SECTION 8.2. Indemnification by POSCO . POSCO Power shall indemnify, defend, and hold harmless FCE and its representatives, successors and permitted assigns from and against any and all Claims made or threatened by any third party and all related losses, expenses, damages, costs and liabilities, including reasonable attorneys’ fees and expenses incurred in investigation or defense of such claims (“ Damages ”), to the extent such Damages relate to or arise out of (i) any breach of or any inaccuracy in any representation or warranty made by POSCO Power in this Agreement or (ii) any breach of or failure by POSCO Power to perform or comply with any of its covenants or agreements contained in this Agreement.

SECTION 8.3. Indemnification by FCE . FCE shall indemnify, defend, and hold harmless POSCO Power and its representatives, successors and permitted assigns from and against any and all Claims made or threatened by any third party and all related Damages, to the extent such Damages relate to or arise out of (i) any breach of or any inaccuracy in any representation or warranty made by FCE in this Agreement or (ii) any breach of or failure by FCE to perform or comply with any of its covenants or agreements contained in this Agreement.

SECTION 8.4. Indemnification Procedure . In the event a Claim by a third party for which indemnification may be available under this Agreement is made or filed against a party, the party against which the claim, suit or proceeding is made (the “ Indemnified Party ”), shall promptly notify the other party (the “ Indemnifying Party ”) in writing of the claim, suit or proceeding. The Indemnifying Party, within thirty (30) days, or such shorter period as is required to avoid any prejudice in the claim, suit or proceeding, after the notice, may elect to defend, compromise, or settle the third party claim, suit or proceeding at its expense. In any third party claim, suit or proceeding which the Indemnifying Party has elected to defend, compromise or settle, the Indemnifying Party shall not after the election be responsible for the expenses, including counsel fees, of the Indemnified Party but the Indemnified Party may participate therein and retain counsel at its own expense. In any third party claim, suit or proceeding the defense of which the Indemnifying Party shall have assumed, the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the consent of the Indemnifying Party and the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement affecting the Indemnified Party to the extent that the judgment or settlement involves more than the payment of money without the written consent of the Indemnified Party. The Indemnified Party shall provide to the Indemnifying Party all information, assistance and authority reasonably requested in order to evaluate any third party claim, suit or proceeding and effect any defense, compromise or settlement.

ARTICLE IX

MISCELLANEOUS

SECTION 9.1. Certain Expenses . Except as expressly provided in this Agreement, each party shall bear and pay its own costs and expenses incurred in connection with the performance by such party of its obligations hereunder.

SECTION 9.2. Independent Contractors . The parties are independent contractors, and nothing contained in this Agreement shall be construed as (a) giving either party the power to direct and control the day-to-day activities of the other, (b) constituting either party as a partner, a joint venture, a co-owner or a fiduciary of the other or (c) creating any other form of legal association that would impose liability on one party for the act or failure to act of the other or as providing either party with the right, power or authority (express or implied) to create any duty or obligation of the other.

SECTION 9.3. Entire Agreement . This Agreement, the Technology Transfer Agreement and the Securities Purchase Agreement, including any Exhibits and Schedules attached hereto and thereto, and any other Transaction Documents which are incorporated into this Agreement by this reference, constitute the full and complete statement of the agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, whether written or oral, between the parties with respect to the subject matter hereof. There are no representations, understandings or agreements relating to this Agreement that are not fully expressed in this Agreement other than those representations, understandings or agreements contained in the other Transaction Agreements.

SECTION 9.4. Amendments; Waiver . Any changes or modifications to this Agreement may not be made orally, but only by a written amendment executed and delivered by both parties. Any terms and conditions varying from this Agreement on any notification from either party are not binding on the other unless specifically accepted in writing by the other. A delay or omission by either party to exercise any right or power under this Agreement will not be construed to be a waiver thereof. No waiver of any breach of any provision of this Agreement will constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provision hereof.

SECTION 9.5. Binding Nature; Assignment . This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Neither party may, nor will it have the power to, assign this Agreement, or any part hereof, without the prior written consent of the other party, except that the parties acknowledge and agree that POSCO Power may, without assuming any obligations set forth in this Agreement and the other Transaction Agreements, assign its rights and obligations to NewCo without consent of FCE. In the event of any other assignment of this Agreement by either party, the assignee shall assume, in writing (in form and substance reasonably satisfactory to the other party), the rights and obligations of the assigning party under this Agreement.

SECTION 9.6. No Third Party Beneficiaries . Except as expressly contemplated herein, this Agreement shall be binding upon and inure solely to the benefit of each party hereto and nothing in this Agreement is intended to confer upon any other person or entity any rights or remedies of any nature whatsoever under or by reason of this Agreement.

SECTION 9.7. Notices . All notices pursuant to this Agreement shall be in writing and will be deemed to have been duly given if delivered personally or by internationally recognized courier service, or by facsimile to the parties at the addresses set forth below.

if to FCE, to:

FuelCell Energy, Inc.
3 Great Pasture Road
Danbury, CT 06813
Facsimile: (203) 825-6079
Attention: Ben Toby

with copy to:

FuelCell Energy, Inc.
3 Great Pasture Road
Danbury, CT 06813
Facsimile: (203) 825-6069
Attention: Ross Levine

if to POSCO Power, to:

POSCO Power
Dacom Building 10th Floor
706-1 Yeoksam-dong, Kangnam-gu
Seoul 135-987, Korea
Facsimile: 011-82-2-3457-1960
Attention: Taehyoung (TH) Kim

with copy to:

POSCO
POSCO Center
892 Daechi 4-Dong, Gangnam-Gu
Seoul, 135-777, Korea
Facsimile: 011-82-2-3457-1972
Attention: Bong-han “Stephen” Kim, Esq.

All notices under this Agreement that are addressed as provided in this Section 9.7 , (i) if delivered personally or by internationally recognized courier service, will be deemed given upon delivery or (ii) if delivered by facsimile, will be deemed given when confirmed. Either party from time to time may change its address or designee for notification purposes by giving the other party notice of the new address or designee and the date upon which such change will become effective.

SECTION 9.8. Publicity . The parties shall cooperate with each other in releasing information concerning this Agreement, the other Transaction Agreements and the transactions contemplated hereby and thereby. No press releases or other public announcements concerning the transactions contemplated by this Agreement shall be made by any party without prior consultation with, and agreement of, the other party, except for any legally required communication by any party and then only with prior consultation with the other party.

SECTION 9.9. Use of Name . Except as expressly provided in this Agreement or the other Transaction Agreements, neither party may use the trade names, trademarks, service marks or other similar proprietary rights of the other party without the written consent of such other party. Notwithstanding any authorized use by the other party, the trade names, trademarks, services marks and other similar proprietary rights of a party shall remain the property of such party.

SECTION 9.10. Severability . If any provision of this Agreement or the application of any such provision to any Person or circumstance, shall be declared judicially to be invalid, unenforceable or void (including, without limitation, such decision shall not have the effect of invalidating or voiding the remainder of this Agreement, and it is the intent and agreement of the parties that this Agreement shall be deemed amended by modifying such provision to the extent necessary to render it valid, legal and enforceable while preserving its intent or, if such modification is not possible, by substituting therefore another provision that is legal and enforceable and that achieves the same objective.

SECTION 9.11. Governing Law . This Agreement shall be governed by and construed in accordance with the substantive laws of the State of New York, without giving effect to any choice of law rules that may require the application of the laws of another jurisdiction.

SECTION 9.12. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one agreement binding on the parties, notwithstanding that both parties are not signatories to the original or the same counterpart.

IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement as of the date first above written.


FUELCELL ENERGY, INC .
By:	/s/ Robert Daniel Brdar
	Name:	Robert Daniel Brdar
	Title:	President CEO and Chairman
POSCO POWER
By:	/s/ Seung-Woo Lee
	Name:	Seung-Woo Lee
	Title:	Persident & CEO

Alliance Agreement

EXHIBIT A

Securities Purchase Agreement

EXHIBIT B

Technology Transfer, License and Distribution Agreement

EXHIBIT C

Form of DOE Approval

EXHIBIT D

Form of MTU Consent

EXHIBIT E

Form of Marubeni Settlement

SCHEDULE A

POSCO Affiliates

POSCO Affiliates shall include the following companies:

POSCON, a Korean corporation having a place of business at 606 Ho-dong Nam-gu, Pohang, Kyungbuk 790-719, Korea

POSMEC, a Korean corporation having a place of business at 322-4 Janghung-dong Nam-gu, Pohang, Kyungbuk 790-714, Korea

POSCO E&C, a Korean corporation having a place of business at 568-1 Goedong-dong Nam-gu, Pohang, Kyungbuk 790-704, Korea

POSTEEL, a Korean corporation having a place of business at 735-3 Posteel Tower Yeoksam-dong Gangnam-gu Seoul 135-080, Korea

SCHEDULE B

Non-Exclusive Territory

The Non-Exclusive Territory shall include all countries and jurisdictions, except as noted below:

Western Europe
Andorra
Austria
Belgium
Cyprus
Denmark
Federal Republic of Germany
Finland
France
Great Britain and including, but not limited to
Northern Ireland CIS (Commonwealth of Independent States)
Greece
Greenland
Ireland
Iceland
Italy
Liechtenstein
Luxembourg
Malta
Monaco
Netherlands
Norway
Portugal
San Marino
Spain
Sweden
Switzerland

The Vatican State

Eastern Europe
Albania
Bulgaria
Czech Republic
Slovakia
Hungary
Poland
Romania
All states of the former USSR
Yugoslavia
Slovenia
Croatia

Asia
Japan

Middle East

Bahrain
Iran
Iraq
Israel
Jordan
Kuwait
Lebanon
Oman
Qatar
Saudi-Arabia
Syria
Turkey
Yemen, Arab Rep.
Yemen, Peoples Rep.
United Arab Emirates (UAE)

North America
United States
Canada
Mexico

Exhibit 10.2

[Execution Copy]

TECHNOLOGY TRANSFER, LICENSE AND DISTRIBUTION AGREEMENT

dated as of February 7, 2007

between

FUELCELL ENERGY, INC.

and

POSCO POWER

Confidential treatment requested as to certain portions of this exhibit. Such portions have been redacted and filed separately with the SEC.


I. DEFINITIONS			2
II. LICENSE GRANT			6
2.1 FCE Technology License			6
2.2 Distribution Rights			7
2.3 POSCO Technology License			7
2.4 License to POSCO Power Upon Expiration of the Term			8
2.5 License to FCE Upon Expiration of the Term			8
2.6 Use of “FCE” Trademarks			8
2.7 Transfer of Technical Data			9
2.8 Regular Exchange of Technical Data			9
III. OWNERSHIP OF INTELLECTUAL PROPERTY			9
3.1 Ownership of FCE Technology			9
3.2 Ownership of POSCO Technology			9
3.3 Joint Development			9
IV. ROYALTIES			9
4.1 Royalty Payments			9
4.2 Minimum Annual Royalty			11
4.3 No Other Royalties, Payments, Etc.			11
4.4 Royalty Report			11
4.5 Royalty Determination Firm			12
V. SERVICE RESPONSIBILITY AND TRAINING			12
5.1 POSCO Power Service Responsibility			12
5.2 FCE Service Responsibility			12
5.3 Long Term Service			12
5.4 FCE Training			13


VI. GOVERNMENT REGULATIONS			13
6.1 POSCO Power Obligations			13
6.2 FCE Obligations			13
VII. REPRESENTATIONS AND WARRANTIES			13
7.1 Representations and Warranties of FCE			13
7.2 Representations and Warranties of POSCO Power			14
VIII. TERM			15
8.1 Term			15
8.2 Extension			15
IX. TERMINATION			16
9.1 Termination by Mutual Agreement			16
9.2 FCE Termination by Material Breach of POSCO Power			16
9.3 POSCO Power Termination by Material Breach of FCE			17
9.4 Return of FCE Technology			17
9.5 Return of POSCO Technology			18
9.6 Survival			18
X. INDEMNIFICATION			18
10.1 POSCO Power Obligations			18
10.2 FCE Obligations			19
10.3 Limitation of Damage			20
XI. CONFIDENTIAL INFORMATION			20
11.1 POSCO Power Obligations			20
11.2 POSCO Affiliate			20
11.3 FCE and POSCO Power Obligations			20
XII. NOTICES			21
XIII. ENTIRE AGREEMENT			22


XIV. APPLICABLE LAW AND ARBITRATION			22
14.1 Governing Law			22
14.2 Efforts to Resolve by Mutual Agreement			22
14.3 ICC Arbitration			23
14.4 Waiver of Jury Trial			23
XV. MISCELLANEOUS			23
15.1 Amendment			23
15.2 Severability			23
15.3 Government Information			23
15.4 Independent Contractors			23
15.5 Assignment			24
15.6 No Third Party Beneficiary			24
15.7 Headings			24
15.8 Right to Injunction; Specific Performance			24
15.9 Force Majeure			24
15.10 Marubeni; MTU			24

Exhibits :


Exhibit A:		Form of TTP
Exhibit B:		Form of LTSA
Exhibit C:		Form of Purchase Order

Schedules :


Schedule A:		POSCO Affiliates
Schedule B:		Non-Exclusive Territory
Schedule C:		FCE Previously Granted Distribution Rights

iii

THIS TECHNOLOGY TRANSFER, LICENSE AND DISTRIBUTION AGREEMENT (this “Agreement”) is made and entered into this 7th day of February, 2007, by and between FUELCELL ENERGY, INC., a Delaware corporation having a place of business at 3 Great Pasture Rd., Danbury, CT 06813, U.S.A. (“FCE”) and POSCO POWER, a Korean corporation having a place of business at Dacom Building 10 ^th Fl., 706-1 Yeoksam-dong, Kangnam-gu, Seoul 135-987, Korea (“POSCO Power”).

RECITALS:

A. FCE has developed “Balance of Plant” (defined below) technologies for high temperature fuel cells used for the generation of electric power including technology for a Molten Carbonate Fuel Cell (“MCFC”) known as the “Direct FuelCell ^® ” (DFC ^® ) and is developing new DFC based products currently designated by FCE as “DFC/T ^® ” and “DFC/H2”.

B. POSCO Power, together with the POSCO Affiliates (defined below), wishes to develop and commercialize the BOP technologies in the Korean Market (defined below) and in the Non-Exclusive Territory (defined below).

C. FCE wishes to grant a license of the FCE Technology (defined below) to POSCO Power and/or POSCO Affiliates and transfer the FCE Technology and provide technical assistance and support to POSCO Power. POSCO Power wishes to accept such a license and receive the FCE Technology, technical assistance and support, all in accordance with the terms of this Agreement and the other Transaction Agreements (defined below), as applicable.

D. FCE also wishes to transfer to POSCO Power the New DFC-Based Technology (defined in the Alliance Agreement) during the Term (defined below) of this Agreement and grant a license of the New DFC-Based Technology, when FCE commercializes the New DFC-Based Products, under a separate agreement, which the Parties shall negotiate in good faith and shall contain commercially reasonable terms, as outlined in the Alliance Agreement.

E. POSCO Power wishes to grant a license of the POSCO Technology (defined below) to FCE for the purpose of allowing FCE to further improve and modify the BOP technologies developed by FCE, in accordance with the terms of this Agreement and the other Transaction Agreements, as applicable.

F. Simultaneously herewith, the parties have entered into the Alliance Agreement (defined below) and Securities Purchase Agreement (defined below), both dated as of the date first written above.

NOW, THEREFORE, in consideration of the foregoing and the terms and conditions set forth below and intending to be legally bound, the parties agree as follows:

I. DEFINITIONS

As used in this Agreement, the following terms shall have the following respective meanings which are intended to define the scope of this Agreement:

“ Additional Term ” shall have the meaning set forth in Section 8.2.

“ Alliance Agreement ” shall mean that certain Alliance Agreement dated as of the date hereof between FCE and POSCO Power.

“ Applicable Laws ” shall have the meaning set forth in the Alliance Agreement.

“ Balance of Plant ” or “BOP” shall mean all subsystems for operation and generation of electrical power by DFC’s MCFCs in one or more stacks and including, but not limited to, fuel pre-treatment boilers, water recovery, fuel exhaust burner, inverter, control system, utility interface and start-up and stand-by equipment. For the avoidance of doubt, BOP shall mean all components of the DFC Power Plant other than the Fuel Cell Stack Module.

“ DFC ” shall mean FCE’s proprietary MCFC.

“ DFC Power Plant ” shall mean the products designed and produced by FCE or its subcontractors, from time to time, comprising the Fuel Cell Stack Module and the BOP, and shall specifically exclude items of equipment such as foundations, structures, enclosures, transmission/distribution lines and interconnections, fuel lines, fuel preparation and clean-up equipment water drainage/removal, computer hardware and software and any other items related to the foregoing.

“ DOE Approval ” shall have the meaning set forth in the Alliance Agreement.

“ Effective Date ” shall have the meaning set forth in the Alliance Agreement.

“ Fuel Cell Stack Module ” shall mean those components manufactured by FCE, which comprise the fuel cell stack itself, including the stack enclosure vessel, the fuel cell stack and its supporting hardware, including individual fuel cells and cell assemblies, anodes, cathodes, current collector plates, matrixes, manifolds, instrumentation, assembly and compression hardware and/or the stack enclosure vessel.

“ FCE Facility ” shall mean the FCE facility located at 3 Great Pasture Rd, Danbury CT 06813.

“ FCE Know-How ” shall mean: (a) All technical information, know-how, inventions (whether patented or not), trade secrets, and other technical, engineering and design information and data, including without limitation, BOP system engineering design, data, detailed drawings, bill of material, system analytical models, system operating software, manufacturing plant data, vendor qualification and selection procedures, and quality assurance, pre-shipment testing, all as available and in then current use by FCE, including all information provided by third parties to FCE, (i) to manufacture BOP components; (ii) to assemble such components with Fuel Cell Stack Modules to form complete DFC Power Plants; and (iii) make all necessary assembly checks and/or tests on complete DFC Power Plants. It is understood that FCE Know-How shall not include such information which relates to “New DFC Based Products” (as defined below); and

(b) Any information which FCE and POSCO Power believe is necessary for POSCO Power to (x) support its customers, (y) to prepare proposals as contemplated herein, and (z) to prepare required engineering documentation.

Notwithstanding the above, it is understood that the term “FCE Know-How” does not include: (i) information and data relating to machines or processes used in the manufacture of BOP materials, parts, and components; (ii) information and data, other than purchase specifications, on commercially available parts and components designed or manufactured by third parties; (iii) information and data relating to the economic, financial and marketing aspects of FCE’s operations; (iv) all information and data relating to design, manufacture and materials used for the Fuel Cell Stack Module, except to the extent any such information needed by POSCO Power to assemble, service and repair the FCE Products, POSCO Products and POSCO Parts; and (v) information and data which is subject to restriction on disclosure by a third party, provided, however, that FCE shall exercise commercially reasonable good faith efforts to obtain the consent needed to make such information available to POSCO Power.

“ FCE Patents ” shall mean the letters patents, and any applications for letters patent which have a “Convention Date” under the International Convention for the Protection of Industrial Property prior to the earlier of the expiration or termination date of this Agreement and which are owned or acquired by FCE or in which FCE has or acquires a licensable interest (including without limitation any U.S. or non-U.S. patents and patent applications that are counterparts thereof, and/or any divisions, continuations, continuations-in-part or reissues, reexaminations, renewals, substitutions, extensions, supplementary protection certificates in respect thereof) and which relate to BOPs. It is understood that FCE Patents shall not mean patents which relate to New DFC-Based Products.

“ FCE Products ” shall mean DFC Power Plants currently designated DFC300MA, DFC1500 and DFC3000 with introductory ratings of 300 kW, 1.2 MW and 2.4 MW, respectively and modifications and improvements thereof, regardless of how designated by FCE, which are made available, or in the future may be made available, for commercial use or sale by FCE during the Term.

“ FCE Technology ” shall mean FCE Patents and FCE Know-How, excluding any improvements or developments made by MTU after the Effective Date which may be furnished or licensed to FCE.

“ Governmental Authority ” shall have the meaning set forth in the Alliance Agreement.

“ Governmental Order ” shall have the meaning set forth in the Alliance Agreement.

“ Initial Term ” shall have the meaning set forth in Section 8.1.

“ Korean Market ” shall mean the Republic of Korea.

“ Korean Company ” shall include any corporation, company or entity established under the laws of the Republic of Korea, including any Subsidiary thereof, wherever located or established, other than POSCO Power and POSCO Affiliates.

“ LTSA ” shall mean a form of a long term service contract attached hereto as Exhibit B to be mutually agreed upon by the Parties pursuant to Section 4.1(c) of the Alliance Agreement, which form shall be used as a guide in preparing and finalizing the terms and conditions of each long term service contract.

“ Marubeni Settlement ” shall have the meaning set forth in the Alliance Agreement.

“ MTU ” shall mean MTU CFC SOLUTIONS GmbH, a German limited liability entity.

“ MTU Consent ” shall have the meaning set forth in the Alliance Agreement.

“ Net Sales ” shall mean the revenues generated from the sales by POSCO Power or POSCO Affiliate of the DFC Power Plants, POSCO Products and/or POSCO Parts, as applicable, excluding those POSCO Products and/or POSCO Parts that (a) are manufactured using the proprietary technology, engineering and design, know-how and inventions of POSCO Power and/or any POSCO Affiliate, and (b) do not use or contain any FCE Technology; less the Net Sales Adjustments, all determined in accordance with Korean GAAP and as set forth in Section 4.1(d) below.

“Net Sales Adjustments” shall include the cost of Fuel Cell Stack Modules or any components thereof or parts of the DFC Power Plants, POSCO Products and POSCO Parts purchased by POSCO Power and/or any POSCO Affiliate from FCE and the following items incurred in normal, bona fide, commercial transactions to the extent to which they are actually paid and expressly included in the gross invoice price: (i) sales returned; (ii) sales discounts; (iii) duties and taxes on sales; (iv) transportation insurance premiums; (v) packing expenses on sales; (vi) transport expenses on sales. Further, sales and purchases by and between POSCO Power and POSCO Affiliate to effect the sales of POSCO Products and POSCO Parts to customers shall be excluded only to the extent such POSCO Products or POSCO Parts are not put into use or operation by such POSCO Affiliate. If such POSCO Products or POSCO Parts are subsequently resold to third parties, such subsequent sale to the third party shall be included.

“ NewCo ” shall have the meaning set forth in the Alliance Agreement.

“ New DFC-Based Products ” shall have the meaning set forth in the Alliance Agreement.

“ New DFC-Based Technology ” shall have the meaning set forth in the Alliance Agreement.

“ New POSCO Parts ” shall have the meaning set forth in the Alliance Agreement.

“ New POSCO Products ” shall have the meaning set forth in the Alliance Agreement.

“ Non-Exclusive Territory ” shall mean the jurisdictions set forth in Schedule B hereto, it being understood and agreed that additional jurisdictions may be added, as mutually agreed by the Parties from time to time.

“ Party ” shall mean FCE or POSCO Power, or when used in the plural, FCE and POSCO Power.

“ Person ” shall mean any natural person, firm, partnership, association, corporation, company, joint venture, trust, business trust, Governmental Authority or other entity.

“ POSCO Affiliate ” shall mean each of those entities controlled by, or under common control with, POSCO Power, which may receive all or part of the FCE Technology in connection with this Agreement and the other Transaction Agreements, listed in Schedule A, as mutually agreed by the Parties, it being understood and agreed that additional entities may be added.

“ POSCO Parts ” shall mean any parts or components of POSCO Products other than the Fuel Cell Stack Module.

“ POSCO Power Facility ” shall mean the factory constructed by POSCO Power at which POSCO Parts are manufactured and POSCO Products are assembled.

“ POSCO Products ” shall mean any products, regardless of designation, which are the same as, or a modification or derivation in whole or in part of FCE Products.

“ POSCO Technology ” shall mean all inventions, know-how, trade secrets, data or information arising or developed independently, during the Term, by POSCO Power and POSCO Affiliates and (i) by any employee of POSCO Power or POSCO Affiliate or (ii) by POSCO Power or POSCO Affiliate vendors, subcontractors, consultants or suppliers (but only to the extent that POSCO Power or POSCO Affiliate has obtained an ownership right thereof), derived from or based on the FCE Technology, including, without limitation, technical information, know-how, inventions (whether patented or not), trade secrets, and other technical, engineering and design information and data, BOP system engineering design, data, detailed drawings, bill of material, system analytical models, system operating software, manufacturing plant data, vendor qualification and selection procedures, and quality assurance procedures.

“ Purchase Order ” shall mean a form of purchase order contract attached hereto as Exhibit C to be mutually agreed upon by the Parties pursuant to Section 4.1(c) of the Alliance Agreement, which form shall be used as a guide in preparing and finalizing the terms and conditions of each purchase order contract.

“ Royalty Determination Firm ” shall have the meaning set forth in Section 4.5.

“ Securities Purchase Agreement ” shall mean that certain Securities Purchase Agreement dated as of the date hereof between FCE and POSCO Power.

“Subsidiary” shall mean, with respect to any Person (for the purposes of this definition, the “parent”), any other Person (other than a natural person), whether incorporated or unincorporated, of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other persons performing similar functions is directly or indirectly owned by the parent or by one or more of its respective Subsidiaries or by the parent and any one or more of its respective Subsidiaries.

“ Technology Transfer Program ” or “TTP” shall mean that certain document containing the detailed terms and schedules relating to the transfer by FCE of FCE Technology, including the scope of assistance and support provided, to POSCO Power and POSCO Affiliates, as applicable, it being understood and agreed that, the TTP shall become part of this Agreement, as Exhibit A hereto, once the terms and conditions of which are mutually agreed upon pursuant to Section 4.1(d) of the Alliance Agreement.

“ Term ” shall have the meaning set forth in Section 8.2.

“ Transaction Agreements ” shall have the meaning set forth in the Alliance Agreement.

II. LICENSE GRANT

2.1 FCE Technology License .

(a) During the Term, and subject to the terms of this Agreement, FCE hereby grants to POSCO Power a non-exclusive right and license:

(i) to use the FCE Technology to construct, assemble, manufacture, use, sell, import, maintain, service and/or repair POSCO Parts and POSCO Products in the Korean Market; provided , however , that during the Term, FCE shall not (A) grant any right or license to any Korean Company to use the FCE Technology or (B) in any way extend the term of that portion of the right or license granted to any third party prior to the date hereof, which permits the use of the FCE Technology by any third party to do any of the above in the Korean Market;

(ii) to use the FCE Technology to sell, export, maintain, service and/or repair POSCO Parts and POSCO Products in the Non-Exclusive Territory; and

(iii) to have manufactured and assembled in the Korean Market, POSCO Products and POSCO Parts by POSCO Affiliates in Korea, subject to the execution by POSCO Affiliates of confidentiality agreements substantially similar to the terms and conditions set forth in Article XI of this Agreement.

(b) For the avoidance of doubt, the foregoing license consists of a right and license to use the FCE Know-How, and a right and license under the FCE Patents which cover the FCE Know-How, which are now owned or which may hereafter be acquired by, or granted to FCE and under which FCE has or may acquire the right to grant such a right and license.

(c) The license granted by FCE to POSCO Power under this Section 2.1 includes a sublicense of FCE’s rights under any and all licenses to FCE Technology pursuant to which such FCE Technology has been licensed to FCE (each a “Third Party License”; collectively, the “Third Party Licenses”), including, without limitation, that certain license agreement, dated July 16, 1998, by and between MTU and FCE. FCE shall be responsible for complying with all the terms and conditions of each Third Party License for which the licensee thereunder is responsible, including, without limitation, any such terms and conditions thereof relating to the payment of any royalties, milestones and the like by the licensee thereunder.

(d) At the request of POSCO Power, and upon consent by FCE, which consent shall not be unreasonably withheld, FCE shall designate any POSCO Affiliate indicated by POSCO Power as an additional licensee under this Agreement.

2.2 Distribution Rights . FCE hereby grants to POSCO Power or any POSCO Affiliate, as applicable, a non-exclusive right to distribute, sell, maintain, export/import, service and/or repair POSCO Parts, POSCO Products and FCE Products in the Korean Market and in the Non-Exclusive Territory during the Term, subject to certain distribution rights previously granted by FCE to other third parties; provided, however, that during the Term, FCE shall (i) not grant any new distribution rights for FCE Products for the Korean Market or (ii) in any way extend the term of any distribution rights granted to any third parties prior to the date hereof with respect to the Korean Market upon expiration or termination thereof. A list of all distribution rights granted by FCE prior to the date hereof is set forth in Schedule C attached hereto. FCE further agrees that it will not sell the FCE Products in the Korean Market or to any third party (except as permitted in the Alliance Agreement) which, in its reasonable judgment after due inquiry, may have an intention to re-sell the same in the Korean Market.

2.3 POSCO Technology License . POSCO Power hereby grants to FCE a non-exclusive paid-up license to manufacture, use and sell POSCO Technology during the Term; provided , however , that the FCE Products incorporate POSCO Technology under all patents of all countries under which POSCO Power during the Term, has or may acquire, the right to grant such licenses, and provided , further , that any sublicensing or resale by FCE of POSCO Technology to any Korean Company shall be subject to POSCO Power’s sole discretion. The Parties agree that FCE may transfer the POSCO Technology to a third party (other than MTU) for the sole purpose of further developing and improving the FCE Technology, provided that any such development or improvement shall be transferred to POSCO Power and that the third party shall not use or commercialize the POSCO Technology in the Korean Market, without the prior written consent of POSCO Power, which consent shall be given at POSCO Power’s sole discretion.

2.4 License to POSCO Power Upon Expiration of the Term . Upon expiration of the Term, FCE hereby agrees to continue and extend the grant and license, on a non-exclusive basis, to POSCO Power of all rights set forth under Sections 2.1 and 2.2 of this Agreement, subject to the payment by POSCO Power to FCE of royalties to be mutually determined by the Parties upon such expiration through commercially reasonable good faith efforts; provided , that in the absence of an agreed royalty determination within the sixty (60) day period immediately following the initial request by either Party to determine the royalties, the parties will submit to binding determination in accordance with Section 4.5. Such determination shall take into account any compensation owed by FCE to third parties.

2.5 License to FCE Upon Expiration of the Term . Upon expiration of the Term, POSCO Power hereby agrees to continue granting to FCE on a non-exclusive basis all rights set forth under Section 2.3 of this Agreement, subject to the payment by FCE to POSCO Power of royalties to be mutually determined by the Parties upon such expiration through commercially reasonable good faith efforts, taking into consideration the contribution of each Party to the POSCO Technology; provided, that in the absence of an agreed royalty determination within the sixty (60) day period immediately following the initial request by either Party to determine the royalties, the parties will submit to binding determination in accordance with Section 4.5.

2.6 Use of “FCE” Trademarks . During the Term, FCE grants POSCO Power the right to use “FCE” marks, in connection with the labeling, advertising or sale of POSCO Products and POSCO Parts that POSCO Products and POSCO Parts made by it are “manufactured under license of FUELCELL ENERGY, INC., U.S.A.”, or any other similar statement, to the extent that such is, in fact, the case. In addition, FCE hereby grants to POSCO Power a non-exclusive fully paid-up license and right to use, consistent with the terms of this Agreement, any and all trademarks and trade names owned by FCE and subject to appropriate provisions concerning protection of trademarks and trade names, including quality control. Further, POSCO Power agrees to co-brand with FCE the DFC Power Plants that POSCO Power may sell hereunder, by adding to the trademarks or brands affixed by POSCO Power to those DFC Power Plants the phrase “powered by FuelCell Energy”, or in any other mutually agreeable wording or form.

2.7 Transfer of Technical Data . FCE hereby agrees to provide POSCO Power, technical data and other information relating to the FCE Know-How in accordance with the terms of the TTP. FCE hereby agrees that it will supply or cause to be supplied to POSCO Power and POSCO Affiliates, as applicable, free of any charges, except as indicated in the TTP, full up-to-date information, to the extent available in documented form and in use at FCE, to FCE Technology in a form ( e.g. , drawings, standard operating procedures, blueprints, written memoranda, training of employees or personal consultation) that will satisfactorily and expeditiously accomplish the transfer of FCE Know-How to POSCO Power. FCE will supply all such information in a reasonably usable form and in the English language. In the event that POSCO Power requests, in writing, that FCE supply such information in a technical form that differs from the technical form in which FCE has previously supplied or offered to supply it, then POSCO Power agrees to reimburse FCE the actual costs and expenses incurred by FCE; provided, however, that POSCO Power will not be required to pay the costs of obtaining any such information if it is already available to FCE in the form requested by POSCO Power. At its sole discretion, POSCO Power may transfer to POSCO Affiliates the technical data described in this Section, for the purpose, and subject to limitations, set forth in Section 2.1(a)(iii) above.

2.8 Regular Exchange of Technical Data . During the Term, the Parties shall exchange on a regular basis certain technical data in connection with the performance of this Agreement, in accordance with the terms of the TTP.

III. OWNERSHIP OF INTELLECTUAL PROPERTY

3.1 Ownership of FCE Technology . POSCO Power acknowledges that all FCE Technology in and relating to the FCE Products, whether developed by or for FCE prior to or after the Effective Date of this Agreement, is and shall remain the property of FCE or its third party licensors.

3.2 Ownership of POSCO Technology . All inventions, know-how, trade secrets, data or information made, invented, conceived, created or otherwise developed by POSCO Power and POSCO Affiliates, as applicable, and their employees, derived or resulting from the FCE Technology shall be considered POSCO Technology and shall be the sole property of POSCO Power or POSCO Affiliates, as applicable. For the avoidance of doubt, it is understood and agreed that nothing contained herein shall convey ownership to POSCO of any FCE Technology from which such POSCO Technology is derived.

3.3 Joint Development . All inventions, know-how, trade secrets, data or information which result from joint development by the Parties hereto shall be jointly owned by the Parties. The Parties hereby agree to cooperate in good faith in the filing of any and all patent applications in all jurisdictions.

IV. ROYALTIES

4.1 Royalty Payments .

(a) Annual Royalty . In consideration of the license of FCE Technology granted herein, POSCO Power agrees to pay to FCE an annual royalty of ___ of the Net Sales (the “Annual Royalty”) during the Initial Term, subject to the Minimum Annual Royalty (defined below) provision set forth in Section 4.2 below. The Annual Royalty payment shall be paid by POSCO Power as follows:

(i) in cash equal to ____ of the Net Sales; and

(ii) in shares of the capital stock (“NewCo Stock”) of NewCo equal to _____ of the Net Sales, up to _____ of the total outstanding capital stock of NewCo, in accordance with the valuation procedure set forth below; it being understood and agreed that, if the NewCo Stock received by FCE in the aggregate reaches _____ of the total outstanding capital stock of NewCo, POSCO Power may, at its sole and absolute discretion, choose to pay the amount exceeding _____ of the Net Sales in either cash or NewCo Stock, or any combination thereof; it being further understood and agreed that , in the event the initial public offering of the capital stock of NewCo is not completed by POSCO Power within 5 years from the Effective Date, upon a written request by FCE, any Annual Royalty payments for the subsequent years shall be made in cash, in lieu of the NewCo Stock payment.

(b) Valuation . The Parties agree that the valuation of NewCo shall be determined by an internationally recognized accounting firm jointly selected and paid for by the Parties (“Parties Accounting Firm”). The Parties further agree that the valuation shall: (x) be undertaken no more than one time per year; (y) take place during June of each year; and (z) be the basis for determining the royalty payment in shares of NewCo Stock for the applicable calendar year. If the Parties dispute the valuation as determined by the Parties’ Accounting Firm, then the disputing Party has the right at its own expense to retain another internationally recognized independent accounting firm; and in such event, the valuation of NewCo shall be the average of the two valuations; provided , however, that the average of the two valuations shall not exceed by more than _____ of the difference between the valuations determined by the Parties Accounting Firm and the independent accounting firm.

(i) semi-annually and within forty-five (45) days of June 30 and December 31 of each year, in the case of cash royalty payments pursuant to Section 4.1(a)(i) or (ii) above; and

(ii) once a year and within sixty (60) days of December 31 of each year in the case of royalty payments in NewCo Stock pursuant to Section 4.1(a)(ii).

(d) The Parties acknowledge that although the royalty percentage set forth above in Section 4.1 shall be applicable, it may be difficult to ascertain the royalties in certain transactions. Such transactions may include, but are not limited to, transactions in which the POSCO Products and POSCO Parts are leased, loaned, bartered or exchanged for goods or services, transferred to a third party or any entity affiliated or closely associated with POSCO Power at a price other than market price or on terms other than in an arm’s length, or otherwise put into use by POSCO Power or POSCO Affiliates. The Parties shall use commercially reasonable good faith efforts to establish guidelines for determining the royalties for such transactions within sixty (60) days from the Effective Date, taking into consideration the principles of the Korean GAAP and U.S. GAAP and incorporating the principles of best accounting practices. If the Parties failed to agree as set forth herein, the Parties agree to abide by the procedures set forth in Section 4.5.

4.2 Minimum Annual Royalty . Beginning in 2009, POSCO Power shall pay to FCE the following minimum annual royalty (the “Minimum Annual Royalty”) for each of the following years, to the extent the Annual Royalty due and payable under Section 4.1(a) above at any given year is less than the Minimum Annual Royalty applicable for that year:


Year		Minimum Annual Royalty
2009
2010
2011
2012
2013
2014
2015
2016

The Parties agree that the Minimum Annual Royalty shall be paid within forty-five (45) days of December 31 of each year in which the Minimum Annual Royalty is due and payable; provided , however , the Parties agree that FCE shall forego a proportional amount of the Minimum Annual Royalty applicable for year 2009 in the event the completion of the POSCO Power Facility is delayed beyond the end of February, 2009; provided , further , that in no event shall the Minimum Annual Royalty for years 2010 through 2016 be less than shown above.

4.3 No Other Royalties, Payments, Etc . The Parties acknowledge and agree that, other than the Annual Royalty or the Minimum Annual Royalty, as applicable, and certain reasonable travel and related expenses to be reimbursed pursuant to the TTP, POSCO Power or any POSCO Affiliates shall not be liable for any fees, royalties, expenses or payments in connection with the license and distribution rights granted herein or the use by POSCO Power or POSCO Affiliates of the FCE Technology under this Agreement.

4.4 Royalty Report .

(a) Regular Reports . When rendering payment of the foregoing royalties, POSCO Power shall provide FCE with a written report showing the calculation of the royalty, the number of products to which the royalty is applicable. At its expense, FCE may, by its designated independent public accountants, audit the royalty amounts reported by POSCO Power no more than once a year. To the extent any sales are made by any POSCO Affiliates, POSCO Power agrees to furnish to FCE copies of relevant books and records of the POSCO Affiliates for the sole purpose of such audit by FCE.

(b) Final Report . POSCO Power shall deliver a written report to FCE within sixty (60) days of the termination or expiration of this Agreement, containing information relevant to the calculation of the royalties due under this Agreement; provided that such report shall include the Net Sales of POSCO Products or POSCO Parts that are sold and on order by POSCO Power on or prior to the date of termination or expiration and not previously reported to FCE, and such other information as may be necessary to determine the royalties due hereunder.

4.5 Royalty Determination Firm . The Parties agree that in case of any dispute with respect to the determination of royalty pursuant to Sections 2.4, 2.5, 4.1(d) and 9.6, any such determination shall be determined by an internationally recognized independent accounting firm jointly selected and paid for by the Parties (“Royalty Determination Firm”). If the Parties dispute the royalty amount determined by the Royalty Determination Firm, then the disputing Party has the right at its own expense to retain another internationally recognized independent accounting firm; and in such event, the determination of the royalty shall be the average of the two determinations, provided that, that the average of the two determinations shall not exceed by more than _____ of the difference between the royalty amount determined by the Royalty Determination Firm and the royalty amount determined by the independent determination firm.

V. SERVICE RESPONSIBILITY AND TRAINING

5.1 POSCO Power Service Responsibility . POSCO Power shall be responsible for providing preventive maintenance service on all POSCO Products for which BOP was manufactured in the United States by FCE and sold by POSCO Power in the Korean Market. In addition, POSCO Power shall be responsible for providing comprehensive maintenance services, including planned and unplanned maintenance services, for POSCO Products for which BOP was manufactured by POSCO Power in Korea. For the avoidance of doubt, the term “preventive maintenance” as used in this section shall consist of technical service, parts and consumables associated with preventative maintenance as specified in the maintenance manuals for the DFC Products published by FCE from time to time, or as required by FCE-issued service bulletins.

5.2 FCE Service Responsibility . FCE shall be responsible for 24-hour monitoring of all POSCO Products and FCE Products sold in Korea and for dispatching trained personnel to such sites in response to reports of problems with the operation of said POSCO Products and FCE Products which are covered either by the FCE factory warranty which is included with the equipment sale to the end use customer, or by a long term service contract. FCE shall not be responsible to perform maintenance services on the BOP portion of POSCO Products for which the BOP was manufactured by POSCO Power in Korea.

5.3 Long Term Service . FCE represents that it is the uniform global policy of FCE to require the purchaser of the FCE Product to also purchase a long term service contract. POSCO Power agrees that it will require the purchaser of the FCE Products to also purchase a long-term service contract. The commercial terms and conditions, including pricing, shall be negotiated by POSCO Power in consultation with FCE, using the LTSA as a guide. FCE further agrees that, beginning on the third anniversary from the Effective Date of this Agreement, and provided that POSCO Power (or NewCo if applicable) has met FCE’s requirements to become a factory certified service provider, which determination shall be made in good faith, it shall appoint POSCO Power as the sole provider of service support for all POSCO Products, POSCO Parts and FCE Products (excluding the Fuel Cell Stack Modules) in Korea and as a provider of service support for all POSCO Products and POSCO Parts in the Non-Exclusive Territory, it being understood and agreed that, any outstanding long-term service contract of FCE in the Korean Market shall be assigned to POSCO Power, to the extent such assignment is permitted pursuant to any such contract.

5.4 FCE Training . FCE agrees that for the three-year period from the Effective Date of this Agreement, it shall provide technical training in the on-site servicing of POSCO Parts and POSCO Products, including on-site and classroom training, pursuant to the TTP. The goal of such training is to enable POSCO Power to provide all services, with the exception of services related to the Fuel Cell Stack Module, beginning on the third anniversary of the Effective Date. FCE shall provide such on-site training to POSCO Power at no additional cost to POSCO Power, except for costs as indicated in the TTP. FCE shall not be responsible for providing training to POSCO Power personnel related to equipment not manufactured by FCE.

VI. GOVERNMENT REGULATIONS

6.1 POSCO Power Obligations . POSCO Power hereby agrees to comply with the U.S. Department of Commerce Export Administration Regulations concerning exportation and re-exportation of technical data (including computer software), direct products thereof or any components purchased hereunder to any countries or territories. POSCO Power hereby gives FCE the assurance required by the U.S. Department of Commerce Export Administration Regulations with respect to the U.S. origin technical information furnished by FCE hereunder and the direct product of such technical information.

6.2 FCE Obligations . FCE hereby agrees to comply with the U.S. Department of Commerce Export Administration Regulations concerning exportation and re-exportation of technical data (including computer software), direct products thereof or any components purchased hereunder to any countries or territories. FCE hereby gives POSCO Power the assurance required by the U.S. Department of Commerce Export Administration Regulations with respect to the U.S. origin technical information furnished by FCE hereunder and the direct product of such technical information.

VII. REPRESENTATIONS AND WARRANTIES

7.1 Representations and Warranties of FCE . FCE represents and warrants to POSCO Power that as of the date hereof and as of the Effective Date:

(i) It has all requisite right, power and authority, to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby;

(ii) The execution, delivery and performance by FCE of this Agreement, and the consummation by FCE of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of FCE and no other corporate actions or proceedings on the part of FCE are necessary to authorize this Agreement and the transactions contemplated hereby. Assuming due authorization, execution and delivery of this Agreement by POSCO Power hereto, this Agreement constitutes a legal, valid and binding obligation of FCE enforceable against it in accordance with its terms;

(iii) The execution, delivery and performance by FCE of this Agreement, and the consummation by FCE of the transactions contemplated hereby do not (a) violate any Applicable Law; (b) violate or conflict with any contract or agreement to which FCE is a party, including, but not limited to, any agreement with Marubeni Corporation and the FCE-MTU BOP License, upon receipt of the MTU Consent and Marubeni Settlement; (c) violate any Governmental Order; (d) require the approval, consent or permission of any Governmental Authority having authority over FCE except for the DOE Approval; or (e) violate FCE’s organizational documents;

(iv) Neither FCE or any of its Subsidiaries nor any director, officer, agent, employee or other Person acting on behalf of FCE or its Subsidiaries has, in the course of its actions for, or on behalf of, FCE or any of its Subsidiaries (a) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (c) violated or is in violation of in any material respect any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (d) made or received any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to or from any foreign or domestic government official or employee;

(v) To FCE’s knowledge after due inquiry, POSCO Power’s contemplated use of the FCE Technology under this Agreement does not infringe any valid rights of any third party, including but not limited to patent rights, copyrights, trademarks or other intellectual property rights owned or controlled by third parties in any country; and

(vi) The FCE Technology furnished to POSCO Power and POSCO Affiliates pursuant to this Agreement will correspond to the FCE Technology used by FCE in the manufacture of FCE Products. If any FCE Technology provided hereunder does not meet this requirement and POSCO Power notifies FCE, FCE shall correct the discrepancy at its own expense, by furnishing corrected FCE Technology.

7.2 Representations and Warranties of POSCO Power . POSCO Power represents and warrants to FCE that as of the date hereof and as of the Effective Date:

(i) It has all requisite right, power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby;

(ii) The execution, delivery and performance by POSCO Power of this Agreement, and the consummation by POSCO Power of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of POSCO Power and no other corporate actions or proceedings on the part of POSCO Power are necessary to authorize this Agreement, and the transactions contemplated hereby. Assuming due authorization, execution and delivery of this Agreement by FCE hereto and thereto, this Agreement constitutes a legal, valid and binding obligation of POSCO Power enforceable against it in accordance with its terms;

(iii) The execution, delivery and performance by POSCO Power of this Agreement, and the consummation by POSCO Power of the transactions contemplated hereby, do not: (a) violate any Applicable Law; (b) violate or conflict with any Contract to which POSCO Power is a party; (c) violate any Governmental Order; (d) require the approval, consent or permission of any Governmental Authority having authority over POSCO Power except for the DOE Approval; or (e) violate POSCO Power’s organizational documents; and

(iv) Neither POSCO Power or any of its Subsidiaries nor any director, officer, agent, employee or other Person acting on behalf of POSCO Power or its Subsidiaries has, in the course of its actions for, or on behalf of, POSCO Power or any of its Subsidiaries (a) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (c) violated or is in violation of in any material respect any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (d) made or received any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to or from any foreign or domestic government official or employee; and

(v) All work to be performed by POSCO Power in its manufacture, assembly and test activities hereunder shall be performed in accordance with FCE’s drawings, manufacturing practices, instructions and quality plans as furnished by FCE.

VIII. TERM

8.1 Term . The initial term of this Agreement (the “ Initial Term ”) shall commence on the Effective Date and shall continue, unless earlier terminated in accordance with the provisions set forth herein or in any Transaction Agreement, for a period of ten (10) years from the Effective Date.

8.2 Extension . The Initial Term may be extended for additional terms (each, “ Additional Term ”, and, together with the Initial Term, the “ Term ”), each for a period of three (3) years, by mutual agreement; provided that the first Additional Term shall be on terms and conditions no less favorable than those set forth in this Agreement and the other Transaction Agreements, as applicable. Any Additional Term, other than the first Additional Term, shall be on terms mutually agreed upon by the Parties. This Agreement shall be extended only if the Alliance Agreement is extended for the same period.

IX. TERMINATION

9.1 Termination by Mutual Agreement . This Agreement may be terminated, without any further obligation or liability:

(i) by mutual written agreement of the Parties;

(ii) if the Parties failed to reach agreement under Section 2.7(c) of the Alliance Agreement; or

(iii) if the conditions set forth in Section 4.1(a), (b) and (f) of the Alliance Agreement have not been secured or obtained by April 7, 2007.

9.2 FCE Termination by Material Breach of POSCO Power .

(a) Notwithstanding anything to the contrary contained herein or in any other Transaction Agreements, in the event POSCO Power materially breaches any representation or warranty or materially fails to perform any obligation or undertaking to be performed by it under this Agreement or any other Transaction Agreements and such material breach or failure is not cured within sixty (60) days after notice from FCE specifying the nature of the breach, then, FCE shall have the right to terminate this Agreement after complying with the procedures set forth in Article XIV below.

(b) FCE Remedy. In the event that FCE terminates this Agreement pursuant to this Section 9.2(a):

(i) FCE may retain all POSCO Technology, including all copies and summaries thereof, furnished by POSCO Power prior to such termination;

(ii) FCE shall have a non-exclusive perpetual license and right to use the POSCO Technology to manufacture and sell the FCE Products, only to the extent that FCE Products incorporate POSCO Technology, under all patents of all countries under which POSCO Power or POSCO Affiliates, as applicable, during the Term, has or may acquire the right to grant such licenses, provided that any sublicensing or resale to any Korean Company by FCE shall be subject to POSCO Power’s consent in its sole discretion, and provided , further , that the foregoing license shall be subject to the payment by FCE to POSCO Power of royalties to be mutually determined by the Parties in a commercially reasonable good faith manner, it being understood and agreed that if the Parties are unable to reach agreement within sixty (60) days following the initial request of FCE, the royalties determined pursuant to Section 4.5 above shall be final and binding upon the Parties;

(iii) POSCO further agrees that POSCO shall, at the request of FCE, continue to supply POSCO Products and POSCO Parts to FCE, if such are in production, on terms and conditions to be mutually agreed upon by the Parties in good faith; and

(iv) POSCO Power, on its own behalf and on behalf of POSCO Affiliates, shall pay FCE all royalty amounts then due and owning hereunder and all reimbursement amounts then due and owing under the TTP.

The foregoing provisions of this Section 9.2 represent the sole and exclusive remedy of FCE in the event of a material breach by POSCO Power.

9.3 POSCO Power Termination by Material Breach of FCE .

(a) In the event FCE materially breaches any representation or warranty or materially fails to perform any obligation or undertaking to be performed by it under this Agreement and any other Transaction Agreements and such material breach or failure is not cured within sixty (60) days after notice from POSCO Power specifying the nature of the breach, then, POSCO Power shall have the right to terminate this Agreement after complying with the procedures set forth in Article XIV below (except as noted below in Section 9.3(b)(i)).

(b) POSCO Power Remedy . In the event that POSCO Power terminates this Agreement pursuant to Section 9.3(a) above:

(i) If the FCE Technology has not been fully transferred to POSCO Power, as scheduled in the TTP, at the time of termination: (A) FCE shall promptly and in a commercially reasonable manner transfer to POSCO Power all of the remaining FCE Technology, and further acknowledge and agree that POSCO Power shall be entitled to seek and obtain from FCE the specific performance of FCE’s obligations under this section in the U.S. District Court for the Southern District of New York, or in the event that court lacks jurisdiction, in any competent court in the State of New York, if FCE fails to transfer the FCE Technology to POSCO Power, as set forth in the TTP; and (B) FCE shall pay to POSCO Power actual damages in an amount not to exceed US _____ if, for whatever reason, the specific performance remedy set forth herein is not available to POSCO Power; or

(ii) If the FCE Technology has been fully transferred to POSCO Power, as scheduled in the TTP, at the time of termination: (A) POSCO Power may retain all FCE Technology, including all copies and summaries thereof, furnished by FCE prior to such termination; and (B) POSCO Power shall have a non-exclusive perpetual license and right in and of the FCE Technology to construct, assemble, manufacture, use, sell, import, maintain, service and/or repair the POSCO Parts and POSCO Products in the Korean Market and to sell, maintain, service and/or repair the POSCO Parts and POSCO Products in the Non-Exclusive Territory, subject to the payment by POSCO Power of royalties, as set forth in the MTU Consent; and

(iii) FCE further agrees that FCE shall, at the request of POSCO Power, continue to supply Fuel Cell Stack Modules on terms and conditions to be mutually agreed upon by the Parties in good faith.

The foregoing provisions of this Section 9.3 represent the sole and exclusive remedy of POSCO Power in the event of a material breach by FCE. For the purpose of Section 9.3(b)(i) above, the Parties hereto consent to the jurisdiction of such court in respect of any action or proceeding thereunder.

9.4 Return of FCE Technology . In the event this Agreement is terminated pursuant to Section 9.1 or Section 9.2 above, POSCO Power shall return to FCE all FCE Know-How, including all copies and summaries thereof, furnished by FCE prior to such termination and shall not be permitted to make any further use of such FCE Technology.

9.5 Return of POSCO Technology . In the event this Agreement is terminated pursuant to Section 9.1 or Section 9.4 above, FCE shall return to POSCO Power all POSCO Technology including all copies and summaries thereof, furnished by FCE prior to such termination and shall not be permitted to make any further use of such POSCO Technology.

9.6 Survival . Upon expiration or termination of this Agreement as provided herein, or by operation of law or otherwise, all rights granted and all obligations undertaken hereunder shall terminate forthwith except the following provisions:

(i) Upon expiration of the Term, Sections 2.4 (‘License to POSCO Power Upon Expiration of the Term’), 2.5 (‘License to FCE Upon Expiration of the Term,) and 4.4(c) (‘Royalty Determination Firm’) and Articles III (‘Ownership of Intellectual Property’), IX (‘Termination’), X (‘Indemnification’), XI (‘Confidential Information’), XII (‘Notices’) and XIII (‘Entire Agreement’).

(ii) Upon termination of this Agreement, Section 4.4(c) (‘Royalty Determination Firm’), Articles III (‘Ownership of Intellectual Property’), IX (‘Termination’), X (‘Indemnification’), XI (‘Confidential Information’), XII (‘Notices’) and XIII (‘Entire Agreement’) and the full TTP.

X. INDEMNIFICATION

10.1 POSCO Power Obligations . POSCO Power shall indemnify and hold harmless FCE and its affiliates, officers, directors, members, employees and agents, against any and all judgments, damages, liabilities, costs and losses of any kind (including reasonable attorneys’ and experts’ fees) (collectively, “Losses”) that arise out of or relate to (i) any breach by POSCO Power of its representations or warranties or covenants under this Agreement, (ii) any claim, action or proceeding that arises from defects caused by the manufacture by POSCO Power or POSCO Affiliates of POSCO Products or POSCO Parts, or (iii) any claim, action or proceeding that arises from defects caused by the servicing by POSCO Power or POSCO Affiliates of the FCE Products; provided , however , that FCE must promptly notify POSCO Power in writing of any such claim, action or proceeding (but the failure to do so shall not relieve POSCO Power of any liability hereunder except to the extent that POSCO Power has been materially prejudiced therefrom). POSCO Power may elect, by written notice to FCE within ten (10) days after receiving notice of such claim, action or proceeding to assume the defense thereof with counsel acceptable to FCE. If POSCO Power does not so elect to assume such defense or disputes its indemnity obligation with respect to such claim, action or proceeding, or if FCE reasonably believes that there are conflicts of interest between FCE and POSCO Power or that additional defenses are available to FCE with respect to such defense, then FCE shall retain its own counsel to defend such claim, action or proceeding, at POSCO Power’s defense. POSCO Power shall reimburse FCE for expenses as these are incurred under this

Section. FCE shall have the right, at its own expense, to participate in the defense of any claim, action or proceeding against which it is indemnified hereunder; provided , however , that FCE shall have no right to control the defense, consent to judgment or agree to settle any such claim, action or proceeding without the written consent of POSCO Power unless FCE waives its right to indemnity hereunder. POSCO Power, in the defense of any such claim, action or proceeding, except with the written consent of FCE, shall not consent to entry of any judgment or enter into any settlement which (i) does not include, as an unconditional term, the grant by the claimant to FCE of a release of all liabilities in respect of such claims or (ii) otherwise adversely affects the rights of FCE.

10.2 FCE Obligations . FCE shall indemnify and hold harmless POSCO Power and its affiliates, officers, directors, members, employees and agents, against any and all judgments, damages, liabilities, costs and losses of any kind (including reasonable attorneys’ and experts’ fees) (collectively, “Losses”) that arise out of or relate to (i) any breach by FCE of its representations, warranties, covenants or agreements under this Agreement (it being understood and agreed that any indemnity with respect to the FCE Products shall be governed by a separate purchase order contract), (ii) any claim, action or proceeding that arises from or relates to the servicing by FCE of POSCO Products, POSCO Parts or FCE Products, (iii) any breach by FCE of its representations, warranties, covenants or agreements under the Marubeni Settlement or the MTU Consent or (iv) any claim, action or proceeding that arises from any licensor of FCE, including, without limitation, MTU, in or relating to the FCE Technology (it being understood and agreed that this obligation includes an obligation to take all necessary steps to ensure the continued use by POSCO Power of the FCE Technology, without interruption), provided , however , that POSCO Power must promptly notify FCE in writing of any such claim, action or proceeding (but the failure to do so shall not relieve FCE of any liability hereunder except to the extent that FCE has been materially prejudiced therefrom). FCE may elect, by written notice to POSCO Power within ten (10) days after receiving notice of such claim, action or proceeding to assume the defense thereof with counsel acceptable to POSCO Power. If FCE does not so elect to assume such defense or disputes is indemnity obligation with respect to such claim, action or proceeding, or if POSCO Power reasonably believes that there are conflicts of interest between FCE and POSCO Power or that additional defenses are available to POSCO Power with respect to such defense, then POSCO Power shall retain its own counsel to defend such claim, action or proceeding, at FCE’s defense. FCE shall reimburse POSCO Power for expenses as these are incurred under this Section. POSCO Power shall have the right, at its own expense, to participate in the defense of any claim, action or proceeding against which it is indemnified hereunder; provided , however , that POSCO Power shall have no right to control the defense, consent to judgment or agree to settle any such claim, action or proceeding without the written consent of FCE unless POSCO Power waives its right to indemnity hereunder. FCE, in the defense of any such claim, action or proceeding, except with the written consent of POSCO Power, shall not consent to entry of any judgment or enter into any settlement which (i) does not include, as an unconditional term, the grant by the claimant to POSCO Power of a release of all liabilities in respect of such claims or (ii) otherwise adversely affects the rights of POSCO Power.

10.3 Limitation of Damage . In no event, whether as a result of breach of contract, warranty, tort (including negligence), strict liability, indemnity, or otherwise, shall either Party or its subcontractors or suppliers be liable to the other Party for loss of profit or revenues, loss of use of the DFC Power Plant or any associated equipment, cost of capital, cost of substitute equipment, facilities, services or replacement power, downtime costs, claims of the indemnified Party’s customers for such damages, or for any special, consequential, incidental, indirect or exemplary damages.

XI. CONFIDENTIAL INFORMATION

11.1 POSCO Power Obligations . Subject to the exercise by POSCO Power of its rights in the FCE Technology under Article II, all written information marked “proprietary” or “confidential” (or if oral, subsequently reduced to a writing so marked and delivered to the receiving party within thirty (30) days of its oral disclosure) which FCE discloses to POSCO Power as a result of the provisions of this Agreement, whether contained in blueprints, drawings, written reports, letters or memoranda, process descriptions, operating procedures and other written data, shall be treated as confidential unless (a) such information shall have been in the possession POSCO Power prior to its receipt from the FCE, (b) such information is or becomes part of the public knowledge or literature through no fault of POSCO Power, or (c) such information shall otherwise become available to POSCO Power from a source other than FCE, said source not being violative of any obligation of secrecy with respect to such information. Information which is so considered to be confidential shall be held by POSCO Power for its sole benefit and used only in accordance with this Agreement; provided that POSCO Power may share proprietary or confidential information with POSCO Affiliates for the purpose set forth in Section 2.1(a)(iii) above; and, further provided , that POSCO Power shall cause POSCO Affiliates to restrict the use so as to be consistent with the terms of this Agreement and to restrict disclosure to its employees, on a need-to-know basis, of any confidential or proprietary information shared with POSCO Affiliates. POSCO Power shall use all reasonable efforts to prevent the use of all or any part of such confidential information belonging to FCE in any other connection or the transmission thereof to third parties unless and until it has first obtained the written consent of FCE specifically authorizing such use or transmission. The Parties understand that information may be provided which is subject to a confidentiality agreement with a third Party. The Parties agree that such information shall be held in confidence in accordance with the terms of the third Party confidentiality agreement. No Party shall be obligated to divulge third Party confidential information to the other Party. POSCO Power shall require, as a condition precedent to any agreement for any FCE Product or POSCO Product sale, lease, or other similar transaction, that the purchaser, lessor or customer for such transaction must agree to accept the terms of this paragraph, including the requirement for any subsequent purchaser to accept the terms of this paragraph. Any breach of the confidentiality provisions of this paragraph may be considered material breach of this agreement by the non-breaching party.

11.2 POSCO Affiliate . The Parties agree that each POSCO Affiliate shall enter into a confidentiality agreement with POSCO Power containing the terms that are substantially similar to the confidentiality provision set forth above.

11.3 FCE and POSCO Power Obligations . All obligations under this clause shall apply mutatis mutandis to the Parties.

XII. NOTICES

All notices pursuant to this Agreement shall be in writing and will be deemed to have been duly given if delivered personally or by internationally recognized courier service, or by facsimile to the parties at the addresses set forth below.

if to FCE, to:

FuelCell Energy, Inc.
3 Great Pasture Road
Danbury, CT 06813
Facsimile: (203) 825-6079
Attention: Ben Toby

with copy to:

FuelCell Energy, Inc.
3 Great Pasture Road
Danbury, CT 06813
Facsimile: (203) 825-6069
Attention: Ross Levine

if to POSCO Power, to:

POSCO Power
Dacom Building, 10 ^th Floor
706-1 Yeoksam-dong, Kangnam-gu
Seoul 135-987, Korea
Facsimile: 011-82-2-3457-1960
Attention: Taehyoung (TH) Kim

with copy to:

POSCO
POSCO Center
892 Daechi 4-Dong, Gangnam-Gu
Seoul, 135-777, Korea
Facsimile: 011-82-2-3457-1972
Attention: Bong-Han “Stephen” Kim, Esq

All notices under this Agreement that are addressed as provided in this Section (i) if delivered personally or by internationally recognized courier service, will be deemed given upon delivery or (ii) if delivered by facsimile, will be deemed given when confirmed. Either Party from time to time may change its address or designee for notification purposes by giving the other party notice of the new address or designee and the date upon which such change will become effective.

XIII. ENTIRE AGREEMENT

This Agreement, the Alliance Agreement and the Securities Purchase Agreement, including any Exhibits and Schedules attached hereto and thereto, and any other Transaction Agreements which are incorporated into this Agreement by this reference, constitute the full and complete statement of the agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, whether written or oral, between the parties with respect to the subject matter hereof. There are no representations, understandings or agreements relating to this Agreement that are not fully expressed in this Agreement other than those representations, understandings or agreements contained in the other Transaction Agreements. To the extent there is any inconsistency between this Agreement and any other Transaction Agreements, the provisions of this Agreement shall prevail.

XIV. APPLICABLE LAW AND ARBITRATION

14.1 Governing Law . This Agreement shall be governed by and construed in accordance with the substantive laws of the State of New York, U.S.A., without giving effect to any choice of law rules that may require the application of the laws of another jurisdiction.

14.2 Efforts to Resolve by Mutual Agreement . Any dispute, action, claim or controversy of any kind arising from or in connection with this Agreement or the relationship of the parties under this Agreement (the “Dispute”) whether based on contract, tort, common law, equity, statute, regulation, order or otherwise, shall be resolved as follows:

(i) Upon written request of either FCE or POSCO Power, the Parties shall meet and attempt to resolve any such Dispute. Such meetings may take place via teleconference or videoconference. The Parties shall meet as often as the Parties reasonably deem necessary to discuss the problem in an effort to resolve the Dispute without the necessity of any formal proceeding.

(ii) Formal proceedings for the resolution of a Dispute may not be commenced until the later of (i) the Parties concluding in good faith that amicable resolution through continued negotiation of the matter does not appear likely; or (ii) the expiration of a sixty (60) day period immediately following the initial request by either party to resolve the Dispute; provided , however , that this Section 14.2 will not be construed to prevent a party from instituting formal proceedings earlier to avoid the expiration of any applicable limitations period, to preserve a superior position with respect to other creditors or to seek temporary or preliminary injunctive relief.

14.3 ICC Arbitration . If the parties are unable to resolve any Dispute pursuant Section 14.2 above and except as otherwise specified in Section 9.3(b)(i), the Dispute shall be finally settled under the Rules of Arbitration (the “Rules”) of the International Chamber of Commerce (“ICC”) by three (3) arbitrators designated by the parties. Each party shall designate one arbitrator. The third arbitrator shall be designated by the two arbitrators designated by the parties. If either party fails to designate an arbitrator within thirty (30) days after the filing of the Dispute with the ICC, such arbitrator shall be appointed in the manner prescribed by the Rules. An arbitration proceeding hereunder shall be conducted in London, U.K., and shall be conducted in the English language. The decision or award of the arbitrators shall be in writing and is final and binding on both parties. The arbitration panel shall award the prevailing party its attorneys’ fees and costs, arbitration administrative fees, panel member fees and costs, and any other costs associated with the arbitration, the enforcement of any arbitration award and the costs and attorney’s fees involved in obtaining specific performance of an award; provided, however, that if the claims or defenses are granted in part and rejected in part, the arbitration panel shall proportionately allocate between the parties those arbitration expenses in accordance with the outcomes; provided, further, that the attorney’s fees and costs of enforcing a specific performance arbitral award shall always be paid by the non-enforcing party, unless the applicable action was determined to be without merit by final, non-appealable decision. The arbitration panel may only award damages as provided for under the terms of this Agreement and in no event may punitive, consequential and special damages (or as otherwise specified in this Agreement, including, without limitation, Section 10.3) be awarded. In the event of any conflict between the Rules and any provision of this Agreement, this Agreement shall govern.

14.4 Waiver of Jury Trial . The parties hereto hereby irrevocably waive, to the fullest extent permitted by Applicable Law, any and all right to trial by jury in any legal proceeding arising out of or relating to Section 9.3(b)(i).

XV. MISCELLANEOUS

15.1 Amendment . This Agreement may not be modified or amended except by a writing duly signed by the authorized representatives of both Parties.

15.2 Severability . In the event any one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect, said provision(s) shall be deemed severed and deleted here from and the validity, legality and/or enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

15.3 Government Information . Nothing in this Agreement shall authorize the disclosure of, or access to, classified or restricted information, material or know-how of the Government of the United States of America to persons not authorized or licensed to disclose or receive such classified or restricted information.

15.4 Independent Contractors . The Parties are independent contractors, and nothing contained in this Agreement shall be construed as (a) giving either Party the power to direct and control the day-to-day activities of the other, (b) constituting either Party as a partner, a joint venture, a co-owner or a fiduciary of the other or (c) creating any other form of legal association that would impose liability on one Party for the act or failure to act of the other or as providing either Party with the right, power or authority (express or implied) to create any duty or obligation of the other.

15.5 Assignment . This Agreement will be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. Neither Party may, nor will it have the power to, assign this Agreement, or any part hereof, without the prior written consent of the other Party, and any such unauthorized assignment shall be null and void, except that the Parties acknowledge and agree that POSCO Power may, without the consent of FCE and without assuming any obligations set forth in this Agreement and the other Transaction Agreements, assign its rights and obligations to NewCo. In the event of any other assignment of this Agreement by either Party, the assignee shall assume, in writing (in form and substance reasonably satisfactory to the other party), the rights and obligations of the assigning Party under this Agreement.

15.6 No Third Party Beneficiary . Except as expressly contemplated herein, this Agreement shall be binding upon and inure solely to the benefit of each Party hereto and nothing in this Agreement is intended to confer upon any other person or entity any rights or remedies of any nature whatsoever under or by reason of this Agreement.

15.7 Headings . The headings preceding the text of Articles and Sections included in this Agreement and the headings to Exhibits and Schedules attached to this Agreement are for convenience only and shall not be deemed part of this Agreement or be given any effect in interpreting this Agreement.

15.8 Right to Injunction; Specific Performance . The Parties further acknowledge and agree that POSCO Power will suffer irreparable harm, which is not compensable by monetary damage in the event the FCE Technology has not been fully transferred to POSCO Power at the time of the termination of this Agreement due to a material breach by FCE hereunder. Accordingly, the Parties agree that POSCO Power shall be entitled to an injunction or injunctions to enforce specifically the transfer of the FCE Technology to POSCO Power in accordance with Section 9.3(b)(i) above.

15.9 Force Majeure . Neither party shall be liable to the other for a failure to perform any of its obligations under this Agreement, except for payment obligations under this Agreement, during any period in which such performance is delayed due to a Force Majeure, and if such party notifies the other of the delay; provided, however, that in the event a period of Force Majeure restricts a party’s performance for greater than 120 days, the non-restricted party may terminate this Agreement without further cause and without liability for such termination. The date of delivery shall be extended for a period equal to the period of a delay due to Force Majeure, in addition to any additional time as may be reasonably necessary to overcome the effect of such excusable delay; provided, further, that the party seeking relief under this Section 15.9 shall promptly notify the other of the Force Majeure event, the anticipated resolution of such event, the actual resolution of such event and the actual impact on its obligations hereunder.

15.10 Marubeni; MTU . FCE hereby acknowledges and agrees to comply with the terms and conditions of the MTU Consent and the Marubeni Settlement to the extent that the failure to comply with such terms and conditions will adversely affect the rights of POSCO Power to which it is entitled under this Agreement and the other Transaction Agreements. POSCO Power hereby acknowledges and agrees to comply with the terms and conditions of the letter agreement to be entered into with Marubeni Corporation in connection with the Marubeni Settlement to the extent that the failure to comply with such terms and conditions will adversely affect the rights of FCE to which it is entitled under this Agreement and the other Transaction Agreements.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in a manner binding upon them by their duly authorized officers as of the date first above written.


FUELCELL ENERGY, INC.
By:	/s/ Robert Daniel Brdar
	Name:	Robert Daniel Brdar
	Title:	President, CEO and Chairman

POSCO POWER
By:	/s/ Seung-Woo Lee
	Name:	Seung-Woo Lee
	Title:	President & CEO

Technology Transfer, License and Distribution Agreement

EXHIBIT A (FORM OF TTP TO BE INSERTED WHEN AVAILABLE)

EXHIBIT B (FORM OF LTSA TO BE INSERTED WHEN AVAILABLE)

EXHIBIT C (FORM OF PURCHASE ORDER TO BE INSERTED WHEN AVAILABLE)

SCHEDULE A (POSCO Affiliates)

POSCO Affiliates shall include the following companies:

POSCON, a Korean corporation having a place of business at 606 Ho-dong Nam-gu, Pohang, Kyungbuk 790-719, Korea

POSMEC, a Korean corporation having a place of business at 322-4 Janghung-dong Nam-gu, Pohang, Kyungbuk 790-714, Korea

POSCO E&C, a Korean corporation having a place of business at 568-1 Goedong-dong Nam-gu, Pohang, Kyungbuk 790-704, Korea

POSTEEL, a Korean corporation having a place of business at 735-3 Posteel Tower Yeoksam-dong Gangnam-gu Seoul 135-080, Korea

SCHEDULE B (Non-Exclusive Territory)

The Non-Exclusive Territory shall include all countries and jurisdictions, except as noted below:

The Vatican State

Eastern Europe
Albania
Bulgaria
Czech Republic
Slovakia
Hungary
Poland
Romania
All states of the former USSR
Yugoslavia
Slovenia
Croatia

Asia
Japan

Middle East

Bahrain
Iran
Iraq
Israel
Jordan
Kuwait
Lebanon
Oman
Qatar
Saudi-Arabia
Syria
Turkey
Yemen, Arab Rep.
Yemen, Peoples Rep.
United Arab Emirates (UAE)

North America
United States
Canada
Mexico

SCHEDULE C (FCE Previously Granted Distribution Rights)


				Rights in	Needs
Distributor	Type of Agreement	Effective Date	Expiration	Korea	extension?

Exhibit 10.3

LOAN AGREEMENT

THIS LOAN AGREEMENT is made and entered into this 29 ^th day of April, 2008, by and between FUELCELL ENERGY, INC ., a Delaware corporation having its chief executive office and principal place of business at 3 Great Pasture Road, Danbury, Connecticut 06813 (the “Borrower”), and the CONNECTICUT DEVELOPMENT AUTHORITY, a body politic and corporate constituting a public instrumentality and political subdivision of the State of Connecticut, having an office at 999 West Street, Rocky Hill, Connecticut 06067 (the “Authority”).

WITNESSETH:

WHEREAS, the Borrower has requested that the Authority lend it the sum of up to FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00) from the Connecticut Works Fund established under Section 32-23ii of the Connecticut General Statutes (the “Loan”); and

WHEREAS, the Authority has agreed to make the Loan upon the terms and conditions hereinafter set forth in order to stimulate and encourage the growth and development of the economy of the State of Connecticut; and

WHEREAS, the State of Connecticut Department of Economic and Community Development (the “DECD”) may purchase a $2,000,000.00 participation interest in the Loan and, to the extent that it does so, the DECD’s undivided participation interest with respect to the Loan and the other Loan Documents (as such term is defined below) shall be governed by the terms and provisions of the Master Participation Agreement described in Section 5 below;

NOW, THEREFORE, in consideration of the promises and the mutual covenants herein contained, the Borrower and the Authority agree as follows:

SECTION 1

THE LOAN

1.1. The Authority shall make the Loan in accordance with the terms and conditions set forth in this Loan Agreement, which Loan shall be evidenced by a promissory note from the Borrower to the Authority in the original principal amount of $4,000,000.00, dated as of the date hereof (the “Note”). The Loan shall be secured by (i) the machinery and equipment (including computer and related equipment) acquired by the Borrower with the proceeds of the Loan and (ii) certain other machinery and equipment owned by the Borrower and acceptable to the Authority having a fair market of at least $4,000,000.00 (including, without limitation, all of the machinery and equipment owned by the Borrower and presently subject to a security interest in favor of the Authority) (collectively, the “Collateral”), all as more fully described in a security agreement of even date herewith, executed by the Borrower in favor of the Authority (the “Security Agreement”). To the extent required by Connecticut Public Act 94-231, the Borrower and the Authority, on or prior to the date hereof, are executing and delivering a joint statement as to the number of jobs to be created and retained by Borrower in the State of Connecticut, the Authority’s public policy objectives in extending financial assistance to the Borrower, and such other information as is required by Public Act 94-231 (the “Joint Statement”). This Loan Agreement, the Note, the Security Agreement, the Joint Statement and the other documents set forth in Exhibit A are together sometimes referred to herein as the “Loan Documents”.

1.2. Contemporaneously with the execution and delivery of this Loan Agreement, the Borrower will execute and deliver to the Authority the Loan Documents to which it is a party and such other documents to which it is a party as are requested by the Authority. The Borrower will ensure that all other documents set forth in Exhibit A will be executed and delivered to the Authority contemporaneously with the execution and delivery of this Loan Agreement. All of the Loan Documents shall be in form and content reasonably acceptable to the Authority.

1.3. The closing (the “Closing”) of the Loan is being conducted by the Authority’s special counsel, Carmody & Torrance LLP of Waterbury and New Haven, Connecticut. The Closing is being held on the date of execution of this Loan Agreement (the “Closing Date”), at the offices of Carmody & Torrance LLP in Waterbury, Connecticut. The proceeds of the Loan shall be advanced by the Authority to the Borrower in one or more future advances, each in an amount of not less than $500,000.00, over the eighteen (18) month period following the Closing Date at such time(s) that the Borrower complies, to the full satisfaction of the Authority, with the conditions to funding set forth in Section 1.4 below with respect to each such advance; it being understood that the Authority shall have no obligation to fund any advances to the Borrower on account of the Loan unless all of the conditions precedent to such advance have been met by the Borrower to the full satisfaction of the Authority. Each future advance by the Authority to the Borrower on account of the Loan shall be evidenced by the Note. The aggregate principal amount of all advances by the Authority to the Borrower on account of the Loan shall not exceed the sum of $4,000,000.00. The Authority shall have no obligation to make any future advances to the Borrower on account of the Loan after October 31, 2009.

1.4. To the extent that (i) no Event of Default (as defined below) has occurred and is continuing as of such date, (ii) no state of facts exist as of such date which, with the passage of time or the giving of notice, or both, would constitute an Event of Default, and (iii) there has been no material adverse change in the financial, business or operating condition of the Borrower as of such date, the Authority shall make one or more future advances to the Borrower on account of the Loan, each advance to be in an amount of at least $500,000.00, at such time that the Borrower has satisfied each of the following conditions precedent (to the full satisfaction of the Authority):

(a) The Borrower has purchased machinery and equipment (including computer and related equipment) to be used by it in its manufacturing operations at 539 Technology Park Road, Torrington, Connecticut 06790 (the “Torrington Facility”) (the “Equipment”), and the Equipment has been installed in and is in working order in the Torrington Facility;

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(b) The amount of the advance on account of the Loan requested by the Borrower does not exceed ninety percent (90%) of the acquisition cost of such Equipment (excluding applicable sales tax, delivery and installation charges for such Equipment);

(c) The Borrower has prepared and delivered to the Authority an updated Schedule A to the Security Agreement and Schedule A to the UCC-1 financing statement describing the Equipment acquired by the Borrower with the proceeds of such advance, and authorized the Authority to file any and all UCC-3 amendment statements deemed reasonably necessary by the Authority and its legal counsel;

(d) The Borrower has reimbursed the Authority for all additional post-Closing reasonable attorneys’ fees, filing/recording fees and other expenses incurred by the Authority in connection with funding the requested advance on account of the Loan; and

(e) All of the representations and warranties of the Borrower set forth in Section 2 hereof are true and correct in all material respects as of the date of such requested advance.

1.5. In the event that the DECD fails to purchase its contemplated $2,000,000.00 participation interest in the Loan by April 30, 2009, then, effective as of May 1, 2009, the interest rate on the Loan shall increase by one percent (1%) to six percent (6%) per annum, and such increased interest rate per annum shall remain in effect thereafter until the Loan is paid and satisfied in full.

1.6. If at the Closing the Borrower fails to deliver the Note to the Authority, or if any of the conditions precedent to the closing of the Loan specified herein have not been fulfilled by the Borrower, then the Authority may thereupon elect to be relieved of all further obligations under this Agreement, but the Borrower shall remain liable for the costs and expenses set forth in Section 6.5 hereof.

SECTION 2

WARRANTIES AND REPRESENTATIONS
OF THE BORROWER

The Borrower represents and warrants to the Authority as follows:

2.1. The Borrower is a corporation duly incorporated and validly existing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation in the State of Connecticut and in each other jurisdiction in which it owns assets or conducts its business. The Borrower has all requisite power and authority to conduct its business as presently conducted and to own its property.

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2.2. The Borrower has the power and authority to enter into and perform this Loan Agreement and the other Loan Documents, and to incur the obligations herein or therein provided for. The execution, delivery and performance by the Borrower of the Loan Documents have been duly authorized by all necessary corporate action and do not and will not violate any law or the Certificate of Incorporation or the Bylaws of Borrower or any agreement, instrument or evidence of indebtedness to which it is a party or by which it is bound or by which any of its properties may be affected. The Loan Documents, when executed and delivered, will be legal, valid and binding obligations of the Borrower, enforceable against it in accordance with their respective terms, except as the enforceability thereof may be limited by the (i) effect of applicable bankruptcy, insolvency, reorganization and similar laws relating to or affecting creditors’ rights generally and court decisions with respect thereto, and (ii) application of equitable principles in any proceeding (regardless of whether such enforceability is considered in a proceeding in equity or at law) and in the application of which a court, among other things, might require any party hereto to act with reasonableness and in good faith. The Borrower will deliver at Closing an opinion from its legal counsel with respect to the foregoing and with respect to such other matters as the Authority may reasonably require, in form and substance satisfactory to the Authority.

2.3. No consent, license or approval from any governmental authority is or will be necessary for the valid execution, delivery and performance by the Borrower of the Loan Documents to which it is a party.

2.4. There has been no material adverse change in the financial condition of the Borrower since the date of its application to the Authority and the DECD for the Loan, except that the Borrower has continued to incur losses on its income statement in the period between the date of application for the Loan and the Closing, consistent with its past history. All financial statements, including, without limitation, balance sheets, income statements and cash flow statements, delivered to the Authority and the DECD in connection with Borrower’s application for the Loan are correct and complete and fairly present the financial position and results of operations of the Borrower at the times of and for the periods reflected by such financial statements. The financial statements and all other written statements furnished by the Borrower to the Authority and the DECD in connection with the Loan do not contain any untrue statement of material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact which the Borrower has not disclosed to the Authority (or to the DECD) in writing which materially and adversely affects the business operations or financial condition of the Borrower.

2.5. There are no actions, suits or proceedings pending or threatened against it before any court or other federal, state, municipal or other governmental authority or before any arbitrator(s) that if adversely determined against the Borrower would have a material adverse effect on the business, operations or financial condition of the Borrower (a “Material Adverse Effect”). The Borrower is not in default with respect to any order of any court, arbitrator or governmental body.

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2.6. The Borrower is not in default in the performance, observance or fulfillment of any of the terms, obligations, covenants, conditions or provisions contained in any agreement or instrument to which the Borrower is a party or to which its property is subject, which default, together with all such defaults, singly or in the aggregate, will have a Material Adverse Effect on the Borrower.

2.7. The Borrower has filed all Federal, state and municipal income and other tax returns which are required to be filed, and has paid, or made provision for the payment of, all taxes which have become due pursuant to said returns, except such taxes, if any, which are being contested in good faith and as to which adequate reserves have been provided.

2.8. The Borrower has complied with all applicable statutes, rules, regulations, orders and restrictions of any governmental entity, instrumentality or agency having jurisdiction over the conduct of its business or the ownership of its property, the noncompliance with which will have a Material Adverse Effect.

2.9. No Event of Default (as defined herein) has occurred or is continuing, and the Borrower does not have any knowledge of any currently existing facts or circumstances which, with the passage of time or the giving of notice, or both, would constitute an Event of Default.

2.10. The Borrower has all franchises, permits, licenses and other similar authorizations necessary for the conduct of its business as now being conducted by it, and the Borrower is not in violation, nor will the transactions contemplated by this Loan Agreement or the other Loan Documents to which it is a party cause a violation, of the terms or provisions of any such franchise, permit, license or other similar authorization.

2.11. The Borrower’s chief executive office and principal place of business is at the location described in the recitals to this Loan Agreement.

2.12. All statements contained in any of the Loan Documents shall constitute representations and warranties made under this Loan Agreement. All representations and warranties made under this Loan Agreement shall survive the execution and delivery hereof.

2.13. The Borrower has good and marketable title to its properties and assets. The Collateral is free and clear of any mortgage, security interest, pledge, lien, lease, encumbrance or charge.

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SECTION 3

COVENANTS OF THE BORROWER

The Borrower covenants that on and after the Closing and for so long as any part of the Loan remains outstanding:

3.1. The Borrower will preserve and maintain its existence as a corporation duly organized and validly existing under the laws of the State of Delaware and will remain qualified to do business and in good standing in the State of Connecticut and in each other state or other jurisdiction in which it conducts its business.

3.2. The Borrower will notify the Authority promptly of any material adverse change in the financial condition or business operations of the Borrower.

3.3. The Borrower will pay the Note and all other amounts owing under the Loan Documents according to their terms and comply with each provision of this Loan Agreement and each provision of the other Loan Documents binding upon it.

3.4. The Borrower will promptly pay and discharge when due and payable all taxes, assessments and governmental charges levied or imposed upon it, its property, or any part thereof, or upon its income or profits, or any part thereof, as well as all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a lien or charge upon its property, provided that such items need not be paid while being contested by the Borrower in good faith and by appropriate legal proceedings so long as adequate reserves have been established with respect thereto and the Borrower’s title to, and its right to use, its property is not materially and adversely affected thereby.

3.5. The Borrower will not create, incur, assume or suffer to exist any indebtedness for borrowed money except for indebtedness described on Schedule 3.5 hereto (the “Permitted Indebtedness”). The Borrower will not, without the prior written consent of the Authority, either directly or indirectly, incur, create, assume or permit to exist any mortgage, pledge, lien, charge, security interest or other encumbrance of any nature whatsoever on any of the Collateral now owned or hereafter acquired.

3.6. The Borrower will not, either directly or indirectly, guarantee, endorse, become surety for, or otherwise be or become responsible for the obligations of any other person or entity, whether by agreement to purchase the indebtedness of any other person, or agreement for the furnishing of funds to any other person or entity, directly or indirectly, through the purchase of goods, supplies or services (or by way of stock purchase, capital contribution, advance or loan) or for the purpose of paying or discharging the indebtedness of any other person or entity or otherwise, except for (i) the endorsement by the Borrower of negotiable instruments for collection in the ordinary course of business, and (ii) travel, relocation and other minor business expenses incurred in the ordinary course of business for the benefit of employees of the Borrower.

3.7. The Borrower shall pay all of its material debts as they become due.

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3.8. The Borrower will comply in all material respects with all laws and regulations applicable to it, its properties and/or its business. In addition to the foregoing, the Borrower will comply with, to the extent applicable to the Borrower, the additional requirements set forth in Schedule 3.8 attached hereto.

3.9. The Borrower covenants and agrees that it will use the proceeds of the Loan for purposes consistent with the description provided in the Borrower’s application to the Authority and the DECD for financial assistance.

3.10. The Borrower will maintain fire, extended coverage, and other hazard insurance policies (including flood insurance if required by the Authority) and maintain liability insurance in form and amount satisfactory to the Authority. Liability insurance shall be in an amount not less than $1,000,000.00 for injury to or death of any one person and $1,000,000.00 for each occurrence in respect of personal injury or death and $250,000.00 for each occurrence of property damage. Without limiting or qualifying any other provision in this Loan Agreement or in the other Loan Documents, all insurance shall be maintained in amounts and manner consistent with the practice and policy of companies engaged in the same or similar businesses in the same or similar locations. Each policy of insurance shall include a clause that it cannot lapse or be canceled or modified except upon at least thirty (30) days’ prior written notice to the Authority. Each policy of insurance shall be issued by a company licensed to provide such insurance in the State of Connecticut and acceptable to the Authority and shall be satisfactory in form to the Authority. A copy of each policy of insurance shall be delivered to the Authority at the time of execution of this Loan Agreement. The Authority shall be named as loss payee and as an additional insured on such liability insurance policy.

3.11. The Borrower will indemnify and hold harmless the Authority and the State of Connecticut and its successors, assigns, officers, directors, employees and agents from and against any liabilities, losses, damages, costs or expenses, including reasonable attorneys’ fees and costs, arising out of or in connection with the presence of hazardous waste on or in any of the Collateral, or any lien or claim under Section 22a-452a of the Connecticut General Statutes, as amended, or other federal, state or municipal statute, regulation, rule, law or proceeding relating to environmental matters, which indemnity shall survive realization on any of the Collateral, payment in full of the Loan, and termination, exercise and/or release of the Loan Documents, whichever occurs last, at which time such indemnity shall terminate. This Section 3.11 shall not limit any Environmental Indemnity Agreement or similar document, however denominated, that the Borrower may now or hereafter make and/or deliver to the Authority and the DECD.

3.12. Upon the request of the Authority, the Borrower will execute and deliver or cause to be executed and delivered such further documents and instruments and do such further acts and things as the Authority may reasonably request in order to effectuate more fully the purposes of this Loan Agreement and the express rights of the Authority hereunder to vest more completely in and assure to the Authority its rights under this Loan Agreement and the other Loan Documents. Without limiting the generality of the foregoing, the Borrower hereby authorizes the Authority to file and/or record such financing statements, agreements, notices or other documents or instruments as the Authority shall deem necessary or desirable to create, preserve, protect, maintain or enforce its rights and interests in and its liens on the Collateral. The Borrower shall pay the cost of filing and recording, or refiling and re-recording, such documents and instruments in all public offices in which such filing or recording, or refiling or re-recording, is deemed by the Authority to be necessary or desirable.

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3.13. The Borrower will notify the Authority promptly of the occurrence of any default hereunder or under any of the other Loan Documents and of the actions it intends to take in order to cure such default, and will notify the Authority within thirty (30) days of becoming aware of any default under any other material document, instrument, or agreement to which the Borrower or its properties are subject which would have a Material Adverse Effect on the Borrower.

3.14. The Borrower will not discontinue its business, be dissolved or otherwise suffer or permit any termination of its corporate existence. In particular, the Borrower shall not “relocate” its business operations outside the State of Connecticut as more fully described in Section 3.19 hereof.

3.15. Without the Authority’s prior written consent, the Borrower shall not permit the transfer of shares of its capital stock, nor issue any additional shares of capital stock, nor redeem or otherwise retire any shares of its capital stock if such event would result in a “change in control” in the stock ownership of the Borrower. For purposes hereof, a “change in control” of the stock ownership of the Borrower shall occur if any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”)), other than the Borrower, is or becomes the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty-one percent (51%) or more of the capital stock of the Borrower.

3.16. The Borrower shall deliver to the Authority, within the applicable filing period for each such report, (a) a true and correct copy of its Form 10-K submitted by the Borrower to the Securities and Exchange Commission (“SEC”) (together with all schedules and notes attached thereto); and (b) a true and correct copy of its Form 10-Q submitted by the Borrower to the SEC (together with all schedules and notes attached thereto). The Borrower will promptly file when due and deliver to the Authority, within thirty (30) days after filing same, copies of the Borrower’s State of Connecticut Employee Quarterly Earnings Reports (Form UC-5A).

3.17. The Borrower is and will remain in compliance with the Affirmative Action Policy heretofore approved by the Authority.

3.18. The Authority shall from time to time, in its discretion, during regular business hours and upon reasonable prior notice to the Borrower, have the right of making an inspection of the Collateral, and the Borrower shall assist the Authority in said inspection and shall make available such books and other records relating to the Collateral and the Borrower’s obligations to the Authority hereunder as the Authority may reasonably request.

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3.19. The Borrower hereby acknowledges and agrees that the Loan is extended subject to the terms of Section 32-5a of the Connecticut General Statutes, as amended by Public Act 93-218 and Public Act 93-360, and further hereby covenants and agrees that (a) if the Borrower relocates its manufacturing operations at the Torrington Facility or its corporate headquarters in Danbury, Connecticut outside of the State of Connecticut, at any time during the ten (10) year period following the date hereof (the “Benefit Period”), the Borrower shall immediately pay to the Authority (i) all outstanding principal of the Note, accrued interest thereon and all other amounts payable to the Authority under this Loan Agreement, the Note and the other Loan Documents, if any, plus (ii) a penalty equal to seven and one-half percent (7.5%) of the aggregate principal amount of the Loan (whether or not any amount then remains outstanding under this Loan Agreement, the Note or the other Loan Documents), and (b) if the Borrower relocates it manufacturing operations at the Torrington Facility or its corporate headquarters in Danbury, Connecticut within the State of Connecticut during the Benefit Period, the Borrower shall offer employment at the new location(s) to its employees from the prior location(s), if such employment is available. As used herein, the term “relocate” shall have the meaning given such term by Connecticut General Statutes Section 32-5a, and regulations related thereto, as the same may be amended from time to time. If the Borrower decides to relocate its present business operations in the State of Connecticut to one or more locations outside of the State of Connecticut at any time during the Benefit Period, the Borrower agrees to provide the Authority with immediate written notice of its intent to relocate its business operations, together with such other information concerning such relocation as the Authority may request. The provisions of this Section 3.19 shall survive the payment in full of the principal of the Note, interest thereon and all other amounts payable under this Loan Agreement, the Note and the other Loan Documents and termination of this Loan Agreement.

3.20. To induce the Authority to make the Loan to the Borrower, the Borrower has represented in writing to the Authority that it intends to employ at least five hundred (500) permanent full-time employees in the State of Connecticut (the “Employment Threshold”) by the third (3 ^rd ) anniversary of the Closing Date (the “Employment Threshold Determination Date”). To the extent that the Borrower fails to attain the Employment Threshold by the Employment Threshold Determination Date, then the Borrower shall pay to the Authority a penalty with respect to the Loan equal to $1,000.00 multiplied by that number of permanent full-time employees employed by the Borrower in the State of Connecticut as of the Employment Threshold Determination Date which is less than the Employment Threshold. Any payments by the Borrower to the Authority under this Section 3.20 shall be treated as a mandatory prepayment of the Loan and shall be applied to the installment payments on account of the Loan most remotely becoming due.

3.21. The Borrower shall immediately pay to and reimburse the Authority for any and all reasonable attorneys’ fees incurred by the Authority in connection with the administration of the Loan and the enforcement of the Authority’s rights and remedies hereunder and under the other Loan Documents.

3.22. For all state contracts as defined in Public Act 07-1 having a value in a calendar year of $50,000.00 or more or a combination or series of such agreements or contracts having a value of $100,000.00 or more, the Borrower’s authorized signatory of this Loan Agreement hereby expressly acknowledges receipt of the State Elections Enforcement Commission’s notice advising state contractors of state campaign contribution and solicitation prohibitions, and will inform its principals of the contents of such notice. A copy of SEEC Form 11 is attached hereto as Schedule 3.22 .

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3.23. The Borrower shall deliver to the Authority, at Closing, resolutions adopted by its directors stating that such governing body has adopted a policy to support the nondiscrimination agreements and warranties required under Connecticut General Statutes § 4a-60(a)(1) and § 4a-60a(a)(1), as amended in State of Connecticut Public Act 07-245 and Sections 9(a)(1) and 10(a)(1) of Public Act 07-142.

SECTION 4

DEFAULT AND REMEDIES

4.1. Each of the following is an Event of Default under this Loan Agreement:

(a) the failure of the Borrower to make payment of any installment of principal and/or interest due under the Note within ten (10) days after the same is due;

(b) the failure of the Borrower to pay any other amount due the Authority within ten (10) days after the same is due;

(c) the inaccuracy in any material respect of any representation made by or on behalf of the Borrower in the loan application, this Loan Agreement or any of the other Loan Documents;

(d) the material breach by the Borrower of any its warranties in Section 2 of this Loan Agreement or in any of the other Loan Documents, which is not cured by the Borrower within thirty (30) days after the Borrower becomes aware of such material breach;

(e) the failure of the Borrower to observe or perform any other covenant or obligation of the Borrower in this Loan Agreement, including, but not limited to, Section 3 hereof, or in any of the other Loan Documents, and, with respect to the covenants set forth in Sections 3.2, 3.4, 3.8, 3.11, 3.12 and 3.17, such breach or default is not cured by the Borrower within thirty (30) days after the Borrower becomes aware of such breach or default;

(f) the failure of the Borrower generally to pay its debts as such debts become due;

(g) the entry of a decree or order for relief by a court having jurisdiction in respect of the Borrower in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency or other similar law, or the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Borrower or for any substantial part of the Borrower’s properties, or the issuance of an order for the winding-up or liquidation of the affairs of the Borrower and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) days; or upon the commencement by the Borrower of a voluntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or the consent by the Borrower to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Borrower or for any substantial part of the Borrower or the making by the Borrower of any assignment for the benefit of creditors, or the taking of corporate action by the Borrower in furtherance of any of the foregoing;

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(h) a final, unappealed judgment shall be entered against the Borrower by any court for the payment of money which is not satisfied within thirty (30) days after judgment and which, together with all such other outstanding judgments against the Borrower exceeds $50,000.00 in the aggregate, or a tax lien shall be filed, or a warrant of attachment or execution or similar process shall be issued or levied, against property of the Borrower, which together with other such property subject to other such tax liens or process, exceeds a value of $50,000.00 in the aggregate;

(i) at any time after the Closing, this Loan Agreement or any of the other Loan Documents shall fail to be the legal, valid, binding, and enforceable obligation of the Borrower;

(j) the Borrower relocates (as defined in Section 3.19 of this Agreement) its manufacturing operations at the Torrington Facility and/or its corporate headquarters in Danbury, Connecticut during the Benefit Period (as defined in Section 3.19 of this Agreement) (A) outside of the State of Connecticut; or (B) within the State of Connecticut (to different locations) and does not offer employment at the new location(s) to its employees from the prior location(s) if such employment is available;

(k) if the Borrower shall dissolve or liquidate, or be dissolved or liquidated, or cease to legally exist, or merge or consolidate, or be merged or consolidated with or into any corporation or entity without the prior written consent of the Authority; or

(l) a default or an event of default shall occur under any of the other Loan Documents, and shall not be cured by the Borrower within any applicable cure or grace period.

4.2. In addition to, and not in limitation of, any other term of this Loan Agreement or any other right or remedy hereunder or under any other Loan Document or in accordance with law, upon the occurrence of any Event of Default and during the continuance thereof:

(a) the whole of the principal sum and accrued interest on the Note, and all other amounts owed to the Authority, at the option of the Authority and without notice, demand or legal process of any kind, shall become and be immediately due and payable;

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(b) the Authority may proceed to enforce the performance or observance of any obligations, agreements or covenants of the Borrower in this Loan Agreement or any of the other Loan Documents, and to collect the amounts then due and thereafter to become due;

(c) in the event of a default under Section 4.1(j) of this Agreement, in addition to the other remedies available to the Authority under this Loan Agreement, the other Loan Documents, at law or in equity, the Authority shall be entitled to recover, in addition to all other sums due and owing, the seven and one-half percent (7.5%) penalty referenced in Section 3.19 of this Loan Agreement, which penalty shall be immediately due and payable.

4.3. No failure to exercise or delay in exercising any right, power or remedy of the Authority under this Loan Agreement or any of the other Loan Documents shall operate as a waiver thereof, nor shall any partial exercise of any right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The failure of the Authority to insist upon the strict observance or performance of any provision of this Loan Agreement or of any of the other Loan Documents shall not be construed as a waiver or relinquishment of such provision. The rights and remedies provided herein and in the other Loan Documents are cumulative and not exclusive of any other rights or remedies provided at law or in equity.

4.4. If the Authority should obtain a judgment because of a breach of any covenant contained in this Loan Agreement or any of the other Loan Documents, or a judgment because of a default in payment under the Note, then interest shall accrue on said judgment at the interest rate set forth in the Note or as is provided by statute, whichever rate shall be greater at that time.

SECTION 5

RELATIONSHIP BETWEEN THE AUTHORITY
AND THE DECD

5.1. The Borrower hereby acknowledges that the Authority and the DECD have heretofore entered into a Master Participation Agreement dated as of August 22, 1997, a copy of which is on file at the Authority’s office (the “Master Participation Agreement”). The Borrower further acknowledges that the relationship between the Authority and the DECD with respect to the DECD’s potential $2,000,000.00 participation in the Loan, if and when purchased by the DECD from the Authority, shall be governed by the terms of the Master Participation Agreement.

5.2. The Borrower hereby agrees that the Authority may, in accordance with the terms of the Master Participation Agreement, furnish to the DECD copies of any and all financial, business and other information regarding the Borrower and the Borrower’s operations that has been delivered by the Borrower to the Authority hereunder or under the other Loan Documents or has been prepared by or on behalf of the Authority, and the Borrower hereby consents to the Authority delivering such information regarding the Borrower, the Collateral and the Loan to the DECD.

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SECTION 6

MISCELLANEOUS

6.1. This Loan Agreement may not be modified or amended in any manner except in writing executed by all of the parties hereto.

6.2. This Loan Agreement and any of the documents related hereto and the rights, duties or obligations thereunder may not be assigned by the Borrower without the written consent of the Authority.

6.3. All warranties, representations and covenants made by the Borrower herein or in any of the other Loan Documents or any certificate or instrument delivered to the Authority in connection with the Loan shall be considered to have been relied upon by the Authority and shall survive until final and irrevocable payment in full of the Note and all other amounts owing under the Loan Documents.

6.4. This Loan Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the successors and assigns of each of the parties; provided, however, that nothing in this provision shall imply that the Borrower has the right or authority to assign its rights, duties or obligations hereunder or under any of the Loan Documents. The provisions of this Loan Agreement are intended to be for the benefit of any and all holders, from time to time, of the Notes and shall be enforceable by any such holder.

6.5. Whether or not the transactions contemplated hereby are consummated, the Borrower will pay all expenses in connection with the closing of the Loan, including the fees and disbursements of the Authority’s special counsel.

6.6. Any notice given to the Borrower pursuant hereto or pursuant to any of the Loan Documents may be served in person or by mail. Any such requirement shall be deemed met by any written notice personally served at the principal place of business of the Borrower, or at such other address as the Borrower shall notify the Authority, or mailed by depositing it in any post office station or letter box enclosed in a postage-paid envelope addressed to the Borrower at such principal office or other address. Any notice served upon the Authority or the Borrower under this Loan Agreement or any of the other Loan Documents shall be effective only upon receipt by the Authority or the Borrower, as the case may be.

6.7. The Borrower agrees that the execution of this Loan Agreement and the other Loan Documents, and the performance of its obligations hereunder and thereunder, shall be deemed to have a Connecticut situs and the Borrower shall be subject to the personal jurisdiction of the courts of the State of Connecticut with respect to any action the Authority, its successors or assigns may commence hereunder or thereunder. Accordingly, the Borrower hereby specifically and irrevocably consents to the jurisdiction of the courts of the State of Connecticut with respect to all matters concerning this Loan Agreement or any of the other Loan Documents, or the enforcement thereof.

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6.8. THE BORROWER ACKNOWLEDGES THAT THIS LOAN AGREEMENT AND THE UNDERLYING TRANSACTIONS GIVING RISE HERETO CONSTITUTE COMMERCIAL BUSINESS TRANSACTED WITHIN THE STATE OF CONNECTICUT. IN THE EVENT OF ANY LEGAL ACTION BETWEEN THE BORROWER AND THE AUTHORITY HEREUNDER, THE BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHTS WITH REGARD TO NOTICE, PRIOR HEARING AND ANY OTHER RIGHTS IT MAY HAVE UNDER THE CONNECTICUT GENERAL STATUTES, CHAPTER 903a AS NOW CONSTITUTED OR HEREAFTER AMENDED, OR OTHER STATUTE OR STATUTES, STATE OR FEDERAL, AFFECTING PREJUDGMENT REMEDIES, AND THE AUTHORITY MAY INVOKE ANY PREJUDGMENT REMEDY AVAILABLE TO IT, INCLUDING, BUT NOT LIMITED TO, GARNISHMENT, ATTACHMENT, FOREIGN ATTACHMENT AND REPLEVIN, WITH RESPECT TO ANY TANGIBLE OR INTANGIBLE PROPERTY (WHETHER REAL OR PERSONAL) OF THE BORROWER TO ENFORCE THE PROVISIONS OF THIS AGREEMENT, WITHOUT GIVING THE BORROWER ANY NOTICE OR OPPORTUNITY FOR A HEARING.

6.9. THIS LOAN AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CONNECTICUT.

IN WITNESS WHEREOF, this Loan Agreement has been duly signed, sealed and delivered by the Borrower and the Authority as of the date and year first above written.


	CONNECTICUT DEVELOPMENT AUTHORITY

	By:	/s/ Robert A. Phelon
		Robert A. Phelon
		Its Vice President Duly Authorized

	FUELCELL ENERGY, INC.
	By:	/s/ Ross M. Levine
		Ross M. Levine
		Director of Government Contracts Duly Authorized

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Exhibit A

LIST OF DOCUMENTS

Loan Agreement

Promissory Note

Security Agreement

UCC-1 Financing Statement

Landlord Waiver and Consent

Certificate of the Secretary of the Borrower, certifying: (1) the accuracy of the Corporate Resolutions attached thereto; (2) that the Certificate of Incorporation attached thereto (certified by the Secretary of the State of Delaware) has not been amended and is in full force and effect; (3) that the Bylaws attached thereto are accurate and have not been amended and are in full force and effect; and, (4) that the named Officers signing any of the Loan Documents are incumbent and that their signatures are as shown. Attached should be copies of the Corporate Resolutions authorizing the Borrower to borrow the funds and to take all other actions necessary for the completion of the Loan and authorizing its Officers to execute all necessary documents on its behalf.

Certificate of Good Standing/Existence for the Borrower issued by the State of Delaware

Certificate of Existence for the Borrower issued by the State of Connecticut

Tax Clearance Letter (corporate/business tax and sales and use tax) from the State of Connecticut Department of Revenue Services for the Borrower

Labor Clearance Letter from the State of Connecticut Department of Labor for the Borrower

Opinion Letter of Borrower’s Legal Counsel

Affirmative Action Plan Approval

Joint Statement

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Copy of Borrower’s most recent State of Connecticut Employee Quarterly Earnings Report, Form UC-5a

Financial Statements

Certificate of No Adverse Change

Certificate of Non-Relocation

Environmental Certificate and Indemnity Agreement

Prejudgment Remedy Waiver

Nondiscrimination Certification

Insurance Certificate(s)

Copies of Purchase Orders for Equipment purchased with initial advance under Loan

A detailed list of other machinery and equipment, acceptable to the Authority, to be pledged to the Authority to secure the Loan (specifying make, model and serial number)

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SCHEDULE 3.5

Schedule of Permitted Indebtedness

The “Permitted Indebtedness” of the Borrower shall include the following: (a) all of the Borrower’s existing and future indebtedness to the Authority in connection with the Loan and the previous loan made available by the Authority to the Borrower pursuant to that certain Loan Agreement dated as of June 30, 2000, as amended; (b) all of the Borrower’s existing indebtedness for capital and operating lease obligations (as of January 31, 2008) in the aggregate amount of $3,806,000.00, along with future borrowings under the existing lease facilities; (c) all of the Borrower’s indebtedness (i) with respect to future long-term manufacturing facility leases, so long as such long-term manufacturing facility lease obligation is not secured by any assets or personal property of the Borrower, and (ii) with respect to future manufacturing equipment financing, so long as such manufacturing equipment financing is secured only by the specific item of equipment being financed and no other assets or personal property of the Borrower are given and/or granted by the Borrower to such equipment financing lender/lessor as collateral security for such equipment financing; (d) trade debt incurred by the Borrower in the ordinary course of the Borrower’s business; and (e) indebtedness of the Borrower with respect to transactions (including, but not limited to, short-term financing, accounts receivable financing or working capital financing) relating to power plant sales or other similar sales transactions between the Borrower and its customers or clients in connection with the sale by the Borrower 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 interests related to such sales transactions.

In addition to the foregoing, future equity or similar capital raises by the Borrower shall be permitted, as well as the conversion by the Borrower (or by the holders thereof) of redeemable minority interests and redeemable preferred stock to common stock of the Borrower, each without the consent of the Authority.

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SCHEDULE 3.8

The Borrower agrees to provide each labor union or representative of workers with which the Borrower has a collective bargaining agreement or other contract or understanding, and each vendor with which the Borrower has a contract or understanding, a notice to be provided by the Commission on Human Rights and Opportunities (the “Commission”) advising the labor union or workers’ representative of the Borrower’s commitments under this Loan Agreement, and to post copies of such notice in conspicuous places to be seen by employees and applicants for employment.

Specifically, but not by way of limitation, the Borrower agrees to the following:

(A) Compliance with Nondiscrimination and Affirmative Action in accordance with Connecticut General Statutes Section 4a-60 .

(1) (a) The contractor agrees and warrants that in the performance of the contract such contractor will not discriminate or permit discrimination against any person or group of persons on the grounds of race, color, religious creed, age, marital status, national origin, ancestry, sex, mental retardation or physical disability, including, but not limited to, blindness, unless it is shown by such contractor that such disability prevents performance of the work involved, in any manner prohibited by the laws of the United States or of the State of Connecticut. The contractor further agrees to take affirmative action to insure that applicants with job related qualifications are employed and that employees are treated when employed without regard to their race, color, religious creed, age, marital status, national origin, ancestry, sex, mental retardation, or physical disability, including, but not limited to, blindness, unless it is shown by such contractor that such disability prevents performance of the work involved; (b) the contractor agrees, in all solicitations or advertisements for employees placed by or on behalf of the contractor, to state that it is an “affirmative action-equal opportunity employer” in accordance with regulations adopted by the Commission; (c) the contractor agrees to provide each labor union or representative of workers with which such contractor has a collective bargaining agreement or other contract or understanding and each vendor with which such contractor has a contract or understanding, a notice to be provided by the Commission advising the labor union or workers’ representative of the contractor’s commitments under this Loan Agreement, and to post copies of the notice in conspicuous places available to employees and applicants for employment; (d) the contractor agrees to comply with each provision of this Loan Agreement and Sections 46a-68e and 46a-68f of the Connecticut General Statutes and with each regulation or relevant order issued by said Commission pursuant to Sections 46a-56, 46a-68e and 46a-68f of the Connecticut General Statutes; (e) the contractor agrees to provide the Commission with such information requested by the Commission, and permit access to pertinent books, records, and accounts, concerning the employment practices and procedures of the contractor as relate to the provisions of this Loan Agreement and Section 46a-56 of the Connecticut General Statutes. If the contract is a public works contract, the contractor agrees and warrants that it will make good faith efforts to employ minority business enterprises as faith efforts to employ minority business enterprises as subcontractors and suppliers of materials on such public works project.

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(2) For the purposes of this Loan Agreement, “minority business enterprise” means any small contractor or supplier of materials fifty-one percent (51%) or more of the capital stock, if any, or assets of which is owned by a person or persons: (a) who are active in the daily affairs of the enterprise, (b) who have the power to direct the management and policies of the enterprise and (c) who are members of a minority, as such term is defined in subsection (a) of Section 32-9n of the Connecticut General Statutes; and “good faith” means that degree of diligence which a reasonable person would exercise in the performance of legal duties and obligation. “Good faith efforts” shall include, but not be limited to, those reasonable initial efforts necessary to comply with statutory or regulatory requirements and additional or substituted efforts when it is determined that such initial efforts will not be sufficient to comply with such requirements.

(3) For the purposes of this Loan Agreement, “public works contract” means any agreement between any individual, firm or corporation and the State or any political subdivision of the State other than a municipality for construction rehabilitation, conversion, extension, demolition or repair of a public building, highway or other changes or improvements in real property, or which is financed in whole or in part by the State, including, but not limited to, matching expenditures, grants, loans, insurance or guarantees.

(4) Determination of the contractor’s good faith efforts shall include but shall not be limited to the following factors: the contractor’s employment and subcontracting policies, patterns, and practices; affirmative advertising, recruitment, and training; technical assistance activities and such other reasonable activities or efforts as the Commission may prescribe that are designed to ensure the participation of minority business enterprises in public works projects.

(5) The contractor shall develop and maintain adequate documentation, in a manner prescribed by the Commission, of its good faith efforts.

(6) The contractor shall include the provisions of subsection (A)(1) of this Schedule 3.8 in every subcontract or purchase order entered into after the Closing Date in order to fulfill any obligation of this Loan Agreement with the Authority and such provisions shall be binding on a subcontractor, vendor, or manufacturer unless exempted by regulations or orders of the Commission. The contractor shall take such action with respect to any such subcontract or purchase order as the Commission may direct as a means of enforcing such provisions including sanctions for noncompliance in accordance with Section 46a-56 of the Connecticut General Statutes; provided if such contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by the Commission, the contractor may request the State of Connecticut to enter into any such litigation or negotiation prior thereto to protect the interests of the State and the State may so enter.

(7) The contractor agrees to comply with the regulations referred to in this section as they exist on the date of this Loan Agreement and as they may be adopted or amended from time to time during the term of this Loan Agreement and any amendments thereto.

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(B) Further Agreements Regarding Compliance with Nondiscrimination .

(1) The contractor agrees and warrants that in the performance of the contract such contractor will not discriminate or permit discrimination against any person or group of persons on the grounds of sexual orientation, in any manner prohibited by the laws of the United States or of the State of Connecticut, and that employees are treated when employed without regard to their sexual orientation; the contractor agrees to provide each labor union or representative of workers with which such contractor has a collective bargaining agreement or other contract or understanding and each vendor with which such contractor has a contract or understanding, a notice to be provided by the Commission advising the labor union or workers’ representative of the contractor’s commitments under this section, and to post copies of the notice in conspicuous places available to employees and applicants for employment; the contractor agrees to comply with each provision of this section and with each regulation or relevant order issued by said Commission pursuant to Section 46a-56 of the Connecticut General Statutes; the contractor agrees to provide the Commission with such information requested by the Commission, and permit access to pertinent books, records and accounts, concerning the employment practices and procedures of the contractor which relate to the provisions of this Loan Agreement and Section 46a-56 of the Connecticut General Statutes.

(2) The contractor shall include the provisions of subsection (B)(1) above in every subcontract or purchase order entered into after the Closing Date in order to fulfill any obligation of a contract with the state and such provisions shall be binding on a subcontractor, vendor or manufacturer unless exempted by regulations or orders of the Commission. The contractor shall take such action with respect to any such subcontract or purchase order as the Commission may direct as a means of enforcing such provisions including sanctions for noncompliance in accordance with Section 46a-56 of the Connecticut General Statutes; provided, if such contractor becomes involved in, or is threatened with, litigation with a subcontractor or vendor as a result of such direction by the Commission, the contractor may request the State of Connecticut to enter into any such litigation or negotiation prior thereto to protect the interests of the state and the state may so enter.

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(C) Executive Order No. 3 . This Loan Agreement is subject to the provisions of Executive Order No. Three of Governor Thomas J. Meskill promulgated June 16, 1971 and, as such, this Loan Agreement may be canceled, terminated or suspended by the State Labor Commissioner for violation or of noncompliance with said Executive Order No. Three, or any State or Federal law concerning nondiscrimination, notwithstanding that the Labor Commissioner is not a party to this Loan Agreement. The parties to this Loan Agreement, as part of the consideration hereof, agree that said Executive Order No. Three is incorporated herein by reference and made a part hereof. The parties agree to abide by said Executive Order and agree that the State Labor Commissioner shall have continuing jurisdiction in respect to the Loan Agreement performance in regard to nondiscrimination, until the Loan Agreement is completed or terminated prior to completion. The Applicant agrees as part consideration hereof, that this Loan Agreement is subject to the guidelines and rules issued by the State Labor Commissioner to implement Executive Order No. Three and that it will not discriminate in its employment practices or policies, will file all reports as required, and will fully cooperate with the State and the State Labor Commissioner.

(D) Executive Order Number 17 . This Loan Agreement is subject to the provisions of Executive Order No. Seventeen of Governor Thomas J. Meskill promulgated February 15, 1973, and, as such, this Loan Agreement may be canceled, terminated or suspended by the Commissioner or the State Labor Commissioner for violation of or noncompliance with said Executive Order No. Seventeen, notwithstanding that the Labor Commissioner may not be a party to this Loan Agreement. The parties to this Loan Agreement, as a part of the consideration hereof, agree that the Executive Order No. Seventeen is incorporated herein by reference and made a part hereof. The parties agree to abide by said Executive Order and agree that the contracting agency and the State Labor Commissioner shall have joint and several continuing jurisdiction in respect to this Loan Agreement performance in regard to listing all employment openings with the Connecticut Employment Service.

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SCHEDULE 3.22

SEEC Form 11 — Attached

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SEEC FORM 11

NOTICE TO EXECUTIVE BRANCH STATE CONTRACTORS AND PROSPECTIVE STATE
CONTRACTORS OF CAMPAIGN CONTRIBUTION AND SOLICITATION BAN

This notice is provided under the authority of Connecticut General Statutes 9-612(g)(2), as amended by P.A. 07-1, and is for the purpose of informing state contractors and prospective state contractors of the following law (italicized words are defined below):

Campaign Contribution and Solicitation Ban

No state contractor, prospective state contractor, principal of a state contractor or principal of a prospective state contractor, with regard to a state contract or state contract solicitation with or from a state agency in the executive branch or a quasi-public agency or a holder, or principal of a holder of a valid prequalification certificate, shall make a contribution to, or solicit contributions on behalf of (i) an exploratory committee or candidate committee established by a candidate for nomination or election to the office of Governor, Lieutenant Governor, Attorney General, State Comptroller, Secretary of the State or State Treasurer, (ii) a political committee authorized to make contributions or expenditures to or for the benefit of such candidates, or (iii) a party committee;

In addition, no holder or principal of a holder of a valid prequalification certificate, shall make a contribution to, or solicit contributions on behalf of (i) an exploratory committee or candidate committee established by a candidate for nomination or election to the office of State senator or State representative, (ii) a political committee authorized to make contributions or expenditures to or for the benefit of such candidates, or (iii) a party committee.

Duty to Inform

State contractors and prospective state contractors are required to inform their principals of the above prohibitions, as applicable, and the possible penalties and other consequences of any violation thereof.

Penalties for Violations

Contributions or solicitations of contributions made in violation of the above prohibitions may result in the following civil and criminal penalties:

Civil penalties —$2000 or twice the amount of the prohibited contribution, whichever is greater, against a principal or a contractor. Any state contractor or prospective state contractor which fails to make reasonable efforts to comply with the provisions requiring notice to its principals of these prohibitions and the possible consequences of their violations may also be subject to civil penalties of $2000 or twice the amount of the prohibited contributions made by their principals.

Criminal penalties —Any knowing and willful violation of the prohibition is a Class D felony, which may subject the violator to imprisonment of not more than 5 years, or $5000 in fines, or both.

Contract Consequences

Contributions made or solicited in violation of the above prohibitions may result, in the case of a state contractor, in the contract being voided.

Contributions made or solicited in violation of the above prohibitions, in the case of a prospective state contractor, shall result in the contract described in the state contract solicitation not being awarded to the prospective state contractor, unless the State Elections Enforcement Commission determines that mitigating circumstances exist concerning such violation.

The State will not award any other state contract to anyone found in violation of the above prohibitions for a period of one year after the election for which such contribution is made or solicited, unless the State Elections Enforcement Commission determines that mitigating circumstances exist concerning such violation.

Additional information and the entire text of P.A 07-1 may be found on the website of the State Elections Enforcement Commission, www.ct.gov/seec . Click on the link to “State Contractor Contribution Ban.”

Definitions:

“State contractor” means a person, business entity or nonprofit organization that enters into a state contract. Such person, business entity or nonprofit organization shall be deemed to be a state contractor until December thirty-first of the year in which such contract terminates. “State contractor” does not include a municipality or any other political subdivision of the state, including any entities or associations duly created by the municipality or political subdivision exclusively amongst themselves to further any purpose authorized by statute or charter, or an employee in the executive or legislative branch of state government or a quasi-public agency, whether in the classified or unclassified service and full or part-time, and only in such person’s capacity as a state or quasi-public agency employee.

“Prospective state contractor” means a person, business entity or nonprofit organization that (i) submits a response to a state contract solicitation by the state, a state agency or a quasi-public agency, or a proposal in response to a request for proposals by the state, a state agency or a quasi-public agency, until the contract has been entered into, or (ii) holds a valid prequalification certificate issued by the Commissioner of Administrative Services under section 4a-100. “Prospective state contractor” does not include a municipality or any other political subdivision of the state, including any entities or associations duly created by the municipality or political subdivision exclusively amongst themselves to further any purpose authorized by statute or charter, or an employee in the executive or legislative branch of state government or a quasi-public agency, whether in the classified or unclassified service and full or part-time, and only in such person’s capacity as a state or quasi-public agency employee.

“Principal of a state contractor or prospective state contractor” means (i) any individual who is a member of the board of directors of, or has an ownership interest of five per cent or more in, a state contractor or prospective state contractor, which is a business entity, except for an individual who is a member of the board of directors of a nonprofit organization, (ii) an individual who is employed by a state contractor or prospective state contractor, which is a business entity, as president, treasurer or executive vice president, (iii) an individual who is the chief executive officer of a state contractor or prospective state contractor, which is not a business entity, or if a state contractor or prospective state contractor has no such officer, then the officer who duly possesses comparable powers and duties, (iv) an officer or an employee of any state contractor or prospective state contractor who has managerial or discretionary responsibilities with respect to a state contract, (v) the spouse or a dependent child who is eighteen years of age or older of an individual described in this subparagraph, or (vi) a political committee established or controlled by an individual described in this subparagraph or the business entity or nonprofit organization that is the state contractor or prospective state contractor.

“State contract” means an agreement or contract with the state or any state agency or any quasi-public agency, let through a procurement process or otherwise, having a value of fifty thousand dollars or more, or a combination or series of such agreements or contracts having a value of one hundred thousand dollars or more in a calendar year, for (i) the rendition of services, (ii) the furnishing of any goods, material, supplies, equipment or any items of any kind, (iii) the construction, alteration or repair of any public building or public work, (iv) the acquisition, sale or lease of any land or building, (v) a licensing arrangement, or (vi) a grant, loan or loan guarantee. “State contract” does not include any agreement or contract with the state, any state agency or any quasi-public agency that is exclusively federally funded, an education loan or a loan to an individual for other than commercial purposes.

“State contract solicitation” means a request by a state agency or quasi-public agency, in whatever form issued, including, but not limited to, an invitation to bid, request for proposals, request for Information or request for quotes, inviting bids, quotes or other types of submittals, through a competitive procurement process or another process authorized by law waiving competitive procurement.

“Managerial or discretionary responsibilities with respect to a state contract” means having direct, extensive and substantive responsibilities with respect to the negotiation of the state contract and not peripheral, clerical or ministerial responsibilities.

“Dependent child” means a child residing in an individual’s household who may legally be claimed as a dependent on the federal income tax of such individual.

“Solicit” means (A) requesting that a contribution be made, (B) participating in any fund-raising activities for a candidate committee, exploratory committee, political committee or party committee, including, but not limited to, forwarding tickets to potential contributors, receiving contributions for transmission to any such committee or bundling contributions, (C) serving as chairperson, treasurer or deputy treasurer of any such committee, or (D) establishing a political committee for the sole purpose of soliciting or receiving contributions for any committee. Solicit does not include: (i) making a contribution that is otherwise permitted by Chapter 155 of the Connecticut General Statutes; (ii) informing any person of a position taken by a candidate for public office or a public official, (iii) notifying the person of any activities of, or contact information for, any candidate for public office; or (iv) serving as a member in any party committee or as an officer of such committee that is not otherwise prohibited in this section.

PROMISSORY NOTE



$4,000,000.00		Rocky Hill, Connecticut
		April 29, 2008

FOR VALUE RECEIVED, FUELCELL ENERGY, INC. , a Delaware corporation having its chief executive office and principal place of business at 3 Great Pasture Road, Danbury, Connecticut 06813 (the “Maker”), hereby unconditionally promises to pay to the order of the CONNECTICUT DEVELOPMENT AUTHORITY , a body politic and corporate, constituting a public instrumentality and political subdivision of the State of Connecticut (the “Authority”), at its principal office at 999 West Street, Rocky Hill, Connecticut 06067-3405, or at such other place as the Authority may designate in writing, without notice or offset, the principal sum of FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00), or so much thereof as may be advanced by the Authority to Maker pursuant to and under the terms of that certain Loan Agreement of even date herewith, by and between Maker and the Authority (the “Loan Agreement”), together with interest in arrears thereon from the date hereof at a fixed rate of interest equal to five percent (5.0%) per annum upon the whole of said principal sum remaining from time to time unpaid, subject to adjustment under the terms and conditions of Section 1.5 of the Loan Agreement. Interest shall be charged on the principal balance from time to time outstanding on the basis of the actual number of days elapsed computed on the basis of a 360-day year. Advances from the Authority to Maker on account of this Note shall be made by the Authority to Maker in accordance with the terms and conditions set forth in the Loan Agreement and may, at the Authority’s option, be recorded by the Authority on the grid attached to this Note. In the event that the Authority elects, in its sole discretion, to record its advances to Maker hereunder on the attached grid, said grid shall be conclusive evidence of the date and amount of such advances and shall be binding upon Maker absent manifest error.

Said principal and interest shall be due and payable in monthly installments as follows:

On the date hereof, interest ($172.11) on the amount advanced hereunder on the date hereof ($628,185.00) shall be prepaid for the period from the date hereof through April 30, 2008. Commencing on June 1, 2008, accrued interest shall be payable monthly, in arrears, on the first (1 ^st ) day of each month for a period not to exceed eighteen (18) months, through November 1, 2009. Commencing on December 1, 2009, principal and interest shall be paid in consecutive monthly installments, payable in arrears and due and payable on the first (1 ^st ) day of each and every calendar month, in an amount sufficient to amortize in full the then-outstanding principal balance hereof over an eight and one-half (8 ¹ / ₂ ) year term commencing on the date thereof. The aforesaid monthly payments shall be first applied to accrued interest and then to principal.

The entire principal balance of this Note and all accrued and unpaid interest thereon, shall be due and payable in full on May 1, 2018.

Maker agrees to pay all taxes or duties levied or assessed against the Authority or other holder of this Note on account of this Note, or the loan agreement pursuant to which this Note is issued (the “Loan Agreement”), or the security agreement securing this Note (the “Security Documents”), or upon the collateral granted under the Security Documents. Maker further agrees to pay all reasonable costs, expenses and attorneys’ fees incurred by the Authority in any proceeding for the collection of the debt evidenced hereby, or in any action to enforce its rights in collateral granted under the Security Documents upon the happening of a default as provided for in the Security Documents, or in protecting or sustaining the lien of the Security Documents or in any litigation or controversy arising from or connected with this Note or the Security Documents.

There shall be an event of default hereunder if an Event of Default occurs under the terms of the Loan Agreement, and is not cured by Maker within the applicable cure period, if any (an “Event of Default”). Upon the occurrence of an Event of Default, the entire principal sum with accrued interest thereon due under this Note shall, at the option of Authority, become due and payable and Authority may proceed to exercise any rights and remedies it has under this Note, the Loan Agreement, the Security Documents or at law, in equity or otherwise. No failure to exercise such option shall be deemed to be a waiver on the part of Authority of the right to exercise the same in the event of any subsequent Event of Default.

The Authority may collect a “late charge” not to exceed an amount equal to five percent (5.00%) of any installment of interest or principal or both which is not paid within ten (10) days after the date on which said payment is due (other than after acceleration or maturity). Late charges shall be separately charged to and collected from Maker and shall be due upon demand by Authority.

Maker may prepay the principal balance of this Note on any regularly-scheduled monthly installment payment date in full or in part, in amounts of at least $100,000.00, without premium or penalty; provided , however , that the $100,000.00 threshold shall not apply to a prepayment in accordance with the terms and conditions of Section 3.20 of the Loan Agreement. Any and all permitted partial prepayments made by Maker to the Authority shall be credited to the unpaid principal installments due under this Note in the inverse order of their maturity.

Maker and each and every endorser, guarantor, and surety of this Note and all others who may become liable for all or any part of this obligation do hereby waive diligence, demand, presentment for payment, protest, notice of protest and notice of non-payment of this Note, and do hereby consent to any number of renewals or extensions of the time of payment hereof and of the time for advances under the Loan Agreement or the Security Documents, if any, and agree that any such renewals or extensions may be made without notice to any of said parties and without affecting their liability herein and further consent to the release of any part or parts or all of the security for the payment hereof and to the release of any party or parties liable hereon, all without affecting the liability of the other persons, firms or corporations liable for the payment of this Note.

Upon the occurrence of an Event of Default hereunder and during the continuance thereof, at the option of the Authority, the Authority may pay insurance premiums, taxes and assessments, and any and all other expenses which may be reasonable or necessary to protect the property, real or personal, securing this Note or to protect or sustain the lien of the Security Documents. Any such payment made by the Authority pursuant to said option shall be added to the principal balance due hereunder and shall bear interest as set forth herein from the date of payment by Authority and shall be payable on demand with interest from the date of payment by Authority.

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Maker agrees that all expenditures incurred by Authority under this Note other than principal, and the principal of this Note after maturity, upon an event of default or after a judgment hereon, shall bear interest at a default rate of eighteen percent (18.00%) per annum, from the date of demand, default or judgment, as applicable.

Any notice to Maker provided for in this Note may be given by telephone (confirmed within 24 hours in writing), or in writing by depositing the same in the United states mail, postage prepaid, or by notice personally served, or by telefax, telegraph or telex, charges prepaid, addressed to Maker at 3 Great Pasture Road, Danbury, Connecticut 06813, Attention: President, or to such other address as Maker may hereinafter furnish to the Authority in writing. Any notice to the Authority shall be given by mailing such notice by prepaid, first-class mail at the address stated in the first paragraph of this Note, or at such other person or address as may have been designated by notice to Maker. Notice to Maker shall be deemed given when sent in accordance with this paragraph. Notice to Maker or the Authority shall be effective only upon receipt by Maker or the Authority, as the case may be.

MAKER ACKNOWLEDGES THAT THIS NOTE AND THE UNDERLYING TRANSACTIONS GIVING RISE HERETO CONSTITUTE COMMERCIAL BUSINESS TRANSACTED WITHIN THE STATE OF CONNECTICUT. IN THE EVENT OF ANY LEGAL ACTION BETWEEN MAKER AND THE AUTHORITY HEREUNDER, MAKER HEREBY EXPRESSLY WAIVES ANY RIGHTS WITH REGARD TO NOTICE, PRIOR HEARING AND ANY OTHER RIGHTS IT MAY HAVE UNDER THE CONNECTICUT GENERAL STATUTES, CHAPTER 903a, AS NOW CONSTITUTED OR HEREAFTER AMENDED, OR OTHER STATUTE OR STATUTES, STATE OR FEDERAL, AFFECTING PREJUDGMENT REMEDIES, AND THE AUTHORITY MAY INVOKE ANY PREJUDGMENT REMEDY AVAILABLE TO IT, INCLUDING, BUT NOT LIMITED TO, GARNISHMENT, ATTACHMENT, FOREIGN ATTACHMENT AND REPLEVIN, WITH RESPECT TO ANY TANGIBLE OR INTANGIBLE PROPERTY (WHETHER REAL OR PERSONAL) OF MAKER TO ENFORCE THE PROVISIONS OF THIS NOTE, WITHOUT GIVING MAKER ANY NOTICE OR OPPORTUNITY FOR A HEARING.

ADDITIONALLY, MAKER AND THE AUTHORITY HEREBY EACH WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION, DEFENSE, COUNTERCLAIM, CROSSCLAIM AND/OR ANY FORM OF PROCEEDING BROUGHT IN CONNECTION WITH THIS NOTE OR RELATING TO ANY INDEBTEDNESS EVIDENCED HEREBY AND/OR ANY COLLATERAL NOW OR HEREAFTER SECURING THIS NOTE.

The term the “Authority” as used in this Note shall include the Authority and any subsequent holder or holders hereof.

THIS NOTE HAS BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF CONNECTICUT AND SHALL BE CONSTRUED AND ENFORCED UNDER AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT.

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This Note is issued pursuant to the Loan Agreement, and all terms, conditions and provisions thereof are deemed incorporated herein as if fully set forth herein.

IN WITNESS WHEREOF, Maker has hereunto set its hand this 29 ^th day of April, 2008.


	FUELCELL ENERGY, INC.
	By:	/s/ Ross M. Levine
		Ross M. Levine
		Director of Government Contracts Duly Authorized

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GRID

Attached to and made a part of the Promissory Note dated April 29, 2008, in the original principal amount of $4,000,000.00, made by FUELCELL ENERGY, INC. and payable to the order of the CONNECTICUT DEVELOPMENT AUTHORITY.

Principal

Amount of

Aggregate Unpaid

Amount of

Principal of

Principal Balance

Notation

Date

Advance

Note Prepaid

of Note

Made By

4/29/08

628,185.00

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SECURITY AGREEMENT

THIS SECURITY AGREEMENT is made and entered into this 29 ^th day of April, 2008, by and between FUELCELL ENERGY, INC. , a Delaware corporation, having its chief executive office and principal place of business at 3 Great Pasture Road, Danbury, Connecticut 06813 (the “Debtor”), and the CONNECTICUT DEVELOPMENT AUTHORITY , a body politic and corporate constituting a public instrumentality and political subdivision of the State of Connecticut, having its principal office at 999 West Street, Rocky Hill, Connecticut 06067-3405 (the “Secured Party”).

WITNESSETH :

In consideration of the mutual promises and covenants herein contained, the parties agree as follows:

1. Definitions: In this Security Agreement:

	a.		“Collateral” means collectively (i) all machinery and equipment purchased by the Debtor with the proceeds of the multiple-advance term loan in the principal amount of up to $4,000,000.00 made available (or to be made available) by the Secured Party to the Debtor, as such items of machinery and equipment are more fully described in Schedule A attached hereto and made a part hereof (as Schedule A may hereafter be modified, amended and supplemented from time to time by the Secured Party), and (ii) all items of machinery and equipment now or hereafter owned by the Debtor and described in Schedule A-1 attached hereto and made a part hereof (as Schedule A-1 may hereafter be modified, amended and supplemented from time to time by the Secured Party), and the products, accessions and substitutions therefor, and the accounts and proceeds arising from the sale or disposition thereof including any returns thereof, including, where applicable, the proceeds of insurance covering the above. For avoidance of doubt, the term “Collateral” shall include all machinery and equipment owned by the Debtor and presently subject to a security interest in favor of the Secured Party.

	b.		“Indebtedness” means all debts, liabilities and obligations of any kind, whenever and however incurred, including past, present and future obligations of the Debtor to the Secured Party, whether or not evidenced by any notes, instruments, documents or other writing, including, without limitation, all obligations of the Debtor under the Note and the Loan Agreement (as hereafter defined).

	c.		“State” means any state or other jurisdiction in which the Debtor carries on business or in which the Collateral is at any time located, and includes the State of Connecticut.

	d.		Any term not defined herein that is defined in the Uniform Commercial Code, as enacted in the State of Connecticut (the “Code”), shall have the meaning as defined therein.

To secure the payment of a ten (10) year multiple-advance term loan in the amount of up to FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00) plus interest, made pursuant to that certain loan agreement of even date herewith by and between Debtor and the Secured Party (the “Loan Agreement”) and payable in accordance with the terms of that certain promissory note of the Debtor, dated as of the date hereof, in the original principal amount of $4,000,000.00 (the “Note”), copies of which Loan Agreement and Note are attached hereto as Schedule B and made a part hereof, and to secure the performance and payment of all Indebtedness, Debtor hereby grants and conveys to the Secured Party a security interest in the Collateral.

2. Debtor’s Covenants: The Debtor warrants, covenants and agrees as follows:

	a.		To pay and perform all of the Indebtedness secured by this Security Agreement according to its terms.

	b.		To defend the title to the Collateral against any and all persons and against all claims.

	c.		At any time and from time to time, at the request of Secured Party, to execute and deliver one or more financing statements and/or continuation statements pursuant to the Code, and any amendments thereof and supplements thereto, and such other instruments as the Secured Party shall reasonably require in order to perfect, protect, preserve and maintain the security interests hereby granted, and to pay the cost of filing and recording the same or filing and recording this Security Agreement in all public offices wherever filing or recording is deemed by Secured Party to be necessary or desirable. Debtor hereby irrevocably appoints Secured Party as Debtor’s attorney-in-fact, coupled with an interest, to do whatever Secured Party may deem necessary to perfect or continue perfected its security interest in the Collateral under this Security Agreement pursuant to the Code. Debtor agrees that a carbon, photographic or other reproduction of this Security Agreement or a financing statement is sufficient as a financing statement.

	d.		To retain possession of the Collateral during the existence of this Security Agreement and not to sell, exchange, assign, loan, deliver, lease, transfer or otherwise dispose of same, without the prior written consent of the Secured Party in each instance, which consent shall not be unreasonably withheld or delayed.

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	e.		To keep the Collateral at its present location at Debtor’s leased facility located at 539 Technology Park Road, Torrington, Connecticut 06790 (the “Torrington Facility”), and not to remove same without the prior written consent of the Secured Party in each instance.

	f.		To keep the Collateral free and clear of all liens, charges, encumbrances, pledges, mortgages, and security interests, except for any subsequent encumbrances consented to in writing by the Secured Party, which consent the Secured Party may withhold in its sole discretion.

	g.		To keep its chief executive office and principal place of business at the address set forth at the beginning of this Security Agreement, and to provide the Authority with at least thirty (30) days’ prior written notice of its intention to move its chief executive office to another location.

	h.		To pay, when due, all taxes, assessments, governmental charges and license fees relating to, or which could become a lien upon, the Collateral.

	i.		To keep the Collateral, at the Debtor’s own cost and expense, in good repair and condition and to use it for the purposes intended and not to misuse, abuse, waste or allow it to deteriorate, except for normal wear and tear, and to make the same available for inspection by the Secured Party during normal business hours.

	j.		To keep the Collateral insured against loss by fire, theft, flood and other hazards (so-called “All Risk” coverage) as the Secured Party may require in an amount equal to the full value of the Collateral and in no event less than the outstanding Indebtedness secured thereby. Policies covering the Collateral shall be obtained from responsible insurers authorized to do business in the State of Connecticut. Certificates of insurance or policies shall name the Secured Party as loss payee and shall have attached thereto a loss payable clause making loss payable to the Secured Party as its interest may appear, and all such policies and renewal policies shall be deposited with the Secured Party. Each policy or endorsement shall contain a clause requiring the insurer to give not less than thirty (30) days’ prior written notice to the Secured Party in the event of modification or cancellation of the policy for any reason whatsoever, and a clause that the interest of the Secured Party shall not be impaired or invalidated by any act or neglect of the Debtor or owner of the Collateral nor by the occupation of the premises where the Collateral is located for purposes more hazardous than are permitted by said policy. The Debtor shall give immediate written notice to the Secured Party and to insurers of loss or damage to the Collateral and shall promptly file proofs of loss with insurers. The Debtor hereby irrevocably appoints the Secured Party the attorney-in-fact, coupled with an interest, of the Debtor in obtaining and adjusting any such insurance and endorsing settlement drafts and hereby assigns to the Secured Party all sums which may become payable under such insurance, including return premiums and dividends, as additional security for the Indebtedness. In the event of termination or threatened termination of insurance, the Secured Party has the right to obtain its own insurance covering the Collateral and to add the costs of obtaining and maintaining such insurance as an additional obligation of the Debtor to the Secured Party. Nothing herein shall relieve the Debtor of its duty or obligation to do any act for which the Secured Party may be hereby appointed attorney-in-fact for the Debtor or otherwise authorized to act.

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	k.		In the conduct of its business, to materially comply with all applicable laws, ordinances, rules and regulations of all governmental authorities having jurisdiction over the Debtor, the Collateral and/or its business.

	l.		The Debtor authorizes the Secured Party, if the Debtor fails to do so, to do all things required of the Debtor herein and charge all reasonable expenses incurred by the Secured Party to the Debtor together with interest thereon until repayment to the Secured Party at the interest rate provided in the Note. Failure to repay any said advance with interest within ten (10) days from the date of demand by the Secured Party shall constitute a default hereunder.

	m.		Not, without thirty (30) days’ prior written notice to the Secured Party, change its name or make any changes in the tradenames under which it now operates. In the event that the Debtor so notifies the Secured Party, the Debtor will execute such financing statements and other documents as the Secured Party shall deem necessary or desirable in order to maintain the existence, perfection and priority of its lien on the Collateral.

3. Debtor’s Representations and Warranties : The Debtor represents and warrants to the Secured Party as follows:

	a.		All written information heretofore or hereafter furnished by the Debtor to the Secured Party is or will be true and correct in all material respects as of the date with respect to which such information was furnished.

	b.		Except for the security interest of the Secured Party, the Debtor is, and as to Collateral acquired after the date hereof, the Debtor will be, the owner of the Collateral free and clear of any lien, security interest, pledge and encumbrance of any nature, except as otherwise provided herein.

	c.		The office where the Debtor keeps its records concerning Collateral and Debtor’s chief executive office is and will be located at 3 Great Pasture Road, Danbury, Connecticut 06813. All of the Collateral shall be located at the Torrington Facility.

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4. Non-Waiver: Waiver of or acquiescence in any default by the Debtor or failure of the Secured Party to insist upon strict performance by the Debtor of any warranties or agreements in this Security Agreement shall not constitute a waiver of any subsequent or other default or failure.

5. Default : Any one of the following shall constitute a default by the Debtor:

	a.		Failure by the Debtor to comply with or perform any provision of this Security Agreement, and such breach or default is not cured by the Debtor within thirty (30) days after the Debtor becomes aware of such breach or default;

	b.		Any representation or warranty made or given by the Debtor in connection with this Security Agreement proves to be false or misleading in any material fashion;

	c.		Default (and the expiration of any cure and/or grace period) under the Note, the Loan Agreement or any other document or agreement evidencing or securing the Indebtedness secured hereby;

	d.		All or substantial part of the Collateral is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors, and same is not removed, dissolved and/or bonded in full by the Debtor within thirty (30) days after the Debtor becomes aware of the occurrence of such event or action;

	e.		Depreciation (except depreciation as reflected for tax or accounting purposes) or impairment of the Collateral;

	f.		Judgment or other claim in excess of $50,000.00 becomes a lien upon the Collateral or any part thereof, and same is not removed, dissolved and/or bonded in full by the Debtor within thirty (30) days after the Debtor becomes aware of the attachment of such lien to the Collateral (or any part thereof); or

	g.		If any of the Collateral is materially damaged and not covered by insurance reasonably deemed adequate by the Secured Party.

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6. Remedies on Default: Upon any default (and during the continuance of such default) and upon demand by the Secured Party, the Debtor agrees immediately to assemble the Collateral and make it available to the Secured Party at the place and time designated in the said demand. The Secured Party shall be entitled to immediate possession of the Collateral and the Secured Party may: (i) enter any premises where any Collateral may be located for the purpose of assembling or taking possession of and removing same, and (ii) sell, assign, lease or otherwise dispose of the Collateral or any part thereof, either at public or private sale acceptable to the Secured Party, all at the Secured Party’s sole option and as it, in its sole discretion, may deem advisable, and the Secured Party may bid or become purchaser at any such sale, free from any right of redemption which is hereby expressly waived by the Debtor. Until sale, the Secured Party may store the Collateral on the premises where it is located when seized, and if said premises are the property of the Debtor, the Debtor agrees not to charge the Secured Party for storage thereof for a period of ninety (90) days before or after sale or disposition of said Collateral. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold in a recognized market, the Secured Party will give the Debtor reasonable notice of time and place of any public sale or the time after which any private sale or other intended disposition will be made. The requirement of reasonable notice shall be met if such notice is mailed to the Debtor at least ten (10) days before the time of the sale or disposition.

The net cash proceeds resulting from the collection, liquidation, sale or other disposition of the Collateral shall be applied first to the reasonable expenses (including all reasonable attorneys’ fees) of preparing for sale, storing, processing, selling, collecting, and/or liquidating the Collateral and the like, and then to the satisfaction of the Indebtedness, application as to particular obligations or against principal or interest under the Indebtedness to be in the Secured Party’s sole discretion. The Debtor shall be liable to the Secured Party and shall pay to the Secured Party on demand any deficiency which may remain after such sale, disposition, collection or liquidation of Collateral, and the Secured Party in turn agrees to remit to the Debtor, or other such persons as their interests may appear, any surplus remaining after all such liabilities have been paid in full.

To facilitate the exercise by the Secured Party of the rights and remedies set forth in this section, the Debtor hereby irrevocably appoints the Secured Party or any other person whom the Secured Party may designate, as attorney-in-fact for the Debtor, coupled with an interest, at the Debtor’s expense, to exercise all or any of the foregoing powers, and other powers incidental to the foregoing, all of which, being coupled with an interest, shall be irrevocable, shall continue until all obligations have been paid in full and shall be in addition to any other rights and remedies that the Secured Party may have.

In the event the Secured Party seeks to take possession of any or all Collateral by court process, the Debtor hereby irrevocably waives any bonds and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession, and waives any demand for possession prior to the commencement of any suit or action to recover with respect thereto and waives the right to demand a jury in any action in which the Secured Party is a party.

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7. Attorneys’ Fees, etc.: Upon any default, the Secured Party’s reasonable attorneys’ fees and the legal and other expenses for pursuing, searching for, receiving, taking, keeping, storing, advertising and selling the Collateral, shall be chargeable to the Debtor.

8. Other Rights: In addition to all rights and remedies herein, upon default, the Secured Party shall have such other rights and remedies as are set forth in the Code and the Connecticut General Statutes, as amended.

9. THE DEBTOR ACKNOWLEDGES THAT THIS SECURITY AGREEMENT AND THE UNDERLYING TRANSACTIONS GIVING RISE HERETO CONSTITUTE COMMERCIAL BUSINESS TRANSACTED WITHIN THE STATE OF CONNECTICUT. IN THE EVENT OF ANY LEGAL ACTION BETWEEN THE DEBTOR AND THE SECURED PARTY HEREUNDER, DEBTOR HEREBY EXPRESSLY WAIVES ANY RIGHTS WITH REGARD TO NOTICE, PRIOR HEARING AND ANY OTHER RIGHTS IT MAY HAVE UNDER THE CONNECTICUT GENERAL STATUTES, CHAPTER 903a, AS NOW CONSTITUTED OR HEREAFTER AMENDED, OR OTHER STATUTE OR STATUTES, STATE OR FEDERAL, AFFECTING PREJUDGMENT REMEDIES, AND THE SECURED PARTY MAY INVOKE ANY PREJUDGMENT REMEDY AVAILABLE TO IT, INCLUDING, BUT NOT LIMITED TO, GARNISHMENT, ATTACHMENT, FOREIGN ATTACHMENT AND REPLEVIN, WITH RESPECT TO ANY TANGIBLE OR INTANGIBLE PROPERTY (WHETHER REAL OR PERSONAL) OF THE DEBTOR TO ENFORCE THE PROVISIONS OF THIS NOTE, WITHOUT GIVING THE DEBTOR ANY NOTICE OR OPPORTUNITY FOR A HEARING.

10. Additional Waivers: Demand, presentment, protest and notice of nonpayment are hereby waived by the Debtor. The Debtor also waives the benefit of all valuation, appraisement and exemption laws.

11. Binding Effect: The terms, warranties and agreements herein contained shall bind and inure to the benefit of the respective parties hereto, and their respective legal representatives, successors and assigns.

12. Assignment: The Secured Party may assign without limitation its security interest in the Collateral.

13. Amendment: This Security Agreement may not be altered or amended except by an agreement in writing signed by the parties hereto.

14. Term:

	(a)		This Security Agreement shall continue in full force and effect until all Indebtedness has been irrevocably paid in full.

	(b)		No termination of this Security Agreement shall in any way affect or impair the rights and liabilities of the parties hereto relating to any transaction or events prior to such termination date, or to any Collateral in which the Secured Party has a security interest, and all agreements, warranties and representations of the Debtor shall survive such termination.

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15. No Waiver: The Secured Party’s failure at any time or times hereafter to require strict performance by the Debtor of any of the provisions, warranties, terms and conditions contained in this Security Agreement, or in any other agreement, instrument or document now or at any time or times hereafter executed by the Debtor and delivered to the Secured Party, shall not waive, affect or diminish any right of the Secured Party at any time or times hereafter to demand strict performance therewith, and such right shall not be deemed to have been waived by any act or knowledge of the Secured Party, its agents, officers or employees, unless such waiver is contained in an instrument in writing signed by an officer of the Secured Party and directed to the Debtor specifying such waiver. No waiver by the Secured Party of any default hereunder shall operate as a waiver of any other default or the same default on a future occasion.

16. Choice of Law: THE LAWS OF THE STATE OF CONNECTICUT SHALL GOVERN THE RIGHTS AND DUTIES OF THE PARTIES HEREIN CONTAINED.

IN WITNESS WHEREOF, the parties have signed and sealed this Security Agreement at Waterbury, Connecticut as of the day and year first above written.


	FUELCELL ENERGY, INC.
	By:	/s/ Ross M. Levine
		Ross M. Levine
		Director of Government Contracts Duly Authorized

	CONNECTICUT DEVELOPMENT AUTHORITY
	By:	/s/ Robert A. Phelon
		Robert A. Phelon
		Its Vice President Duly Authorized

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Exhibit 31.1

CERTIFICATIONS

I, R. Daniel Brdar, certify that:

	1.		I have reviewed this quarterly report on Form 10-Q of FuelCell Energy, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: March 6, 2009	By:	/s/ R. Daniel Brdar
		R. Daniel Brdar
		Chairman, President and Chief Executive Officer (Principal Executive Officer)

Exhibit 31.2

CERTIFICATIONS

I, Joseph G. Mahler, certify that:

	1.		I have reviewed this quarterly report on Form 10-Q of FuelCell Energy, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation, and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: March 6, 2009	By:	/s/ Joseph G. Mahler
		Joseph G. Mahler
		Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary (Principal Financial Officer and Principal Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of FuelCell Energy, Inc. (the “Company”) on Form 10-Q for the quarter ended January 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Daniel Brdar, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

	(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


	By:	/s/ R. Daniel Brdar
		R. Daniel Brdar
		Chairman, President and Chief Executive Officer (Principal Executive Officer) March 6, 2009

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of FuelCell Energy, Inc. (the “Company”) on Form 10-Q for the quarter ended January 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph G. Mahler, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

	(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


	By:	/s/ Joseph G. Mahler
		Joseph G. Mahler
		Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary (Principal Financial Officer and Principal Accounting Officer) March 6, 2009

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.