EXECUTION COPY

FuelCell Energy, Inc.
 
100,000 Shares of 5% Series B Cumulative Convertible Perpetual Preferred Stock
 
(Liquidation Preference $1,000 per share)* 
 
Purchase Agreement
 
November 11, 2004
 
Citigroup Global Markets Inc.
As Representative of the Initial Purchasers
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
 
Ladies and Gentlemen:
 
FuelCell Energy, Inc., a corporation organized under the laws of the State of
Delaware (the “Company”), proposes to issue and sell to the several parties
named in Schedule I hereto (the “Initial Purchasers”), for whom you (the
“Representative”) are acting as representative, 100,000 shares of 5% Series B
Cumulative Convertible Perpetual Preferred Stock (Liquidation Preference $1,000
per share) (the “Preferred Stock”), of the Company (the “Firm Securities”). The
Company also proposes to grant to the Initial Purchasers an option to purchase
up to 35,000 additional shares of Preferred Stock  (the “Option Securities” and,
together with the Firm Securities, the “Securities”). The Securities are
convertible into shares of Common Stock, par value $0.0001 per share (the
“Common Stock”), of the Company at the conversion price set forth herein. The
Securities will have the benefit of a registration rights agreement (the
“Registration Rights Agreement”), to be dated as of the Closing Date, between
the Company and the Initial Purchasers, pursuant to which the Company will agree
to register the resale of the Securities under the Act subject to the terms and
conditions therein specified. To the extent there are no additional parties
listed on Schedule I other than you, the term Representative as used herein
shall mean you as the Initial Purchasers, and the terms Representatives and
Initial Purchasers shall mean either the singular or plural as the context
requires. The use of the neuter in this Agreement shall include the feminine and
masculine wherever appropriate. Certain terms used herein are defined in Section
18 hereof.
 
The sale of the Securities to the Initial Purchasers will be made without
registration of the Securities or the Common Stock issuable upon conversion
thereof under the Act in reliance upon exemptions from the registration
requirements of the Act.
 

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*  Plus an option to purchase up to 35,000 additional shares of Preferred Stock
from the Company.

       

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In connection with the sale of the Securities, the Company has prepared a
preliminary offering memorandum, dated November 10, 2004 (as amended or
supplemented at the date thereof, including any and all exhibits thereto and any
information incorporated by reference therein, the “Preliminary Memorandum”),
and a final offering memorandum, dated November 11, 2004 (as amended or
supplemented at the Execution Time, including any and all exhibits thereto and
any information incorporated by reference therein, the “Final Memorandum”). Each
of the Preliminary Memorandum and the Final Memorandum sets forth certain
information concerning the Company, the Securities and the Common Stock issuable
upon conversion thereof. The Company hereby confirms that it has authorized the
use of the Preliminary Memorandum and the Final Memorandum, and any amendment or
supplement thereto, in connection with the offer and sale of the Securities by
the Initial Purchasers. Unless stated to the contrary, any references herein to
the terms “amend”, “amendment” or “supplement” with respect to the Final
Memorandum shall be deemed to refer to and include any information filed under
the Exchange Act subsequent to the Execution Time that is incorporated by
reference therein.
 
1.  Representations and Warranties. The Company represents and warrants to each
Initial Purchaser as set forth below in this Section 1.
 
(a)  The Preliminary Memorandum, at the date thereof, did not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. At the Execution Time, on the Closing Date and on any
settlement date, the Final Memorandum did not and will not (and any amendment or
supplement thereto, at the date thereof, at the Closing Date and on any
settlement date, will not) contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided,
however, that the Company makes no representation or warranty as to the
information contained in or omitted from the Preliminary Memorandum or the Final
Memorandum, or any amendment or supplement thereto, in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of the Initial Purchasers through the Representative specifically for inclusion
therein.
 
(b)  None of the Company, its Affiliates, or any person acting on its or their
behalf has, directly or indirectly, made offers or sales of any security, or
solicited offers to buy, any security under circumstances that would require the
registration of the Securities or the Common Stock issuable upon conversion
thereof under the Act.
 
(c)  None of the Company, its Affiliates, or any person acting on its or their
behalf has: (i) engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with any offer or
sale of the Securities or (ii) engaged in any directed selling efforts (within
the meaning of Regulation S) with respect to the Securities or the Common Stock
issuable upon conversion thereof; and each of the Company, its Affiliates and
each person acting on its or their behalf has complied with the offering
restrictions requirement of Regulation S.
 
(d)  The Securities satisfy the eligibility requirements of Rule 144A(d)(3)
under the Act.

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(e)  The Company has been advised by the NASD’s PORTAL Market that the
Securities have been designated PORTAL-eligible securities in accordance with
the rules and regulations of the NASD.
 
(f)  No registration under the Act of the Securities is required for the offer
and sale of the Securities to or by the Initial Purchasers in the manner
contemplated herein and in the Final Memorandum.
 
(g)  The Company is not, and after giving effect to the offering and sale of the
Securities and the application of the proceeds thereof as described in the Final
Memorandum will not be, an “investment company” as defined in the Investment
Company Act, without taking account of any exemption arising out of the number
of holders of the Company’s securities.
 
(h)  The Company is subject to and in full compliance with the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act.
 
(i)  The Company has not paid or agreed to pay to any person any compensation
for soliciting another to purchase any securities of the Company (except as
contemplated in this Agreement).
 
(j)  The Company has not taken, directly or indirectly, any action designed to
or that has constituted or that might reasonably be expected to cause or result,
under the Exchange Act or otherwise, in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities.
 
(k)  Each of the Company and its subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized with full corporate power and
authority to own or lease, as the case may be, and to operate its properties and
conduct its business as described in the Final Memorandum, and is duly qualified
to do business as a foreign corporation and is in good standing under the laws
of each jurisdiction that requires such qualification.
 
(l)  All the outstanding shares of capital stock of each subsidiary have been
duly authorized and validly issued and are fully paid and nonassessable, and,
except as otherwise set forth in the Final Memorandum, all outstanding shares of
capital stock of the subsidiaries are owned by the Company either directly or
through wholly owned subsidiaries free and clear of any security interest,
claim, lien or encumbrance.
 
(m)  The Company’s authorized equity capitalization is as set forth in the Final
Memorandum; the capital stock of the Company conforms to the description thereof
contained in the Final Memorandum; the outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and nonassessable;
the shares of Common Stock initially issuable upon conversion of the Securities
have been duly authorized and, when issued upon conversion of the Securities
against payment of the conversion price, will be validly issued, fully paid and
nonassessable; the Board of Directors of the Company has duly and validly
adopted resolutions reserving such shares of Common Stock for issuance upon
conversion of the Securities; the holders of outstanding shares of capital stock
of the Company are not entitled to preemptive or other rights to subscribe for
the Securities or the shares of Common Stock issuable upon conversion thereof;
and, except as set forth in the Final Memorandum, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or rights to
convert any obligations into or exchange any securities for, shares of capital
stock of or ownership interests in the Company are outstanding.

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(n)  The statements in the Final Memorandum under the headings “Certain Federal
Income Tax Considerations”, “Description of the Series B Preferred Stock”, and
“Description of Common Stock” and the statements under the headings “Item. 1
Business — Proprietary Rights and Licensed Technology” and “Item 3. Legal
Proceedings” in the Company’s Annual Report on Form 10-K, which is incorporated
by reference into the Final Memorandum, fairly summarize the matters therein
described.
 
(o)  This Agreement has been duly authorized, executed and delivered by the
Company; the Securities have been duly authorized, and, when issued and
delivered to and paid for by the Initial Purchasers, will have been duly
executed and delivered by the Company and will be fully paid and nonassessable
and will be convertible into Common Stock in accordance with their terms; the
certificates for the Securities are in valid and sufficient form; and the
Registration Rights Agreement has been duly authorized by the Company and, when
executed and delivered by the Company, will constitute the legal, valid, binding
and enforceable instrument of the Company (subject, as to the enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting creditors’ rights generally from time to time in effect and
to general principles of equity), provided that no representation is made with
respect to Section 5 thereof.
 
(p)  No consent, approval, authorization, filing with or order of any court or
governmental agency or body is required in connection with the transactions
contemplated herein or in the Registration Rights Agreement, except such as may
be required under the blue sky laws of any jurisdiction in which the Securities
are offered and sold and, in the case of the Registration Rights Agreement, such
as will be obtained under the Act.
 
(q)  None of the execution and delivery of this Agreement or the Registration
Rights Agreement, the issuance and sale of the Securities or the issuance of the
Common Stock upon conversion thereof, or the consummation of any other of the
transactions herein or therein contemplated, or the fulfillment of the terms
hereof or thereof will conflict with, result in a breach or violation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to, (i) the charter or by-laws of
the Company or any of its subsidiaries; (ii) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan agreement or
other agreement, obligation, condition, covenant or instrument to which the
Company or any of its subsidiaries is a party or bound or to which its or their
property is subject; or (iii) any statute, law, rule, regulation, judgment,
order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or any of its subsidiaries or any of its or their properties, except in
the case of clauses (ii) and (iii) above, for any such conflict, breach,
violation or imposition that could not reasonably be expected to have,
individually in the aggregate, a material adverse effect on the condition
(financial or otherwise), prospects, earnings, business or properties of the
Company and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business (a "Material Adverse Effect").

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(r)  The consolidated historical financial statements and schedules of the
Company and its consolidated subsidiaries included or incorporated by reference
in the Final Memorandum present fairly the financial condition, results of
operations and cash flows of the Company as of the dates and for the periods
indicated, comply as to form with the applicable accounting requirements of
Regulation S-X and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as otherwise noted therein); the selected financial data under
the caption “Item 6. Selected Financial Data” in the Company’s Annual Report on
Form 10-K, which is incorporated by reference in the Final Memorandum fairly
present, on the basis stated in the Final Memorandum, the information included
therein; the pro forma financial statements included or incorporated by
reference in the Final Memorandum include assumptions that provide a reasonable
basis for presenting the significant effects directly attributable to the
transactions and events described therein, the related pro forma adjustments
give appropriate effect to those assumptions, the pro forma adjustments reflect
the proper application of those adjustments to the historical financial
statement amounts in the pro forma financial statements included or incorporated
by reference in the Final Memorandum, the pro forma financial statements
included or incorporated by reference in the Final Memorandum comply as to form
with the applicable accounting requirements of Regulation S-X and the pro forma
adjustments have been properly applied to the historical amounts in the
compilation of those statements.
 
(s)  No action, suit or proceeding by or before any court or governmental
agency, authority or body or any arbitrator involving the Company or any of its
subsidiaries or its or their property is pending or, to the best knowledge of
the Company, threatened that (i) could reasonably be expected to have a material
adverse effect on the performance of this Agreement or the Registration Rights
Agreement, or the consummation of any of the transactions contemplated hereby or
(ii) could reasonably be expected to have a Material Adverse Effect, except as
set forth in or contemplated in the Final Memorandum (exclusive of any amendment
or supplement thereto).
 
(t)  Each of the Company and its subsidiaries owns or leases all such properties
as are necessary to the conduct of its operations as presently conducted.
 
(u)  Neither the Company nor any of its subsidiaries is in violation or default
of (i) any provision of its charter or bylaws; (ii) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan agreement or
other agreement, obligation, condition, covenant or instrument to which it is a
party or bound or to which its property is subject; or (iii) any statute, law,
rule, regulation, judgment, order or decree applicable to the Company or any of
its subsidiaries of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or such subsidiary or any of its properties, as applicable.
 
(v)  KPMG, LLP, who have certified certain financial statements of the Company
and its consolidated subsidiaries and delivered their report with respect to the
audited consolidated financial statements and schedules included or incorporated
by reference in the Final Memorandum, are independent public accountants with
respect to the Company within the meaning of the Act.

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(w)  PricewaterhouseCoopers LLP, who have certified certain financial statements
of Global Thermoelectric Inc. (“Global”), and its consolidated subsidiaries and
delivered their report with respect to the audited consolidated financial
statements and schedules incorporated by reference into the Final Memorandum,
are independent public accountants with respect to Global within the meaning of
the Act.
 
(x)  There are no stamp or other issuance or transfer taxes or duties or other
similar fees or charges required to be paid in connection with the execution and
delivery of this Agreement or the issuance or sale by the Company of the
Securities or upon the issuance of Common Stock upon the conversion thereof.
 
(y)  The Company has filed all non-U.S., U.S. federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a Material
Adverse Effect and except as set forth in or contemplated in the Final
Memorandum (exclusive of any amendment or supplement thereto)) and has paid all
taxes required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently being contested in
good faith or as would not have a Material Adverse Effect and except as set
forth in or contemplated in the Final Memorandum (exclusive of any amendment or
supplement thereto).
 
(z)  No labor problem or dispute with the employees of the Company or any of its
subsidiaries exists or is threatened or imminent, and the Company is not aware
of any existing or imminent labor disturbance by the employees of any of its or
its subsidiaries’ principal suppliers, contractors or customers, except as would
not have a Material Adverse Effect, and except as set forth in or contemplated
in the Final Memorandum (exclusive of any amendment or supplement thereto).
 
(aa)  The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; all policies of insurance and fidelity or surety bonds insuring the
Company or any of its subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect; the Company and
its subsidiaries are in compliance with the terms of such policies and
instruments; there are no claims by the Company or any of its subsidiaries under
any such policy or instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause, except for such
claims, the denial of which, singularly or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect; neither the
Company nor any of its subsidiaries has been refused any insurance coverage
sought or applied for; and neither the Company nor any of its subsidiaries has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect except as set forth in or contemplated
in the Final Memorandum (exclusive of any amendment or supplement thereto).
 
(bb)  No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary’s capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary’s property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated in the Final
Memorandum (exclusive of any amendment or supplement thereto).

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(cc)  The Company and its subsidiaries possess all licenses, certificates,
permits and other authorizations issued by the appropriate U.S. federal, state
or non-U.S. regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any of its subsidiaries has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect, except as set forth in or contemplated in the Final Memorandum
(exclusive of any amendment or supplement thereto).
 
(dd)  The Company and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
 
(ee)  The Company and its subsidiaries are (i) in compliance with any and all
applicable non-U.S., U.S. federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants (“Environmental Laws”);
(ii) have received and are in compliance with all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses; and (iii) have not received notice of any actual or
potential liability under any Environmental Law, except where such
non-compliance with Environmental Laws, failure to receive required permits,
licenses or other approvals, or liability would not, individually or in the
aggregate, have a Material Adverse Effect, except as set forth in or
contemplated in the Final Memorandum (exclusive of any amendment or supplement
thereto). Except as set forth in the Final Memorandum, neither the Company nor
any of its subsidiaries has been named as a “potentially responsible party”
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended.
 
(ff)  In the ordinary course of its business, the Company periodically reviews
the effect of Environmental Laws on the business, operations and properties of
the Company and its subsidiaries, in the course of which it identifies and
evaluates associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of properties
or compliance with Environmental Laws, or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties); on the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or in the
aggregate, have a Material Adverse Effect, except as set forth in or
contemplated in the Final Memorandum (exclusive of any amendment or supplement
thereto).

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(gg)  None of the following events has occurred or exists: (i) a failure to
fulfill the obligations, if any, under the minimum funding standards of Section
302 of the United States Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), and the regulations and published interpretations thereunder
with respect to a Plan, determined without regard to any waiver of such
obligations or extension of any amortization period; (ii) an audit or
investigation by the Internal Revenue Service, the U.S. Department of Labor, the
Pension Benefit Guaranty Corporation or any other federal or state governmental
agency or any foreign regulatory agency with respect to the employment or
compensation of employees by any member of the Company Group that could have a
Material Adverse Effect on the Company; (iii) any breach of any contractual
obligation, or any violation of law or applicable qualification standards, with
respect to the employment or compensation of employees by any member of the
Company that could have a Material Adverse Effect on the Company. None of the
following events has occurred or is reasonably likely to occur: (i) a material
increase in the aggregate amount of contributions required to be made to all
Plans in the current fiscal year of the Company compared to the amount of such
contributions made in the Company’s most recently completed fiscal year; (ii) a
material increase in the Company’s “accumulated post-retirement benefit
obligations” (within the meaning of Statement of Financial Accounting Standards
106) compared to the amount of such obligations in the Company’s most recently
completed fiscal year; (iii) any event or condition giving rise to a liability
under Title IV of ERISA that could have a Material Adverse Effect on the
Company; or (iv) the filing of a claim by one or more employees or former
employees of the Company related to their employment that could have a Material
Adverse Effect on the Company. For purposes of this paragraph, the term “Plan”
means a plan (within the meaning of Section 3(3) of ERISA) subject to Title IV
of ERISA with respect to which any member of the Company may have any liability.
For purposes of this paragraph, the term “Company Group” means the Company and
any other entity that would be in the Company’s “controlled group” for purposes
of Title IV of ERISA.2
 
(hh)  The subsidiaries listed on Annex A attached hereto are the only
“significant subsidiaries” of the Company as defined in Rule l-02 of Regulation
S-X under the Act (the “Subsidiaries”).
 
(ii)  The Company has not taken any action or omitted to take any action (such
as issuing any press release relating to any Securities without an appropriate
legend) which may result in the loss by any of the Initial Purchasers of the
ability to rely on any stabilization safe harbor provided by the Financial
Services Authority under the Financial Services and Markets Act 2000 (the
“FSMA”). The Company has been informed of the guidance relating to stabilization
provided by the Financial Services Authority, in particular in Section MAR 2
Annex 2G of the Financial Services Handbook.
 
(jj)  None of the Company, its subsidiaries or, to the knowledge of the Company,
any director, officer, agent, employee or Affiliate of the Company or any of its
subsidiaries is aware of or has taken any action, directly or indirectly, that
would result in a violation by such Persons of Foreign Corrupt Practices Act of
1977, as amended, and the rules and regulations thereunder (the “FCPA”),
including, without limitation, making use of the mails or any means or
instrumentality of interstate commerce corruptly in furtherance of an offer,
payment, promise to pay or authorization of the payment of any money, or other
property, gift, promise to give, or authorization of the giving of anything of
value to any “foreign official” (as such term is defined in the FCPA) or any
foreign political party or official thereof or any candidate for foreign
political office, in contravention of the FCPA; and the Company, its
subsidiaries and, to the knowledge of the Company, its Affiliates have conducted
their businesses in compliance with the FCPA and have instituted and maintain
policies and procedures designed to ensure, and which are reasonably expected to
continue to ensure, continued compliance therewith.

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(kk)  The operations of the Company and its subsidiaries are and have been
conducted at all times in compliance with applicable financial recordkeeping and
reporting requirements of the Currency and Foreign Transactions Reporting Act of
1970, as amended, the money laundering statutes of all jurisdictions, the rules
and regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental agency
(collectively, the “Money Laundering Laws”) and no action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries with respect to the Money
Laundering Laws is pending or, to the best knowledge of the Company, threatened.
 
(ll)  None of the Company, any of its subsidiaries or, to the knowledge of the
Company, any director, officer, agent, employee or Affiliate of the Company or
any of its subsidiaries is currently subject to any U.S. sanctions administered
by the Office of Foreign Assets Control of the U.S. Department of the Treasury
(“OFAC”); and the Company will not directly or indirectly use the proceeds of
the offering of the Securities hereunder, or lend, contribute or otherwise make
available such proceeds to any subsidiary, joint venture partner or other person
or entity, for the purpose of financing the activities of any person currently
subject to any U.S. sanctions administered by OFAC.
 
(mm)  There is and has been no failure on the part of the Company and any of the
Company’s directors or officers, in their capacities as such, to comply with any
provision of the Sarbanes Oxley Act of 2002 and the rules and regulations
promulgated in connection therewith (the “Sarbanes Oxley Act”), including
Section 402 related to loans, Section 404 related to internal controls and
Sections 302 and 906 related to certifications.
 
(nn)  Except as disclosed in the Final Memorandum or in any document
incorporated by reference therein, since the end of the Company’s most recent
audited fiscal year, there has been no change in the Company’s internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial reporting.
 
(oo)  The Company has not received from the Securities Exchange Commission (the
“Commission”) any written comments, questions or requests for modification of
disclosure in respect of any reports filed with the Commission pursuant to the
Exchange Act and incorporated by reference into the Final Memorandum, except for
comments, questions or requests (i) that have been satisfied by the provision of
supplemental information to the staff of the Commission, or (ii) in respect of
which the Company has agreed with the staff of the Commission to make a
prospective change in future reports filed by it with the Commission pursuant to
the Exchange Act, of which agreement the Initial Purchasers and their counsel
have been made aware.

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(pp)  The Company and its subsidiaries own, license or have other rights to use,
on reasonable terms, all patents, patent applications, trade and service marks,
trade and service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets, technology, know-how and other intellectual property
(collectively, the “Intellectual Property Rights”) necessary for the conduct of
the Company’s and its subsidiaries’ business as now conducted or as proposed in
the Final Memorandum to be conducted. Except as set forth under the heading
“Item 1. Business — Proprietary Rights and Licensed Technology” in the Company’s
Annual Report on Form 10-K, which is incorporated by reference into the Final
Memorandum (a) there are no rights of third parties to any such Intellectual
Property Rights; (b) there is no material infringement by third parties of any
such Intellectual Property Rights; (c) there is no pending or threatened action,
suit, proceeding or claim by others challenging the Company’s or its
subsidiaries’ rights in or to any such Intellectual Property Rights, and the
Company is unaware of any facts which would form a reasonable basis for any such
claim; (d) there is no pending or threatened action, suit, proceeding or claim
by others challenging the validity or scope of any such Intellectual Property
Rights, and the Company is unaware of any facts which would form a reasonable
basis for any such claim; (e) there is no pending or threatened action, suit,
proceeding or claim by others that the Company or its subsidiaries, the conduct
of the business of the Company and its subsidiaries, or the offering of goods
and services by the Company or its subsidiaries infringes or otherwise violates
any patent, trademark, copyright, trade secret or other proprietary rights of
others, and the Company is unaware of any other fact which would form a
reasonable basis for any such claim; (f) there is no U.S. patent or published
U.S. patent application which contains claims that dominate or may dominate any
Intellectual Property Rights described in the Final Memorandum as being owned by
or licensed to the Company or that interferes with the issued or pending claims
of any such Intellectual Property Rights; and (g) there is no prior art of which
the Company is aware that may render any U.S. patent held by the Company invalid
or any U.S. patent application held by the Company unpatentable which has not
been disclosed to the U.S. Patent and Trademark Office.
 
(qq)  Prior to the date hereof, the Company has furnished to the Representative
letters, each substantially in the form of Exhibit A hereto, duly executed by
each officer and director of the Company and addressed to the Representative.
 
Any certificate signed by any officer of the Company and delivered to the
Representative or counsel for the Initial Purchasers in connection with the
offering of the Securities shall be deemed a representation and warranty by the
Company, as to matters covered thereby, to each Initial Purchaser.
 
2.  Purchase and Sale. (a) Subject to the terms and conditions and in reliance
upon the representations and warranties herein set forth, the Company agrees to
sell to each Initial Purchaser, and each Initial Purchaser agrees, severally and
not jointly, to purchase from the Company, at a purchase price of $937.50 per
share, the number of Firm Securities set forth opposite such Initial Purchaser’s
name in Schedule I hereto.

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(b)  Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Initial Purchasers to purchase, severally and not jointly,
the Option Securities at the same purchase price as the Initial Purchasers shall
pay for the Firm Securities, plus accrued dividends, if any. The option may be
exercised in whole or in part at any time and multiple times on or before the
75th day after the date of the Final Memorandum upon written or telegraphic
notice by the Representative to the Company setting forth the principal amount
of Option Securities as to which the several Initial Purchasers are exercising
the option and the settlement date. Delivery of the Option Securities, and
payment therefor, shall be made as provided in Section 3 hereof. The principal
amount of Option Securities to be purchased by each Initial Purchaser shall be
the same percentage of the total principal amount of Option Securities to be
purchased by the several Initial Purchasers as such Initial Purchaser is
purchasing of the Firm Securities, subject to such adjustments as you in your
absolute discretion shall make to eliminate any fractional Securities.
 
3.  Delivery and Payment. (a) Delivery of and payment for the Firm Securities
and the Option Securities (if the option provided for in Section 2(b) hereof
shall have been exercised on or before the third Business Day prior to the
Closing Date) shall be made at 10:00 A.M., New York City time, on November 17,
2004, or at such time on such later date not more than three Business Days after
the foregoing date as the Representative shall designate, which date and time
may be postponed by agreement between the Representative and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment for the
Securities being herein called the “Closing Date”). Delivery of the Securities
shall be made to the Representative for the respective accounts of the several
Initial Purchasers against payment by the several Initial Purchasers through the
Representative of the purchase price thereof to or upon the order of the Company
by wire transfer payable in same-day funds to the account specified by the
Company. Delivery of the Securities shall be made through the facilities of The
Depository Trust Company unless the Representative shall otherwise instruct.
 
(b)  If the option provided for in Section 2(b) hereof is exercised after the
third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representative on the
date specified by the Representative (which shall be within three Business Days
after exercise of said option) for the respective accounts of the several
Initial Purchasers, against payment by the several Initial Purchasers through
the Representative of the purchase price thereof to or upon the order of the
Company by wire transfer payable in same-day funds to the account specified by
the Company. If settlement for the Option Securities occurs after the Closing
Date, the Company will deliver to the Representative on the settlement date for
the Option Securities, and the obligation of the Initial Purchasers to purchase
the Option Securities shall be conditioned upon receipt of, supplemental
opinions, certificates and letters confirming as of such date the opinions,
certificates and letters delivered on the Closing Date pursuant to Section 6
hereof.
 
4.  Offering by Initial Purchasers. (a) Each Initial Purchaser acknowledges that
the Securities and the Common Stock issuable upon conversion thereof have not
been and will not be registered under the Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons,
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Act.

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                    (b)  Each Initial Purchaser, severally and not jointly,
represents and warrants to and agrees with the Company that:
 
(i)  it has not offered or sold, and will not offer or sell, any Securities
within the United States or to, or for the account or benefit of, U.S. persons
(x) as part of their distribution at any time or (y) otherwise until one year
after the later of the commencement of the offering and the date of closing of
the offering except:

                                                                                         
(A) to those it reasonably believes to be “qualified institutional buyers” (as
defined in Rule 144A under the Act) or

                                                                        (B) in
accordance with Rule 903 of Regulation S;
 

(ii)  neither it nor any person acting on its behalf has made or will make
offers or sales of the Securities in the United States by means of any form of
general solicitation or general advertising (within the meaning of Regulation D)
in the United States;
 
(iii)  in connection with each sale pursuant to Section 4(b)(i)(A), it has taken
or will take reasonable steps to ensure that the purchaser of such Securities is
aware that such sale is being made in reliance on Rule 144A;
 
(iv)  any information provided by the Initial Purchasers to publishers of
publicly available databases about the terms of the Securities shall include a
statement that the Securities have not been registered under the Act and are
subject to restrictions under Rule 144A under the Act and Regulation S;
 
(v)  it will not engage in hedging transactions with regard to the Securities
prior to the expiration of the distribution compliance period as (defined in
Regulation S), unless in compliance with the Act;
 
(vi)  neither it, nor any of its Affiliates nor any person acting on its or
their behalf has engaged or will engage in any directed selling efforts (within
the meaning of Regulation S) with respect to the Securities;
 
(vii)  it has not entered and will not enter into any contractual arrangement
with any distributor (within the meaning of Regulation S) with respect to the
distribution of the Securities, except with its affiliates or with the prior
written consent of the Company;
 
(viii)  it and they have complied and will comply with the offering restrictions
requirement of Regulation S;
 
(ix)  at or prior to the confirmation of sale of Securities (other than a sale
of Securities pursuant to Section 4(b)(i)(A) of this Agreement), it shall have
sent to each distributor, dealer or person receiving a selling concession, fee
or other remuneration that purchases Securities from it during the distribution
compliance period (within the meaning of Regulation S) a confirmation or notice
to substantially the following effect:

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“The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the “Act”) and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S. persons (i) as part
of their distribution at any time or (ii) otherwise until one year after the
later of the commencement of the offering and the date of closing of the
offering, except in either case in accordance with Regulation S or Rule 144A
under the Act. Additional restrictions on the offer and sale of the Securities
and the Common Stock issuable upon conversion thereof are described in the
offering memorandum for the Securities. Terms used in this paragraph have the
meanings given to them by Regulation S.”
 
(x)  it acknowledges that additional restrictions on the offer and sale of the
Securities and the Common Stock issuable upon conversion thereof are described
in the Final Memorandum;
 
(xi)  it has not offered or sold and, prior to the date six months after the
date of issuance of the Securities, will not offer or sell any Securities to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or as agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
 
(xii)  it has complied and will comply with all applicable provisions of the
FSMA with respect to anything done by it in relation to the Securities in, from
or otherwise involving the United Kingdom;
 
(xiii)  it has only communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or inducement to engage
in investment activity (within the meaning of section 21 of the FSMA) received
by it in connection with the issue or sale of any Securities, in circumstances
in which section 21(1) of the FSMA does not apply to the Company; and
 
(xiv)  it is an “accredited investor” (as defined in Rule 501(a) of Regulation
D).
 
5.  Agreements. The Company agrees with each Initial Purchaser that:
 
(a)  The Company will furnish to each Initial Purchaser and to counsel for the
Initial Purchasers, without charge, during the period referred to in paragraph
(c) below, as many copies of the Final Memorandum and any amendments and
supplements thereto as they may reasonably request.

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(b)  The Company will not amend or supplement the Final Memorandum, other than
by filing documents under the Exchange Act that are incorporated by reference
therein, without the prior written consent of the Representative; provided,
however, that, prior to the completion of the distribution of the Securities by
the Initial Purchasers (as determined by the Initial Purchasers), the Company
will not file any document under the Exchange Act that is incorporated by
reference in the Final Memorandum unless, prior to such proposed filing, the
Company has furnished the Representative with a copy of such document for its
review and the Representative has not reasonably objected to the filing of such
document. The Company will promptly advise the Representative when any document
filed under the Exchange Act that is incorporated by reference in the Final
Memorandum shall have been filed with the Commission.
 
(c)  If at any time prior to the completion of the sale of the Securities by the
Initial Purchasers (as determined by the Representative), any event occurs as a
result of which the Final Memorandum, as then amended or supplemented, would
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it should be necessary to
amend or supplement the Final Memorandum to comply with applicable law, the
Company will promptly (i) notify the Representative of any such event; (ii)
subject to the requirements of paragraph (b) of this Section 5, prepare an
amendment or supplement that will correct such statement or omission or effect
such compliance; and (iii) supply any supplemented or amended Final Memorandum
to the several Initial Purchasers and counsel for the Initial Purchasers without
charge in such quantities as they may reasonably request.
 
(d)  The Company will arrange, if necessary, for the qualification of the
Securities for sale by the Initial Purchasers under the laws of such
jurisdictions as the Representative may designate and will maintain such
qualifications in effect so long as required for the sale of the Securities;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Securities, in any jurisdiction where
it is not now so subject. The Company will promptly advise the Representative of
the receipt by the Company of any notification with respect to the suspension of
the qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose.
 
(e)  The Company will not, and will not permit any of its Affiliates to, resell
any Securities or Shares of Common Stock issued upon conversion thereof that
have been acquired by any of them.
 
(f)  None of the Company, its Affiliates, or any person acting on its or their
behalf will, directly or indirectly, make offers or sales of any security, or
solicit offers to buy any security, under circumstances that would require the
registration of the Securities or Common Stock issuable upon conversion thereof
under the Act.
 
(g)  None of the Company, its Affiliates, or any person acting on its or their
behalf will engage in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with any offer or sale of the
Securities in the United States.

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(h)  So long as any of the Securities or the Common Stock issuable upon the
conversion thereof are “restricted securities” within the meaning of Rule
144(a)(3) under the Act, the Company will, during any period in which it is not
subject to and in compliance with Section 13 or 15(d) of the Exchange
Act, provide to each holder of such restricted securities and to each
prospective purchaser (as designated by such holder) of such restricted
securities, upon the request of such holder or prospective purchaser, any
information required to be provided by Rule 144A(d)(4) under the Act. This
covenant is intended to be for the benefit of the holders, and the prospective
purchasers designated by such holders, from time to time of such restricted
securities.
 
(i)  None of the Company, its Affiliates, or any person acting on its or their
behalf will engage in any directed selling efforts with respect to the
Securities, and each of them will comply with the offering restrictions
requirement of Regulation S. Terms used in this paragraph have the meanings
given to them by Regulation S.
 
(j)  Any information provided by the Company to publishers of publicly available
databases about the terms of the Securities shall include a statement that the
Securities have not been registered under the Act and are subject to
restrictions under Rule 144A under the Act and Regulation S.
 
(k)  The Company will cooperate with the Representative and use its best efforts
to permit the Securities to be eligible for clearance and settlement through The
Depository Trust Company.
 
(l)  The Company will reserve and keep available at all times, free of
pre-emptive rights, the full number of Shares of Common Stock issuable upon
conversion of the Securities.
 
(m)  The Company will not for a period of 90 days following the Execution Time,
without the prior written consent of Citigroup, directly or indirectly, offer,
sell, contract to sell, pledge, otherwise dispose of, enter into any transaction
which is designed to, or might reasonably be expected to, result in the
disposition (whether by actual disposition or effective economic disposition due
to cash settlement or otherwise) by the Company or any Affiliate of the Company
or any person in privity with the Company or any Affiliate of the Company of,
file (or participate in the filing of) a registration statement with the
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Exchange Act in respect of, any shares of capital stock of the Company
or any securities convertible into, or exercisable or exchangeable for, shares
of capital stock of the Company (other than the Securities), or publicly
announce an intention to effect any such transaction; provided, however, that
the Company may issue and sell Common Stock or securities convertible into or
exchangeable for Common Stock pursuant to any employee stock option plan, stock
ownership plan or dividend reinvestment plan of the Company described in the
Final Memorandum and in effect at the Execution Time, and the Company may issue
Common Stock issuable upon the conversion of securities or the exercise of
warrants outstanding at the Execution Time and described in the Final
Memorandum.
 
(n)  The Company will not take, directly or indirectly, any action designed to
or which has constituted or which might reasonably be expected to cause or
result, under the Exchange Act or otherwise, in stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities.

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(o)  Between the date hereof and the Closing Date, the Company will not do or
authorize any act or thing that would result in an adjustment of the conversion
price.
 
(p)  The Company agrees to pay the costs and expenses relating to the following
matters: (i) the preparation of the Registration Rights Agreement, the issuance
of the Securities, and the issuance of the Common Stock upon conversion of the
Securities; (ii) the preparation, printing or reproduction of the Preliminary
Memorandum and the Final Memorandum and each amendment or supplement to either
of them; (iii) the printing (or reproduction) and delivery (including postage,
air freight charges and charges for counting and packaging) of such copies of
the Preliminary Memorandum and the Final Memorandum, and all amendments or
supplements to either of them, as may, in each case, be reasonably requested for
use in connection with the offering and sale of the Securities; (iv) the
preparation, printing, authentication, issuance and delivery of certificates for
the Securities; (v) any stamp or transfer taxes in connection with the original
issuance and sale of the Securities; (vi) the printing (or reproduction) and
delivery of this Agreement, any blue sky memorandum and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Securities; (vii) any registration or qualification of the Securities for
offer and sale under the securities or blue sky laws of the several states and
any other jurisdictions specified pursuant to Section 5(d) (including filing
fees and the reasonable fees and expenses of counsel for the Initial Purchasers
relating to such registration and qualification); (viii) admitting the
Securities for trading in the PORTAL Market; (ix) the transportation and other
expenses incurred by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Securities; (x) the fees and
expenses of the Company’s accountants and the fees and expenses of counsel
(including local and special counsel) for the Company; and (xi) all other costs
and expenses incident to the performance by the Company of its obligations
hereunder.
 
(q)  The Company will, for a period of twelve months following the Execution
Time, furnish to the Representative (i) all reports or other communications
(financial or other) generally made available to stockholders, and deliver such
reports and communications to the Representative as soon as they are available,
unless such documents are furnished to or filed with the Commission or any
securities exchange on which any class of securities of the Company is listed
and generally made available to the public and (ii) such additional information
concerning the business and financial condition of the Company as the
Representative may from time to time reasonably request (such statements to be
on a consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to stockholders).
 
(r)  The Company will comply with all applicable securities and other laws,
rules and regulations, including, without limitation, the Sarbanes Oxley Act,
and use its best efforts to cause the Company’s directors and officers, in their
capacities as such, to comply with such laws, rules and regulations, including,
without limitation, the provisions of the Sarbanes Oxley Act.

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(s)  The Company will not take any action or omit to take any action (such as
issuing any press release relating to any Securities without an appropriate
legend) which may result in the loss by any of the Initial Purchases of the
ability to rely on any stabilization safe harbor provided by the Financial
Services Authority under the FSMA.
 
6.  Conditions to the Obligations of the Initial Purchasers. The obligations of
the Initial Purchasers to purchase the Firm Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties of the Company contained herein at the Execution
Time, the Closing Date and any settlement date pursuant to Section 3 hereof, to
the accuracy of the statements of the Company made in any certificates pursuant
to the provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
 
(a)  The Company shall have requested and caused Robinson and Cole, LLP counsel
for the Company, to furnish to the Representative its opinion, dated the Closing
Date and addressed to the Representative, to the effect that:
 
(i)  each of the Company and the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized, with full corporate power
and authority to own or lease, as the case may be, and to operate its properties
and conduct its business as described in the Final Memorandum, and is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction which requires such qualification;
 
(ii)  all the outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued and are fully paid and nonassessable, and,
except as otherwise set forth in the Final Memorandum, all outstanding shares of
capital stock of the Subsidiaries are owned by the Company either directly or
through wholly owned subsidiaries free and clear of any perfected security
interest and, to the knowledge of such counsel, after due inquiry, any other
security interest, claim, lien or encumbrance;
 
(iii)  the Company’s authorized equity capitalization is as set forth in the
Final Memorandum and the capital stock of the Company conforms to the
description thereof contained in the Final Memorandum and the Securities conform
to the description thereof contained in the Final Memorandum; the outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable; the shares of Common Stock initially issuable upon
conversion of the Securities have been duly authorized and, when issued upon
conversion of the Securities against payment of the conversion price, will be
validly issued, fully paid and nonassessable; the Board of Directors of the
Company has duly and validly adopted resolutions reserving such shares of Common
Stock for issuance upon conversion of the Securities; the holders of the
outstanding shares of capital stock of the Company are not entitled to any
preemptive or other rights to subscribe for the Securities or the shares of
Common Stock issuable upon conversion thereof; and, except as set forth in the
Final Memorandum, no options, warrants or other rights to purchase, agreements
or other obligations to issue, or rights to convert any obligations into or
exchange any securities for, shares of capital stock of or ownership interests
in the Company are outstanding;

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(iv)  the Securities have been duly authorized and when issued and delivered to
and paid for by the Initial Purchasers under this Agreement, will be convertible
into Common Stock in accordance with their terms; the certificates for the
Securities are in valid and sufficient form; the Registration Rights Agreement
has been duly authorized, executed and delivered and constitutes the legal,
valid, binding and enforceable instrument of the Company (subject, as to the
enforcement of remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium or other laws affecting creditors’ rights generally from time to time
in effect and to general principles of equity), provided that no representation
is made with respect to Section 5 thereof; and the statements set forth under
the headings “Description of the Series B Preferred Stock” and “Description of
Common Stock” in the Final Memorandum, insofar as such statements purport to
summarize certain provisions of the Securities and the Common Stock provide a
fair summary of such provisions;
 
(v)  to the knowledge of such counsel, there is no pending or threatened action,
suit or proceeding by or before any court or governmental agency, authority or
body or any arbitrator involving the Company or any of its subsidiaries or its
or their property that is not adequately disclosed in the Final Memorandum,
except in each case for such proceedings that, if the subject of an unfavorable
decision, ruling or finding would not singly or in the aggregate, have a
Material Adverse Effect; and the statements under the headings “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations —Factors That May Affect Future Results — We depend on our
intellectual property, and our failure to protect that intellectual property
could adversely affect our future growth and success”, “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
—Factors That May Affect Future Results — The United States government has
certain rights relating to our intellectual property”, “Item. 1 Business —
Proprietary Rights and Licensed Technology” and “Item 3. Legal Proceedings” in
the Company’s Annual Report on Form 10-K, which is incorporated by reference
into the Final Memorandum, fairly summarize the matters therein described;
 
(vi)  such counsel has no reason to believe that at the Execution Time or on the
Closing Date the Final Memorandum contained or contains any untrue statement of
a material fact or omitted or omits to state any material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading (in each case, other than the financial statements and
other financial information contained therein, as to which such counsel need
express no opinion);
 
(vii)  this Agreement has been duly authorized, executed and delivered by the
Company;

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(viii)  no consent, approval, authorization, filing with or order of any court
or governmental agency or body is required in connection with the transactions
contemplated herein or in the Registration Rights Agreement, except such as may
be required under the blue sky or securities laws of any jurisdiction in which
the Securities are offered or sold (as to which such counsel need express no
opinion beyond that set forth in paragraph (x) below) and such other approvals
(specified in such opinion) as have been obtained;
 
(ix)  neither the execution and delivery of this Agreement or the Registration
Rights Agreement, the issuance and sale of the Securities, nor the consummation
of any other of the transactions herein or therein contemplated, nor the
fulfillment of the terms hereof or thereof, including the issuance of the Common
Stock upon the conversion of the Securities, will conflict with, result in a
breach or violation of, or imposition of any lien, charge or encumbrance upon
any property or asset of the Company or of any of its subsidiaries pursuant to,
(i) the charter or by-laws of the Company or any of its subsidiaries; (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument known to such counsel to which the Company or any of its subsidiaries
is a party or bound or to which its or their property is subject; or (iii) any
statute, law, rule, regulation, judgment, order or decree applicable to the
Company or any of its subsidiaries of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having jurisdiction
over the Company, any of its subsidiaries or any of their respective properties;
 
(x)  assuming the accuracy of the representations and warranties and compliance
with the agreements contained herein (without regard to the representation found
in Section 1(e)), no registration under the Act of the Securities or the Common
Stock issuable upon conversion thereof, is required for the sale and delivery of
the Securities by the Company to the Initial Purchasers or the offer and sale by
the Initial Purchasers of the Securities in the manner contemplated herein and
in the Final Memorandum;
 
(xi)  the Company is not and, after giving effect to the offering and sale of
the Securities and the application of the proceeds thereof as described in the
Final Memorandum, will not be an “investment company” as defined in the
Investment Company Act, without taking account of any exemption arising out of
the number of holders of the Company’s securities; and
 
In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws of any jurisdiction other than the State of Delaware, the
State of New York or the federal laws of the United States, to the extent they
deem proper and specified in such opinion, upon the opinion of other counsel of
good standing whom they believe to be reliable and who are satisfactory to
counsel for the Initial Purchasers; and (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company and
public officials. References to the Final Memorandum in this Section 6(a)
include any amendment or supplement thereto at the Closing Date.

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(b)  The Representative shall have received from Cowan, Liebowitz & Latman P.C.,
special counsel to the Company for intellectual property matters, such opinion
or opinions, dated the Closing Date and addressed to the Representative, to the
effect that:
 
(i)    to the best of such counsel’s knowledge, the Company and its Subsidiaries
own, or are licensed or otherwise have the right to use, all of its Patent
Rights;
 
(ii)    to the best of such counsel’s knowledge and except as disclosed in the
Final Memorandum, the Company does not have any knowledge of, and neither the
Company nor any of it Subsidiaries has given any notice of, any pending
conflicts with or infringement of or other violation of any intellectual
property rights by any third party, and no action, suit, arbitration, or legal,
administrative or other proceedings, or investigation is pending, or to the best
knowledge of the Company, threatened, which involves the Patent Rights and which
would be likely to have a Material Adverse Effect on the Company and its
Subsidiaries; and neither the Company nor any of its Subsidiaries is subject to
any judgment, order, writ, injunction or decree of any court or any Federal,
state, local, foreign or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or sovereign, or any arbitrator, or
has entered into or is a party to any contract, which restricts or impairs the
Company or any of its Subsidiaries’ use of or right to use any of the Patent
Rights in a manner which could have a Material Adverse Effect;
 
(iii)    to the best of such counsel’s knowledge and except as would not have a
Material Adverse Effect, no Patent Rights licensed to or by or otherwise used by
the Company or any of its Subsidiaries, no services rendered or products
manufactured by or sold by the Company or any of its Subsidiaries, and no
conduct of the business of the Company or any of its Subsidiaries, infringes
upon or otherwise violates any intellectual property rights of any third party;
 
(iv)    to the best of such counsel’s knowledge and except as would not have a
Material Adverse Effect, neither the Company nor any of its Subsidiaries has
received notice of any pending conflict with or infringement upon the
intellectual property rights of any third-party, and no claims have been
asserted by any person with respect to the validity of or the Company’s or any
of its Subsidiaries’ ownership of or right to use, the Patent Rights;
 
(v)    to the best of such counsel’s knowledge and except as would not have a
Material Adverse Effect, the Company’s and its Subsidiaries’ patents (the
“Patents”) are validly issued or granted, enforceable and entitled to a
statutory presumption of validity and ownership by the Company and no
registration or application relating thereto has lapsed, been abandoned or
cancelled or is the subject of cancellation or other adversarial proceedings,
and all applications therefor are pending and are in good standing; to the best
of such counsel’s knowledge, there are no liens that have been granted against
the Patents or any of the Company’s or its Subsidiaries’ patent applications
(the “Applications”), the Company and its Subsidiaries take reasonable security
measures that are adequate to retain trade secret protection in their
non-patented technology which is material to their business;

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(vi)    to the best of such counsel’s knowledge and except as disclosed in the
Final Memorandum, there are no asserted or unasserted claims of any persons
relating to the ownership, inventorship, or scope of any of the Patents or any
of the Applications, and there are no known material defects of form in the
preparation or filing of the Patents and the Applications, and the Applications
are being diligently prosecuted. The Company or Energy Research Corporation is
listed on the records of the United States Patent and Trademark Office (the
“PTO”) and of other applicable patent offices in other jurisdictions as the sole
assignee of record thereof;
 
(vii)    to the best of such counsel’s knowledge and except for ordinary course
of business office actions issued by the respective patent offices, and as set
forth in the file wrappers of the Applications, there is no known reason that
any of the Applications will not result in issued patents, or that any patents
issued in respect of any such Applications should not be held, by a court of
competent jurisdiction, valid and enforceable or will not afford the Company or
its Subsidiaries reasonable patent protection with respect to the subject matter
sought to be patented;
 
(viii)    to the best of such counsel’s knowledge, all information received by
such counsel from the Company or its Subsidiaries or their counsel during the
prosecution of the Patents and the Applications to be “material to
patentability”, as defined in 37 C.F.R. § 1.56, has been disclosed, or will be
disclosed, to the PTO and, to the best of such counsel’s knowledge, neither the
Company, its Subsidiaries, nor such counsel made any misrepresentation to, or
concealed any material fact from, the PTO during such prosecution; and
 
(ix)    such counsel has no reason to believe that at the Execution Time or on
the Closing Date, with respect to patents, trade secrets, or other proprietary
rights or know-how, owned or used by the Company and its Subsidiaries that are
the subject of the foregoing opinions, the Final Memorandum contained or
contains an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading.
 
(c)  The Representative shall have received from Cleary, Gottlieb, Steen &
Hamilton, counsel for the Initial Purchasers, such opinion or opinions, dated
the Closing Date and addressed to the Representative, with respect to the
issuance and sale of the Securities, the Registration Rights Agreement, the
Final Memorandum (as amended or supplemented at the Closing Date) and other
related matters as the Representative may reasonably require, and the Company
shall have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
 
(d)  The Company shall have furnished to the Representative a certificate of the
Company, signed by (x) the Chairman of the Board or the President and (y) the
principal financial or accounting officer of the Company, dated the Closing
Date, to the effect that the signers of such certificate have carefully examined
the Final Memorandum, any amendment or supplement to the Final Memorandum and
this Agreement and that:

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(i)  the representations and warranties of the Company in this Agreement are
true and correct on and as of the Closing Date with the same effect as if made
on the Closing Date, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date; and
 
(ii)  since the date of the most recent financial statements included or
incorporated by reference in the Final Memorandum (exclusive of any amendment or
supplement thereto), there has been no material adverse change in the condition
(financial or otherwise), prospects, earnings, business or properties of the
Company and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Final Memorandum (exclusive of any amendment or supplement
thereto).
 
(e)  At the Execution Time and at the Closing Date, the Company shall have
requested and caused KPMG LLP to furnish to the Representative, at the Execution
Time and at the Closing Date, letters, dated respectively as of the Execution
Time (except in the case of clauses (iii)(C) and (iii)(D)) and as of the Closing
Date, in form and substance satisfactory to the Representative, confirming that
they are independent accountants within the meaning of the Exchange Act and the
applicable published rules and regulations thereunder and stating in effect
that:
 
(i)  in their opinion the audited financial statements and financial statement
schedules included or incorporated by reference in the Final Memorandum and
reported on by them comply as to form with the applicable accounting
requirements of Regulation S-X;
 
(ii)  on the basis of a reading of the latest unaudited financial statements
made available by the Company and its subsidiaries; their limited review in
accordance with the standards established under Statement on Auditing Standards
No. 100 of the unaudited interim financial information for the fiscal quarter
and nine month period ended July 30, 2004; carrying out certain specified
procedures (but not an examination in accordance with generally accepted
auditing standards) which would not necessarily reveal matters of significance
with respect to the comments set forth in such letter; a reading of the minutes
of the meetings of the stockholders, directors and audit and compensation
committees of the Company and the Subsidiaries; and inquiries of certain
officials of the Company who have responsibility for financial and accounting
matters of the Company and its subsidiaries as to transactions and events
subsequent to October 31, 2003, nothing came to their attention which caused
them to believe that:

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(A)   any unaudited financial statements included or incorporated by reference
in the Final Memorandum do not comply as to form with applicable accounting
requirements of Regulation S-X and with the published rules and regulations of
the Commission with respect to financial statements included or incorporated by
reference in quarterly reports on Form 10-Q under the Exchange Act; and said
unaudited financial statements are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included or incorporated by reference in the
Final Memorandum; or

 

(B)   with respect to the period subsequent to July 31, 2004, there were any
changes, at a specified date not more than five days prior to the date of the
letter, in the long-term debt of the Company and its subsidiaries or capital
stock of the Company or decreases in the shareholders’ equity of the Company or
decreases in the total current assets (working capital) as compared with the
amounts shown on the July 31, 2004 consolidated balance sheet included or
incorporated by reference in the Final Memorandum, or for the period from August
1, 2004 to such specified date there were any decreases in total revenues or
increases in loss from operations, loss before provision for income taxes or net
loss, as compared with the corresponding period in the preceding year, of the
Company and its subsidiaries, except in all instances for changes or decreases
set forth in such letter, in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof unless said
explanation is not deemed necessary by the Representative; or

 

(C)   the information included or incorporated by reference in the Final
Memorandum in response to Regulation S-K, Item 301 (Selected Financial Data),
Item 302 (Supplementary Financial Information), Item 402 (Executive
Compensation) and Item 503(d) (Ratio of Earnings to Fixed Charges) is not in
conformity with the applicable disclosure requirements of Regulation S-K;

 
(iii)  they have performed certain other specified procedures as a result of
which they determined that certain information of an accounting, financial or
statistical nature (which is limited to accounting, financial or statistical
information derived from the general accounting records of the Company and its
subsidiaries) set forth in the Final Memorandum, including (A) the information
set forth under the caption “Summary Financial Information” in the Final
Memorandum and the information in Items 1, 6 and 7A of the Company’s Annual
Report on Form 10-K, incorporated by reference in the Final Memorandum, (B) the
information included in Items 2 and 3 in the Company’s Quarterly Reports on Form
10-Q, incorporated by reference in the Final Memorandum, (C) the information in
items 2.01 and 9.01 included or incorporated by reference in the Company’s
Current Report on Form 8-K dated November 5, 2004 and (D) the information in
item 1.01 included or incorporated by reference in the Company’s Current Report
on Form 8-K/A dated November 10, 2004, incorporated by reference in the Final
Memorandum, agrees with the accounting records of the Company and its
subsidiaries, excluding any questions of legal interpretation;

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(iv)  on the basis of a reading of the unaudited pro forma financial statements
(the “pro forma financial statements”) included or incorporated by reference in
the Final Memorandum; carrying out certain specified procedures; inquiries of
certain officials of the Company who have responsibility for financial and
accounting matters; and proving the arithmetic accuracy of the application of
the pro forma adjustments to the historical amounts in the pro forma financial
statements, nothing came to their attention which caused them to believe that
the pro forma financial statements do not comply as to form with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of such statements.
 
All references in this Section 6(e) to the Final Memorandum include any
amendment or supplement thereto at the date of the applicable letter.
 
(f)  The Company shall have requested and caused PricewaterhouseCoopers LLP to
have furnished to the Representative, letters, dated respectively as of the
Execution Time and as of the Closing Date, in form and substance satisfactory to
the Representative, confirming that as at November 3, 2003, they were
independent accountants within the meaning of the Act and the applicable rules
and regulations adopted by the Commission thereunder and stating in effect that
in their opinion the audited financial statements included or incorporated by
reference in the Final Memorandum and reported on by them comply as to form in
all material respects with the applicable accounting requirements of the Act and
the related rules and regulations adopted by the Commission. References to the
Final Memorandum in this paragraph 6(f) include any supplement thereto at the
date of the letter.
 
(g)  Subsequent to the Execution Time or, if earlier, the dates as of which
information is given in the Final Memorandum (exclusive of any amendment or
supplement thereto), there shall not have been (i) any change or decrease
specified in the letter or letters referred to in paragraph (e) of this Section
6; or (ii) any change, or any development involving a prospective change, in or
affecting the condition (financial or otherwise), prospects, earnings, business
or properties of the Company and its subsidiaries taken as a whole, whether or
not arising from transactions in the ordinary course of business, except as set
forth in or contemplated in the Final Memorandum (exclusive of any amendment or
supplement thereto), the effect of which, in any case referred to in clause (i)
or (ii) above, is, in the sole judgment of the Representative, so material and
adverse as to make it impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated in the Final Memorandum (exclusive of
any amendment or supplement thereto).

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(h)  Subsequent to the Execution Time, there shall not have been any decrease in
the rating of any of the Company’s debt securities by any “nationally recognized
statistical rating organization” (as defined for purposes of Rule 436(g) under
the Act) or any notice given of any intended or potential decrease in any such
rating or of a possible change in any such rating that does not indicate the
direction of the possible change.
 
(i)  The Securities shall have been designated as PORTAL-eligible securities in
accordance with the rules and regulations of the NASD and the Securities shall
be eligible for clearance and settlement through The Depository Trust Company.
 
(j)  Prior to the Execution Time, the Company shall have furnished to the
Representative a letter substantially in the form of Exhibit A hereto from each
officer and director of the Company addressed to the Representative.
 
(k)  The Company shall have caused the shares of Common Stock initially issuable
upon conversion of the Securities to be approved for listing, subject to
issuance, on the Nasdaq Stock Market, Inc. (the “Nasdaq Stock Market”).
 
(l)  Prior to the Closing Date, the Company shall have furnished to the
Representative such further information, certificates and documents as the
Representative may reasonably request.
 
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as provided in this Agreement, or if any of the opinions and
certificates mentioned above or elsewhere in this Agreement shall not be
reasonably satisfactory in form and substance to the Representative and counsel
for the Initial Purchasers, this Agreement and all obligations of the Initial
Purchasers hereunder may be cancelled at, or at any time prior to, the Closing
Date by the Representative. Notice of such cancellation shall be given to the
Company in writing or by telephone or facsimile confirmed in writing.
 
The documents required to be delivered by this Section 6 will be delivered at
the office of counsel for the Initial Purchasers, at One Liberty Plaza, New
York, New York 10006, on the Closing Date.
 
7.  Reimbursement of Expenses. If the sale of the Securities provided for herein
is not consummated because any condition to the obligations of the Initial
Purchasers set forth in Section 6 hereof is not satisfied, because of any
termination pursuant to Section 10 hereof or because of any refusal, inability
or failure on the part of the Company to perform any agreement herein or comply
with any provision hereof other than by reason of a default by any of the
Initial Purchasers, the Company will reimburse the Initial Purchasers severally
through Citigroup on demand for all expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities.

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8.  Indemnification and Contribution. (a) The Company agrees to indemnify and
hold harmless each Initial Purchaser, the directors, officers, employees,
Affiliates and agents of each Initial Purchaser and each person who controls any
Initial Purchaser within the meaning of either the Act or the Exchange Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
other U.S. federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Memorandum, the
Final Memorandum or in any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, and
agrees to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided , however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made in
the Preliminary Memorandum, the Final Memorandum, or in any amendment thereof or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Initial Purchaser through the
Representative specifically for inclusion therein. This indemnity agreement will
be in addition to any liability that the Company may otherwise have.
 
(b)  Each Initial Purchaser severally, and not jointly, agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers, and each
person who controls the Company within the meaning of either the Act or the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
each Initial Purchaser, but only with reference to written information relating
to such Initial Purchaser furnished to the Company by or on behalf of such
Initial Purchaser through the Representative specifically for inclusion in the
Preliminary Memorandum, the Final Memorandum or in any amendment or supplement
thereto. This indemnity agreement will be in addition to any liability that any
Initial Purchaser may otherwise have. The Company acknowledges that (i) the
statements set forth in the last paragraph of the cover page regarding delivery
of the Securities and (ii), under the heading “Plan of Distribution, the
eleventh paragraph related to stabilization, syndicate covering transactions and
penalty bids in the Preliminary Memorandum and the Final Memorandum constitute
the only information furnished in writing by or on behalf of the Initial
Purchasers for inclusion in the Preliminary Memorandum, the Final Memorandum or
in any amendment or supplement thereto.
 
(c)  Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel (including
local counsel) of the indemnifying party’s choice at the indemnifying party’s
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel,
other than local counsel if not appointed by the indemnifying party, retained by
the indemnified party or parties except as set forth below); provided, however,
that such counsel shall be satisfactory to the indemnified party.
Notwithstanding the indemnifying party’s election to appoint counsel (including
local counsel) to represent the indemnified party in an action, the indemnified
party shall have the right to employ separate counsel (including local counsel),
and the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest; (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties that are different
from or additional to those available to the indemnifying party; (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action; or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.

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(d)  In the event that the indemnity provided in paragraph (a) or (b) of this
Section 8 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and the Initial Purchasers severally agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending any loss, claim, damage, liability or action) (collectively “Losses”)
to which the Company and one or more of the Initial Purchasers may be subject in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and by the Initial Purchasers on the other from the
offering of the Securities; provided, however, that in no case shall any Initial
Purchaser be responsible for any amount in excess of the purchase discount or
commission applicable to the Securities purchased by such Initial Purchaser
hereunder. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Initial Purchasers severally
shall contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Initial Purchasers on the other in connection with the statements or
omissions that resulted in such Losses, as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the total net proceeds from the offering (before deducting expenses) received by
it, and benefits received by the Initial Purchasers shall be deemed to be equal
to the total purchase discounts and commissions. Relative fault shall be
determined by reference to, among other things, whether any untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information provided by the Company on the one hand
or the Initial Purchasers on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company and the Initial Purchasers agree
that it would not be just and equitable if contribution were determined by pro
rata allocation or any other method of allocation that does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this paragraph (d), no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each person who controls an Initial Purchaser within the
meaning of either the Act or the Exchange Act and each director, officer,
employee, Affiliate and agent of an Initial Purchaser shall have the same rights
to contribution as such Initial Purchaser, and each person who controls the
Company within the meaning of either the Act or the Exchange Act and each
officer and director of the Company shall have the same rights to contribution
as the Company, subject in each case to the applicable terms and conditions of
this paragraph (d).

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9.  Default by an Initial Purchaser. If any one or more Initial Purchasers shall
fail to purchase and pay for any of the Securities agreed to be purchased by
such Initial Purchaser hereunder and such failure to purchase shall constitute a
default in the performance of its or their obligations under this Agreement, the
remaining Initial Purchasers shall be obligated severally to take up and pay for
(in the respective proportions which the principal amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate principal
amount of Securities set forth opposite the names of all the remaining Initial
Purchasers) the Securities which the defaulting Initial Purchaser or Initial
Purchasers agreed but failed to purchase; provided, however, that in the event
that the aggregate principal amount of Securities which the defaulting Initial
Purchaser or Initial Purchasers agreed but failed to purchase shall exceed 10%
of the aggregate principal amount of Securities set forth in Schedule I hereto,
the remaining Initial Purchasers shall have the right to purchase all, but shall
not be under any obligation to purchase any, of the Securities, and if such
nondefaulting Initial Purchasers do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Initial
Purchaser or the Company. In the event of a default by any Initial Purchaser as
set forth in this Section 9, the Closing Date shall be postponed for such
period, not exceeding five Business Days, as the Representative shall determine
in order that the required changes in the Final Memorandum or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting Initial Purchaser of its liability, if any, to the
Company or any nondefaulting Initial Purchaser for damages occasioned by its
default hereunder.
 
10.  Termination. This Agreement shall be subject to termination in the absolute
discretion of the Representative, by notice given to the Company prior to
delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company’s Common Stock shall have been suspended by the
Commission or the Nasdaq Stock Market or trading in securities generally on the
New York Stock Exchange or the Nasdaq Stock Market shall have been suspended or
limited or minimum prices shall have been established on such exchange or the
Nasdaq Stock Market; (ii) a banking moratorium shall have been declared either
by U.S. federal or New York State authorities; or (iii) there shall have
occurred any outbreak or escalation of hostilities, declaration by the United
States of a national emergency or war or other calamity or crisis the effect of
which on financial markets is such as to make it, in the sole judgment of the
Representative, impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated in the Final Memorandum (exclusive of
any amendment or supplement thereto).

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11.  Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers and of the Initial Purchasers set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Initial Purchasers or the Company or any of the
indemnified persons referred to in Section 8 hereof, and will survive delivery
of and payment for the Securities. The provisions of Sections 7 and 8 hereof
shall survive the termination or cancellation of this Agreement.
 
12.  Notices. All communications hereunder will be in writing and effective only
on receipt, and, if sent to the Representative, will be mailed, delivered or
telefaxed to the Citigroup General Counsel (fax no.: (212) 816-7912) and
confirmed to Citigroup at 388 Greenwich Street, New York, New York 10013,
Attention: General Counsel; or, if sent to the Company, will be mailed,
delivered or telefaxed to Joseph Mahler, Treasurer (fax no.: (203) 743-6204) and
confirmed to it at FuelCell Energy, Inc., at 3 Great Pasture Road, Danbury,
Connecticut, 06813, Attention: Joseph Mahler.
 
13.  Successors. This Agreement will inure to the benefit of and be binding upon
the parties hereto and their respective successors and the indemnified persons
referred to in Section 8 hereof and their respective successors, and, except as
expressly set forth in Section 5(h) hereof, no other person will have any right
or obligation hereunder.
 
14.  Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed within the State of New York. The parties hereto each hereby
waive any right to trial by jury in any action, proceeding or counterclaim
arising out of or relating to this Agreement.
 
15.  Waiver of Tax Confidentiality. Notwithstanding anything herein to the
contrary, purchasers of the Securities (and each employee, representative or
other agent of a purchaser) may disclose to any and all persons, without
limitation of any kind, the U.S. tax treatment and U.S. tax structure of any
transaction contemplated herein and all materials of any kind (including
opinions or other tax analyses) that are provided to the purchasers of the
Securities relating to such U.S. tax treatment and U.S tax structure, other than
any information for which nondisclosure is reasonably necessary in order to
comply with applicable securities laws.
 
16.  Counterparts. This Agreement may be signed in one or more counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same agreement.
 
17.  Headings. The section headings used herein are for convenience only and
shall not affect the construction hereof.
 
18.  Definitions. The terms that follow, when used in this Agreement, shall have
the meanings indicated.
 
“Act” shall mean the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
 
“Affiliate” shall have the meaning specified in Rule 501(b) of Regulation D.

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“Business Day” shall mean any day other than a Saturday, a Sunday or a legal
holiday or a day on which banking institutions or trust companies are authorized
or obligated by law to close in The City of New York.
 
“Citigroup” shall mean Citigroup Global Markets Inc.
 
“Code” shall mean the Internal Revenue Code of 1986, as amended.
 
“Commission” shall mean the Securities and Exchange Commission.
 
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
 
“Execution Time” shall mean the date and time that this Agreement is executed
and delivered by the parties hereto.
 
“Investment Company Act” shall mean the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission promulgated thereunder.
 
“NASD” shall mean the National Association of Securities Dealers, Inc.
 
“Patent Rights” shall mean the patents, patent applications, know-how and trade
secrets used in the Company’s business.
 
“PORTAL” shall mean the Private Offerings, Resales and Trading through Automated
Linkages system of the NASD.
 
“Regulation D” shall mean Regulation D under the Act.
 
“Regulation S” shall mean Regulation S under the Act.
 
“Subsidiaries” shall have the meaning set forth in Section 1(hh).

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If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company and the several Initial Purchasers.
 
Very truly yours,
 
Fuelcell Energy, Inc.
 
 
By:___________________________
Name:
 
Title:
 
The foregoing Agreement is hereby
confirmed and accepted as of the date first
above written.
 
Citigroup Global Markets Inc.

By: _________________________                    
 
Name:
 
Title:
 
For themselves and the other several
Initial Purchasers named in
Schedule I to the foregoing
Agreement.

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SCHEDULE I
 
Initial Purchasers
   
Number of Firm

Securities to be Purchased
           
Citigroup Global Markets Inc
   
80,000
 
RBC Capital Markets Corporation
   
10,400
 
Adams Harkness, Inc.
   
6,400
 
Lazard Freres & Co., LLC
   
3,200
 
Total
   
100,000
 

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EXHIBIT A
 
[Letterhead of officer or director of FuelCell Energy Inc.]
 
November 11, 2004
 
Citigroup Global Markets Inc.
As Representative of the Initial Purchasers
c/o Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
 
Ladies and Gentlemen:
 
This letter is being delivered to you in connection with a proposed Purchase
Agreement (the “Purchase Agreement”) between FuelCell Energy, Inc., a Delaware
corporation (the “Company”) and each of you as representative of a group of
Initial Purchasers named therein, relating to an offering of up to 135,000
shares of Series B Cumulative Convertible Perpetual Preferred Stock (Liquidation
Preference $1,000 per share), which will be convertible into common stock,
$0.0001 par value (the “Common Stock”), of the Company.
 
In order to induce you and the other Initial Purchasers to enter into the
Purchase Agreement, the undersigned will not, without the prior written consent
of Citigroup Global Markets Inc., directly or indirectly, offer, sell, contract
to sell, pledge or otherwise dispose of, enter into any transaction which is
designed to, or might reasonably be expected to, result in the disposition
(whether by actual disposition or effective economic disposition due to cash
settlement or otherwise) by the undersigned or any affiliate of the undersigned
or any person in privity with the undersigned or any affiliate of the
undersigned of, file (or participate in the filing of) a registration statement
with the U.S. Securities and Exchange Commission in respect of, or establish or
increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the U.S. Securities and
Exchange Commission promulgated thereunder with respect to, any shares of
capital stock of the Company or any securities convertible into, or exercisable
or exchangeable for such capital stock, or publicly announce an intention to
effect any such transaction, for a period of 90 days after the date of the
Purchase Agreement, other than shares of Common Stock disposed of as bona fide
gifts approved by Citigroup Global Markets Inc.
 
If for any reason the Purchase Agreement shall be terminated prior to the
Closing Date (as defined in the Purchase Agreement), the agreement set forth
above shall likewise be terminated.
 
Very truly yours,
 
By: _______________________   
Name:
Title:

    A-1   

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ANNEX A

Significant Subsidiaries

 
FuelCell Energy, Ltd.
 
1065918 Alberta Ltd.

       

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