Document:

Registration Rights Agreement

 EXHIBIT 10.3 
  
 REGISTRATION RIGHTS AGREEMENT 
  

This Registration Rights Agreement (this “Agreement”) is made and entered into as of February 3, 2005, by and among Active Power,
Inc., a Delaware corporation (the “Company”), and the purchasers signatory hereto (each such purchaser, a “Purchaser” and collectively, the “Purchasers”). 
  
 This Agreement is made pursuant to the Securities Purchase Agreement, dated
as of the date hereof among the Company and the Purchasers (the “Purchase Agreement”). 
  
 The Company and the Purchasers hereby agree as follows: 
  
 1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given
such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: 
  
 “Advice” shall have the meaning set forth in Section 6(d). 
  
 “Effectiveness Date” means, with respect to the Registration Statement required to be filed
hereunder, the earlier of (a) the 90th calendar day following the date of the Purchase Agreement (120th calendar day if the Registration Statement is reviewed by the Commission) and (b) the fifth Trading Day following the date on
which the Company is notified by the Commission that the Registration Statement will not be reviewed or is no longer subject to further review and comments. 
  
 “Effectiveness Period” shall have the meaning set forth in Section 2(a). 
  
 “Event” shall have the meaning set forth in
Section 2(b). 
  
 “Event Date”
shall have the meaning set forth in Section 2(b). 
  
 “Filing Date” means, with respect to the Registration Statement required to be filed hereunder, the 10th calendar day following the date on which the Company files its Form 10-K for the fiscal year ending December 31, 2004, but in no event later than April 10, 2005. 
  
 “Holder” or “Holders” means the holder or holders, as the case may be,
from time to time of Registrable Securities. 
  
 “Indemnified Party” shall have the meaning set forth in Section 5(c). 
  
 “Indemnifying Party” shall have the meaning set forth in Section 5(c). 
  
 “Losses” shall have the meaning set forth
in Section 5(a). 

 “Plan of Distribution” shall have the meaning set forth in Section 2(a).

  
 “Proceeding” means an
action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. 
  
 “Prospectus” means the prospectus included in the Registration Statement (including,
without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments,
and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. 
  
 “Registrable Securities” means all of the Shares and the Additional Investment Right Shares issuable, together with any
shares of Common Stock issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing. 
  
 “Registration Statement” means the registration statements required to be filed hereunder,
including (in each case) the Prospectus, amendments and supplements to the registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in the registration statement. 
  
 “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such Rule. 
  
 “Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same purpose and effect as such Rule. 
  
 “Selling Shareholder Questionnaire” shall have the meaning set forth in Section 3(a). 
  
 2. Registration. 
  
 (a) On or prior to the Filing Date, the Company shall prepare and file with the Commission the Registration Statement covering the resale
of all of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement required hereunder shall be on Form S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case the Registration shall be on another appropriate form in accordance herewith). The Registration Statement required hereunder shall contain (except if otherwise directed by 

 
the Holders) substantially the “Plan of Distribution” attached hereto as Annex A. Subject to the terms of this Agreement, the Company
shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event not later than the Effectiveness Date, and shall use its best efforts
to keep the Registration Statement continuously effective under the Securities Act until the earlier of (i) the date that is three years following the Effectiveness Date or (ii) the date when all Registrable Securities covered by the Registration
Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer
agent and the affected Holders (the “Effectiveness Period”). The Company shall as promptly as reasonably possible notify the Holders via facsimile or e-mail of the effectiveness of the Registration Statement on the same day that the
Company receives notification of the effectiveness from the Commission. Failure to so notify the Holder within 1 Trading Day after the Trading Day on which such notification is received shall be deemed an Event under Section 2(b). 
  
 (b) If: (i) a Registration Statement is not filed on or
prior to the Filing Date (if the Company files a Registration Statement without affording the Holder the opportunity to review and comment on the same as required by Section 3(a), the Company shall not be deemed to have satisfied this clause (i)),
or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that a Registration Statement will not be “reviewed,” or is not subject to further review, or (iii) prior to the date when such Registration Statement is first declared effective by the Commission, the Company
fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within 10 Trading Days after the receipt of comments by or notice from the Commission that such
amendment is required in order for a Registration Statement to be declared effective, or (iv) a Registration Statement filed or required to be filed hereunder is not declared effective by the Commission on or before the Effectiveness Date, or (v)
after a Registration Statement is first declared effective by the Commission, it ceases for any reason to remain continuously effective as to all Registrable Securities for which it is required to be effective, or the Holders are not permitted to
utilize the Prospectus therein to resell such Registrable Securities, for in any such case 10 consecutive Trading Days but no more than an aggregate of 20 Trading Days during any 12 month period (which need not be consecutive Trading Days) (any such
failure or breach being referred to as an “Event,” and for purposes of clause (i) or (iv) the date on which such Event occurs, or for purposes of clause (ii) the date on which such five Trading Day period is exceeded, or for
purposes of clause (iii) the date which such 10 Trading Day period is exceeded, or for purposes of clause (v) the date on which such 10 or 20 Trading Day period, as applicable, is exceeded being referred to as “Event Date”), then in
addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and, on each of the next two monthly anniversaries of each such Event Date (if the applicable Event shall not have been cured by such date)
until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and 

 
not as a penalty, equal to 1% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities then held
by such Holder; and after the second monthly anniversary of any Event Date, equal to 2% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities then held by such Holder. If the Company
fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a
daily pro-rata basis for any portion of a month prior to the cure of an Event. 
  
 3. Registration Procedures 
  
 In connection with the Company’s registration obligations hereunder, the Company shall: 
  
 (a) Not less than five Trading Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or
supplement thereto, the Company shall, (i) furnish to the Holders copies of all such documents proposed to be filed (including documents incorporated or deemed incorporated by reference to the extent requested in writing by such Person) which
documents will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities shall reasonably object in good faith, provided that the Company is notified of such objection in writing no later than 5 Trading Days after the Holders have been so furnished copies of such documents. Each Holder agrees to
furnish to the Company a completed Questionnaire in the form attached to this Agreement as Annex B (a “Selling Shareholder Questionnaire”) not less than two Trading Days prior to the Filing Date or by the end of the fourth Trading
Day following the date on which such Holder receives draft materials in accordance with this Section. 
  
 (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and, as promptly as reasonably possible, upon
request, provide the Holders true and complete 

 
copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions
of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof
set forth in the Registration Statement as so amended or in such Prospectus as so supplemented. 
  
 (c) Notify the Holders of Registrable Securities to be sold as promptly as reasonably possible and (if requested by any such Person)
confirm such notice in writing promptly following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether
there will be a “review” of the Registration Statement and whenever the Commission comments in writing on the Registration Statement (the Company shall upon request provide true and complete copies thereof and all written responses thereto
to each of the Holders); and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state governmental
authority of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of
any event or passage of time that makes the financial statements included in the Registration Statement ineligible for inclusion therein or any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it
will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

  
 (d) Use its reasonable best efforts to avoid
the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of the Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for
sale in any jurisdiction, at the earliest practicable moment. 
  
 (e) Furnish to each Holder, without charge, at least one conformed copy of the Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to
be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with
the Commission. 

 (f) Promptly deliver to each Holder, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request in connection with resales by the Holder of Registrable Securities. Subject to the terms of this Agreement, the Company
hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement
thereto, except after the giving on any notice pursuant to Section 3(c). 
  
 (g) Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification
(or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to
keep the Registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities
covered by the Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such
jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction. 
  
 (h) If NASD Rule 2710 requires any broker-dealer to make a filing prior to executing a sale by a Holder, make an Issuer Filing with the
NASD Regulation, Inc. (“NASDR”) Corporate Financing Department pursuant to NASD Rule 2710(b)(10)(A)(i) and respond within five Trading Days to any comments received from NASDR in connection therewith, and pay the filing fee required in
connection therewith. 
  
 (i) If requested by the
Holders, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statement, which certificates shall be free, to
the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request. 
  
 (j) Upon the occurrence of any event contemplated by Section
3(c)(v), as promptly as reasonably possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, 

 
not misleading. If the Company notifies the Holders in accordance with clauses (ii) through (v) of Section 3(c) above to suspend the use of any Prospectus
until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus. The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable. The
Company shall be entitled to exercise its right under this Section 3(i) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages pursuant to Section 2(b), for a period not to exceed
60 days (which need not be consecutive days) in any 12 month period. 
  
 (k) Comply with all applicable rules and regulations of the Commission. 
  
 (l) The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock
beneficially owned by such Holder and, if required by the Commission, the person thereof that has voting and dispositive control over the Shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the
registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be
tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company. 
  
 4. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by
the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Trading Market on which the Common Stock is then listed for trading, (B) in compliance with applicable state securities or
Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination
of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders) and (C) if not previously paid by the Company in connection with an Issuer Filing, with respect to any filing that may
be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with NASDR pursuant to the NASD Rule 2710, so long as the broker is receiving no more than a customary brokerage commission in connection
with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of
the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement. In addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its 

 
officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions or, except to the extent provided for in the Transaction Documents, any legal
fees or other costs of the Holders. 
  
 5. Indemnification

  
 (a) Indemnification by the Company.
The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge
or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable
attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that
the Holder has approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the Company has notified
such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d). The Company shall notify the Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement. 
  
 (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling
Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the
Securities Act or (y) any untrue or alleged untrue statement of a material fact contained in 

 
any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in the Registration Statement or such Prospectus or (ii) to the extent that (1) such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective Prospectus after the Company has notified such
Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d). In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. 
  
 (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to
assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which
determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party. 
  
 An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the 

 
reasonable fees and expenses of one separate counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. 
  
 Subject to the terms of this Agreement, all reasonable fees
and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties. 
  
 (d) Contribution. If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or
relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. 
  
 The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities
subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by such Holder.

 The indemnity and contribution agreements contained in this Section are in addition to
any liability that the Indemnifying Parties may have to the Indemnified Parties. 
  
 6. Miscellaneous 
  
 (a) Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise
all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense
that a remedy at law would be adequate. 
  
 (b)
No Piggyback on Registrations. Except as set forth on Schedule 6(b) attached hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in
a Registration Statement other than the Registrable Securities. No Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company. The Company shall not file any other registration
statements until the Registration Statement required hereunder is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements already filed. 
  
 (c) Compliance. Each Holder covenants and agrees that
it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement. 
  
 (d) Discontinued Disposition. Each Holder agrees by
its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities
under the Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the
applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company will
use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable. The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable
Securities hereunder shall be subject to the provisions of Section 2(b). 

 (e) Piggy-Back Registrations. If at any time during the Effectiveness Period there
is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of
others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in connection with the stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within fifteen days
after the date of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such Holder requests to be registered, subject to customary
underwriter cutbacks applicable to all holders of registration rights. 
  
 (f) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by the Company and each Holder of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. 
  
 (g) Notices. Any and all notices or other
communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement. 
  
 (h) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns
of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of all of the Holders of the then-outstanding Registrable Securities. Each Holder
may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement. 
  
 (i) No Inconsistent Agreements. Neither the Company nor any of its subsidiaries has entered, as of the date hereof, nor shall the
Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts
with the provisions hereof. Except as set forth on Schedule 6(i), neither the Company nor any of its subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person
that have not been satisfied in full. 

 (j) Execution and Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. 
  
 (k) Governing Law. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be determined with the provisions of the Purchase Agreement. 
  
 (l) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 

 
 (m) Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect
and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by
such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable. 
  
 (n) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 
  
 (o) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder
hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other
agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a
presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement and the Company acknowledges that, to its knowledge, the Holders are not acting in concert or as a
group with respect to such obligations or the transactions contemplated by this Agreement or any other Transaction Document. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose. 
  
 ************************* 

 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first
written above. 
  

			
	Active Power, Inc.
		
	By:	 	 /s/ Joseph F. Pinkerton, III

	Name:	 	Joseph F. Pinkerton, III
	Title:	 	 Chairman of the Board, President and Chief
 Executive
Officer

  
 [SIGNATURE PAGE
OF HOLDERS FOLLOWS] 

 ANNEX A 
  
 Plan of Distribution 
  
 The Selling Stockholders (the “Selling Stockholders”) of the common stock (“Common Stock”) of the Company and any of
their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may
be at fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling shares: 
  

	 	•	 	ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; 

  

	 	•	 	block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

  

	 	•	 	purchases by a broker-dealer as principal and resale by the broker-dealer for its account; 

  

	 	•	 	an exchange distribution in accordance with the rules of the applicable exchange; 

  

	 	•	 	privately negotiated transactions; 

  

	 	•	 	settlement of short sales entered into after the date of this prospectus; 

  

	 	•	 	broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share; 

  

	 	•	 	a combination of any such methods of sale; 

  

	 	•	 	through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or 

  

	 	•	 	any other method permitted pursuant to applicable law. 

  
 The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if
available, rather than under this prospectus. 
  
 Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares,
from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASD Rule 2440; and in the case
of a principal transaction a markup or markdown in compliance with NASD IM-2440. 

 In connection with the sale of the Common Stock or interests therein, the Selling Stockholders may enter
into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging the positions they assume. The Selling Stockholders may also sell shares of the
Common Stock short and deliver these securities to close out their short positions, or loan or pledge the Common Stock to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other
transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares
such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). 
  
 The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. In no event shall any
broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%). 
  
 The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act. 
  
 Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. Each Selling
Stockholder has advised us that they have not entered into any written or oral agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of the resale shares. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the Selling Stockholders. 
  
 We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason
of Rule 144(e) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold
only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is available and is complied with. 

 Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of
the resale shares may not simultaneously engage in market making activities with respect to the Common Stock for a period of two business days prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the Common Stock by the Selling Stockholders or any other person. We will make
copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale. 

 Annex B 
  
 ACTIVE POWER, INC. 
  
 Selling Securityholder Notice and Questionnaire 
  
 The undersigned beneficial owner of common stock, par value $0.001 per share (the “Common Stock”), of Active Power, Inc., a Delaware
corporation (the “Company”), (the “Registrable Securities”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration
statement on Form S-3 (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with
the terms of the Registration Rights Agreement, dated as of February 3, 2005 (the “Registration Rights Agreement”), among the Company and the Purchasers named therein. A copy of the Registration Rights Agreement is available from
the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement. 
  
 Certain legal consequences arise from being named as a selling securityholder in the Registration Statement and the related
prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Registration
Statement and the related prospectus. 
  
 NOTICE 

 
 The undersigned beneficial owner (the “Selling
Securityholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it and listed below in Item 3 (unless otherwise specified under such Item 3) in the Registration Statement. 

 The undersigned hereby provides the following information to the Company and represents and warrants that such
information is accurate: 
  
 QUESTIONNAIRE 
  

					
	1.	  	Name.
			
	 	  	(a)	    	 Full Legal Name of Selling Securityholder
  

	 	  	 	    	____________________________________________________________________________________________
			
	 	  	(b)	    	 Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities Listed in Item 3 below are
held:
  

	 	  	 	    	____________________________________________________________________________________________
			
	 	  	(c)	    	 Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or
dispose of the securities covered by the questionnaire):
  

	 	  	 	    	____________________________________________________________________________________________

  
 2. Address for Notices to Selling
Securityholder: 
  

	
	 _________________________________________________________________________________________________________
  

	 _________________________________________________________________________________________________________
  

	 _________________________________________________________________________________________________________
  

	 Telephone:________________________________________________________________________________________________
  

	 Fax:_____________________________________________________________________________________________________
  

	 Contact Person:____________________________________________________________________________________________

  
 3. Beneficial Ownership of
Registrable Securities: 
  

					
	 	  	  (a)	    	Type and Number of Registrable Securities beneficially owned:
			
	 	  	 	    	 _________________________________________________________________________________________
  

	 	  	 	    	 _________________________________________________________________________________________
  

	 	  	 	    	_________________________________________________________________________________________

 4. Broker-Dealer Status: 
  

			
	 (a)
	  	Are you a broker-dealer?
		
	 	  	                                    Yes 
  ̈    No   ̈
		
	 Note:
	  	If yes, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.
		
	 (b)
	  	Are you an affiliate of a broker-dealer?
		
	 	  	                                    Yes 
  ̈    No   ̈
		
	 (c)
	  	If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable
Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?
		
	 	  	                                    Yes 
  ̈    No   ̈
		
	 Note:
	  	If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.
	
	5. Beneficial Ownership of Other Securities of the Company Owned by the Selling Securityholder.
	
	 Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of the Company other than the
Registrable Securities listed above in Item 3.

		
	 (a)
	  	Type and Amount of Other Securities beneficially owned by the Selling Securityholder:
		
	 	  	_________________________________________________________________________________________
		
	 	  	_________________________________________________________________________________________

 6. Relationships with the Company: 
  

			
	 	  	Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the
undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.
		
	 	  	State any exceptions here:
		
	 	  	_________________________________________________________________________________________________
		
	 	  	____________________________________________________________________________________________________

  
 The undersigned agrees
to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective. 
  
 By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such
information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus. 
  
 IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by
its duly authorized agent. 
  

					
	 Dated:

	  	 Beneficial Owner:

			
	 	  	By:	 	  

	 	  	Name:	 	 
	 	  	Title:	 	 

  
 PLEASE FAX A COPY OF THE COMPLETED
AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO: 

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: Capital Ventures International
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Martin Kobinger

	Name of Authorized Signatory: Heights Capital Management, Inc. Authorized Signatory
	Title of Authorized Signatory: Investment Manager

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: Smithfield Fiduciary LLC
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Adam J. Chill

	Name of Authorized Signatory: Adam J. Chill
	Title of Authorized Signatory: Authorized Signatory

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: D.B. Zwirn Special Opportunities Fund, L.P.
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Daniel B. Zwirn

	Name of Authorized Signatory: Daniel B. Zwirn
	Title of Authorized Signatory: Managing Partner

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: D.B. Zwirn Special Opportunities Fund, Ltd.
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Daniel B. Zwirn

	Name of Authorized Signatory: Daniel B. Zwirn
	Title of Authorized Signatory: Managing Partner

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: Southport Millennium Fund, L.P.
	Signature of Authorized Signatory of Purchaser:	 	 /s/ James M. Thorburn

	Name of Authorized Signatory: Southport Millennium Management, LLC (GP), James M. Thorburn
	Title of Authorized Signatory: Managing Member of GP

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: Southport Millennium Fund II, L.P.
	Signature of Authorized Signatory of Purchaser:	 	 /s/ James M. Thorburn

	Name of Authorized Signatory: Southport Millennium II Management, LLC (GP), James M. Thorburn
	Title of Authorized Signatory: Managing Member of GP

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: Southport Millennium Micro Cap Fund, L.P.
	Signature of Authorized Signatory of Purchaser:	 	 /s/ James M. Thorburn

	Name of Authorized Signatory: Southport Micro Cap Management, LLC (GP), James M. Thorburn
	Title of Authorized Signatory: Managing Member of GP

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: Southport Millennium Offshore Fund, Inc.
	Signature of Authorized Signatory of Purchaser:	 	 /s/ James M. Thorburn

	Name of Authorized Signatory: James M. Thorburn
	Title of Authorized Signatory: Director

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: Southport Energy Plus Partners L.P.
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Anthony Grammalva

	Name of Authorized Signatory: Anthony Grammalva
	Title of Authorized Signatory: CEO-Sound Energy Partners, Inc. its Investment Manager

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: Southport Energy Plus Offshore Fund, Inc.
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Anthony Grammalva

	Name of Authorized Signatory: Anthony Grammalva
	Title of Authorized Signatory: CEO-Sound Energy Partners, Inc. its Investment Advisor

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: Sound Energy Capital Offshore Fund, Ltd.
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Anthony Grammalva

	Name of Authorized Signatory: Anthony Grammalva
	Title of Authorized Signatory: GP-Sound Energy Capital Management, L.P. its Investment Advisor

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: SF Capital Partners Ltd.
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Robert J. Barnard

	Name of Authorized Signatory: Robert J. Barnard
	Title of Authorized Signatory: Authorized Signatory

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: Portside Growth and Opportunity Fund
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Jeffrey Smith

	Name of Authorized Signatory: Jeffrey Smith
	Title of Authorized Signatory: Authorized Signatory

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: ALM Brand Bank
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Lars Hackenberg

	Name of Authorized Signatory: Lars Hackenberg
	Title of Authorized Signatory: Senior Portfolio Manager

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: IMPAX Environmental Market (Ireland) Fund
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Adrian Cornwell

	Name of Authorized Signatory: Adrian Cornwell
	Title of Authorized Signatory: Marketing Manager

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: IMPAX Environmental Market PLC
	Signature of Authorized Signatory of Purchaser:	 	 /s/ Bruce Jenkyn-Jones

	Name of Authorized Signatory: Bruce Jenkyn-Jones
	Title of Authorized Signatory: Investment Manager

 [HOLDER’S SIGNATURE PAGE TO ACPW RRA] 
  

			
	Name of Purchaser: PNE Invest Ltd.
	Signature of Authorized Signatory of Purchaser:	 	 /s/

	Name of Authorized Signatory:
	Title of Authorized Signatory:
	Email Address of Purchaser:Letter agreement

 EXHIBIT 10.4 
  
 WRITER’S DIRECT DIAL NUMBER IS (512) 744-9555 
  

January 26, 2005 
  
 VIA HAND DELIVERY 
  
 David
S. Gino 
 Active Power, Inc. 
 2128 W. Braker Lane 
 Austin, TX 78758 
  

	Re:	Letter Agreement  

  
 Dear David: 
  
 As a result of your voluntary resignation, which has been accepted by the Company, your employment as Vice President, Chief Operating Officer and Chief
Financial Officer of Active Power, Inc. (the “Company”) will end upon the completion of certain financial year-end closing and SEC reporting duties estimated to be February 28, 2005 (“Employment End Date”). 
  
 Please note, from today through the Employment End Date (the “Transition
Period”) you will remain an employee of the Company and receive salary and benefits. You will also continue to vest in your options. In exchange for your assistance during the Transition Period, the Company has agreed to set the period in which
you can exercise the vested options noted below until January 30, 2006. As noted above, you will cease vesting in any of your options on the Employment End Date. 

 David Gino 
 January 26, 2005

 Page 2 of 3 
  
 I. Options grants that can be exercised through January 30, 2006: 
  

												
	 Grant Date

	  	 Option
 Exercise
 Price

	  	 Number of
 Option
 Shares
 Granted

	  	 Number of
 Vested Option
 Shares
 Remaining as
 of
 Employment
 End Date

	  	 Number of
 Unvested
 Option
 Shares
 Remaining

	  	 ISO/NQO

	 Jan. 25, 2001
	  	$	20.00	  	40,500	  	40,500	  	0	  	 20 - ISO
 40,480 - NQO

	 Feb. 21, 2002
	  	$	3.58	  	125,000	  	 93,750
 (as
of 2/21/05)
	  	31,250	  	 11,237 - ISO
 113,763 - NQO

	 Feb. 12, 2003
	  	$	1.22	  	85,000	  	 42,500
 (as
of 2/12/05)
	  	42,500	  	 81,967 - ISO
 3,033 - NQO

	 Feb. 13, 2004
	  	$	3.24	  	85,000	  	 21,250
 (as
of 2/12/05)
	  	63,750	  	 30,864 - ISO
 54,136 - NQO

  
 II.
Miscellaneous 
  
 This Letter Agreement shall, in
all respects, be interpreted, enforced and governed under the laws of the State of Texas applicable to contracts executed and performed in Texas without giving effect to conflicts of law principles. You agree that any disputes or litigation that may
arise with respect to this Letter Agreement shall be brought and prosecuted in Travis County, Texas, and you agree to waive any objections to the location of such disputes or litigation, including, but not limited to objections based on forum non
conveniens. 
  
 You agree that if any provision or portion
of any provision of this Letter Agreement is held to be invalid or unenforceable or to be contrary to public policy or any law, for any reason, the remainder of the Letter Agreement shall not be affected thereby. 

 David Gino 
 January 26, 2005 
 Page 3 of 3 
  
 You and the Company each agree to take
whatever additional actions and execute whatever additional documents that may be necessary or advisable in order to carry out or effect one or more of the obligations provided for in this Letter Agreement. 
  
 This Letter Agreement may be executed in separate counterparts and by
facsimile and each such counterpart shall be deemed an original with the same effect as if the Company and you signed the same document. 
  
 We wish you the best of luck in your future endeavors and appreciate the service you have provided to the Company. 
  

			
	Very truly yours,
	
	ACTIVE POWER, INC.
		
	By:	 	 /s/ Joseph F. Pinkerton, III

	Name:	 	Joseph F. Pinkerton, III
	Title:	 	 Chairman of the Board, Chief Executive
 Officer and
President

  
 By executing this Letter
Agreement, I hereby agree to the provisions hereof. 
  
 ACCEPTED AND
ACKNOWLEDGED: 
  

	
	 /s/ David S. Gino

	David S. Gino

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