Document:

ex4.2 credit agreement

FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This First Amendment to Second Amended and Restated Credit Agreement (the “Amendment”), dated as of October 19, 2012 (the “Effective Date”), is by and among Associated Estates Realty Corporation (the “Borrower”), PNC Bank, National Association and the other banks and financial institutions whose signatures appear below (collectively, the “Lenders”) and PNC Bank, National Association, not individually but as administrative agent for the Lenders (the “Administrative Agent”).
RECITALS
A.Borrower, Administrative Agent, and certain of the Lenders are parties to that certain Second Amended and Restated Credit Agreement dated as of January 12, 2012 (the “Credit Agreement”), pursuant to which such Lenders made available to Borrower a revolving credit facility with an Aggregate Commitment of $350,000,000.  All capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings given to such terms in the Credit Agreement.
B.Borrower and the Lenders wish to amend the Credit Agreement to modify certain of the terms, covenants, and provisions in the Credit Agreement, all as set forth herein, and in connection therewith, the undersigned Subsidiary Guarantors, being all of the Subsidiary Guarantors under the Credit Agreement, have been asked to execute this Amendment to provide their consent to and approve of the foregoing Amendment.
NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENTS
1.Incorporation. The foregoing Recitals to this Amendment are hereby incorporated and made part of this Amendment.
2.Effectiveness. This Amendment shall be effective from and after the Effective Date shown above, which is the date on which each of the Borrower, the Administrative Agent and the Required Lenders have executed and delivered to the Administrative Agent a counterpart of this Amendment.
3.Changes to Defined Terms.  From and after the Effective Date, Article I of the Credit Agreement shall be amended as follows:
a.    The following defined terms shall be added:
“Mezzanine Investments” shall mean any investments by Borrower secured by a pledge of ownership interests in legal entities that own institutional grade multifamily property (as determined by the Agent in its reasonable discretion) in the continental United States.
“Transition Project” shall mean a Project that has ceased to be a Real Property Under Development for less than four (4) full fiscal quarters.  

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b.    The definition of “Real Property Under Development” is deleted in its entirety and shall be replaced by the following: 
“Real Property Under Development” is defined as any Project which either is under construction or completed and has not yet achieved a leasing level of 85% or more; provided that a Project shall continue to be a Real Property Under Development until the end of the fiscal quarter during which it achieves 85% leasing and provided further that a Project shall cease to be a Real Property Under Development no later than the end of the sixth fiscal quarter following the fiscal quarter during which its final certificate of occupancy was issued.
c.    The definition of “Total Asset Value” is deleted in its entirety and shall be replaced by the following:
“Total Asset Value” means, as of any date, (i) the Net Operating Income for the most recent four (4) consecutive fiscal quarters of the Borrower for which financial results have been reported attributable to Projects (other than Real Property Under Development or Transition Projects) then owned or leased by Borrower or any other member of the Consolidated Group (excluding 100% of the Net Operating Income attributable to any such Projects which have not been owned or leased by any combination of Borrower, other members of the Consolidated Group or Investment Affiliates and included in Borrower's financial statements for at least six (6) fiscal quarters as of the end of the most recent fiscal quarter for which financial results have been reported, other than Net Operating Income from Overlimit General Projects (as defined below) then owned or leased by Borrower or any other member of the Consolidated Group which Net Operating Income will be included in this clause (i)) divided by the Capitalization Rate, plus (ii) 100% of cost for any such Projects first acquired or leased during such six (6) fiscal quarter period (including the amount of any assumed Indebtedness secured thereby) which are not Overlimit General Projects, plus (iii) the Consolidated Group Pro Rata Share of Net Operating Income for the most recent four (4) consecutive fiscal quarters of the Borrower for which financial results have been reported attributable to Projects then owned or leased by an Investment Affiliate (excluding Net Operating Income attributable to any such Projects which have not been owned or leased by any combination of Borrower, other members of the Consolidated Group or Investment Affiliates for six (6) fiscal quarters as of the end of such most recent fiscal quarter for which financial results have been reported, other than Net Operating Income from Overlimit General Projects then owned or leased by an Investment Affiliate which Net Operating Income will be included in this clause (iii)) divided by the Capitalization Rate, plus (iv) the Consolidated Group Pro Rata Share of 100% of cost for any such Projects first acquired or leased by an Investment Affiliate during such six (6) fiscal quarter period (including the amount of any assumed Indebtedness secured thereby) which are not Overlimit General Projects; plus (v) cash and Cash Equivalents owned by Borrower or any other member of the Consolidated Group as of the end of the most recent fiscal quarter for which financial results have been reported, plus (vi) the Consolidated Group Pro Rata Share of all cash and Cash Equivalents owned by Investment Affiliates as of the end of the most recent fiscal quarter financial results have been reported, plus (vii) Real Property Under Development and Undeveloped Land of the Consolidated Group, valued at cost, plus (viii) the Consolidated Group Pro Rata Share of any Real Property Under Development and Undeveloped Land of Investment Affiliates, valued at cost, plus (ix) Transition Projects valued at cost for the fiscal quarter in which the Project first becomes a Transition Project and thereafter for the following first four (4) full fiscal quarters, based on Net Operating Income for the number of full fiscal quarters following the fiscal quarter in which the Project ceased to be classified as Real Property Under Development divided by the Capitalization Rate, on an annualized basis, plus (x) the Consolidated Group Pro Rata Share of Transition Projects valued based on Net Operating Income for the number of full fiscal quarters since the Project ceased to be classified as Real Property Under Development divided by the Capitalization Rate, on an annualized basis, plus (xi) First Mortgage Receivables owned by the Consolidated Group, valued in accordance with GAAP, plus (xii) the Consolidated Group Pro Rata Share of First Mortgage Receivables owned by any Investment Affiliates, valued in accordance with GAAP, plus (xiii) Permitted Investments allowable pursuant to Section 7.22(d) herein, valued at cost and not to exceed three percent (3%) of Total Asset Value.  As used herein, the term “Overlimit General Projects” shall mean, if at any time the aggregate 

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amount contributed to Total Asset Value under clauses (ii) and (iv) of this definition on account of acquired Projects owned or leased for more than four (4) quarters but less than seven (7) quarters would exceed twenty percent (20%) of Total Asset Value, a sufficient number of such Project(s) which would otherwise be valued at cost under such clauses (ii) or (iv), which the Company shall designate to instead be valued in accordance with clauses (i) or (iii), so that the aggregate value of the remaining Projects owned or leased for more than four (4) quarters but less than seven (7) quarters which are included at cost under clauses (ii) and (iv) of this definition do not exceed twenty percent (20%) of Total Asset Value. For the avoidance of doubt, such references to “less than seven (7) quarters” shall mean that the applicable Project shall be included at cost in up to but not more than six (6) quarterly financial statements of Borrower.
d.    The definition of “Unencumbered Real Property Adjusted NOI” is deleted in its entirety and shall be replaced by the following:
“Unencumbered Real Property Adjusted NOI” shall mean, as of any date,  the Net Operating Income for the most recent four (4) consecutive fiscal quarters of Borrower for which financial results have been reported attributable to Qualifying Unencumbered Projects then owned or leased by Borrower or a Subsidiary Guarantor (excluding Net Operating Income attributable to Transition Projects or any such Qualifying Unencumbered Projects which have not been owned or leased by any combination of Borrower, other members of the Consolidated Group or Investment Affiliates and included in Borrower's financial statements for six (6) fiscal quarters as of the end of the most recent fiscal quarter of Borrower for which financial results have been reported other than Net Operating Income from Overlimit Unencumbered Projects then owned or leased by Borrower or a Subsidiary Guarantor which shall be included in this definition), less (i) management fees equal to 2.5% of the aggregate gross revenues attributable to such Qualifying Unencumbered Projects for such period, and less (ii) a capital expenditure reserve equal to $150 per unit for such Qualifying Unencumbered Projects.
e.    The definition of “Unencumbered Real Property Value” is deleted in its entirety and shall be replaced by the following:
“Unencumbered Real Property Value” shall mean, as of any date, (i) Unencumbered Real Property Adjusted NOI divided by the Capitalization Rate, plus (ii) the cost of all Qualifying Unencumbered Projects then owned by Borrower or a Subsidiary, which Subsidiary is also a Subsidiary Guarantor if and for so long as required by Section 3.4 which have not been owned by any combination of Borrower, other members of the Consolidated Group or Investment Affiliates and included in Borrower's financial statements for six (6) consecutive fiscal quarters as of the end of the most recent fiscal quarter of Borrower for which financial results have been reported other than Overlimit Unencumbered Projects, with the cost of each such Qualifying Unencumbered Project being the amount capitalized as “real estate” on Borrower's balance sheet plus any portion of the acquisition cost required to be allocated as an intangible asset by GAAP, plus (iii) Transition Projects, which are also Qualifying Unencumbered Projects, valued based on Net Operating Income for the number of full fiscal quarters since the Project ceased to be classified as Real Property Under Development divided by the Capitalization Rate, on an annualized basis, plus (iv) the Consolidated Group Pro Rata Share of Transition Projects, which are also Qualifying Unencumbered Projects, valued based on Net Operating Income for the number of full fiscal quarters since the Project ceased to be classified as Real Property Under Development divided by the Capitalization Rate, on an annualized basis.  As used herein, the term “Overlimit Unencumbered Projects” shall mean, if at any time the aggregate amount contributed to Unencumbered Real Property Value under clause (i) of this definition for acquired Qualifying Unencumbered Projects owned or leased for more than four (4) quarters but less than seven (7) quarters would exceed twenty percent (20%) of Unencumbered Real Property Value, a sufficient number of such Project(s) which would otherwise be valued at cost under such clause (ii), which the Company shall designate to instead be valued in accordance with clause (i), so that the aggregate value of the remaining Qualifying Unencumbered Projects owned or leased for more than four (4) quarters but less than seven (7) quarters which are included at cost under clause (ii) of this definition does not exceed twenty percent (20%) of Unencumbered Real Property Value. For the avoidance of doubt, such references to “less than seven (7) quarters” shall mean that the applicable 

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Project shall be included at cost in up to but not more than six (6) quarterly financial statements of Borrower. 
4.Other Changes to Credit Agreement.  From and after the Effective Date, the following sections in the Credit Agreement shall be modified as follows:
a.Section 7.22(a) is deleted in its entirety and shall be replaced as follows:
The Borrower's Investment in Real Property Under Development (with each asset valued in accordance with GAAP at cost, as incurred through the reporting date for construction in progress in the most recent quarter of the Consolidated Group for which financial results have been reported, reduced by third party equity contributed by co-owners of the legal entity that owns the subject Real Property to the extent not Affiliates of Borrower) shall not exceed ten percent (10%) of Total Asset Value, except that such limit may be increased to 15% subject to the following conditions:  (i) at such time as Borrower shall have exceeded the 10% of Total Asset Value threshold, Borrower shall have one (1) calendar year from the last day of the calendar quarter during which it shall have exceeded the 10% of Total Asset Value threshold to reduce its Investment in Real Property Under Development sufficiently so that the 10% Total Asset Value threshold is met.  Following the restoration of compliance with the 10% Total Asset Value test, Borrower must ensure that such compliance is maintained and continued for a minimum of one (1) full calendar quarter before any subsequent non-compliance with the 10% Total Asset Value threshold shall be permitted.
b.Section 7.22(d) is deleted in its entirety and shall be replaced as follows:
The Borrower's aggregate investment shall not exceed $50,000,000, in the aggregate, in (i) other directly owned assets that are not either income-producing, institutional-grade multifamily properties as determined by the Agent in its reasonable discretion, (ii) one of the Investments described in the above items (a)-(c), or (iii) Mezzanine Investments.  For the purposes of this 7.22(d), unsecured loans and Mezzanine Investments may not exceed $30,000,000 in the aggregate at any point in time.
c.    Section 7.22(f) is deleted in its entirety and shall be replaced as follows:
The aggregate Investment of the Borrower in the above items (a)-(d), in the aggregate and after eliminating any duplication of Investments included in more than one of such items, shall not at any time exceed twenty percent (20%) of Total Asset Value, except that such limit may be increased to 25% subject to the following conditions:  (i) at such time as Borrower shall have exceeded the 20% of Total Asset Value threshold, Borrower shall have one (1) calendar year from the last day of the calendar quarter during which it shall have exceeded the 10% of Total Asset Value threshold to reduce its Investment in the above items (a)-(d) in the aggregate and after eliminating any duplication of Investments, sufficiently so that the 20% Total Asset Value threshold is met.  Following the restoration of compliance with the 20% Total Asset Value test, Borrower must ensure that such compliance is maintained and continued for a minimum of one (1) full calendar quarter before any subsequent non-compliance with the 20% Total Asset Value threshold shall be permitted.
5.Reaffirmation of and Amendment to Subsidiary Guaranty.  The undersigned Subsidiary Guarantors, jointly and severally, hereby (i) approve and ratify this Amendment, together with all of their joint and several obligations, in connection herewith, (ii) agree and confirm that the Credit Agreement, as modified by this Amendment, remains in full force and effect in accordance with its terms, and (iii) acknowledge that their obligations under the Subsidiary Guaranty continue in full force and effect  and agree to fully and timely perform each and every obligation of a Subsidiary Guarantor under such Subsidiary Guaranty, as modified by the foregoing.
6.Representations and Warranties.  Borrower hereby represents and warrants to Lenders and the Administrative Agent that as of the Effective Date:
a.no Event of Default or Potential Default exists under the Credit Agreement or the other Loan Documents or will exist after giving effect to the terms of this Amendment;

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b.the representations and warranties contained in Article VI of the Credit Agreement are true and correct;
c.the Credit Agreement and the other Loan Documents are in full force and effect and it has no defenses or offsets to, or claims or counterclaims relating to, the obligations under the Credit Agreement or any of the other Loan Documents;
d.other than changes which have been previously provided to and approved by the Administrative Agent, no changes have been made to its organizational documents since the Agreement Execution Date; and
e.it has full power and authority to execute this Amendment.
7.Reimbursement to Administrative Agent.  The Borrower agrees to reimburse the Administrative Agent for all reasonable out-of-pocket expenses (including, but not limited to fees relating to legal, consulting, or auditing expenses) incurred in connection with the preparation, negotiation, and consummation of this Amendment.
8.References to Credit Agreement; Inconsistency.  All references in the Loan Documents to the Credit Agreement henceforth shall be deemed to refer to the Credit Agreement as amended by this Amendment.  In the event of a conflict or inconsistency between the provisions of the Loan Documents and the provisions of this Amendment, the provisions of this Amendment shall govern.
9.Continuing Force and Effect of Credit Agreement and Loan Documents.  The provisions of the Credit Agreement and other Loan Documents are in full force and effect, except as amended herein, and the Loan Documents as so amended are hereby ratified and reaffirmed by Borrower.  Nothing contained in this Amendment shall be construed to disturb, discharge, cancel, impair or extinguish the indebtedness evidenced by the existing Notes and the other Loan Documents.
10.Counterparts.  This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart.  This Amendment shall be construed in accordance with the internal laws (and not the law of conflicts) of the State of Ohio, but giving effect to federal laws applicable to national banks.
[Signature pages follow]

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IN WITNESS WHEREOF, Borrower, the Lenders and the Administrative Agent have executed this Agreement as of the date first above written.
ASSOCIATED ESTATES REALTY CORPORATION, an Ohio corporation

By:    /s/ Lou Fatica                
Name:    Lou Fatica
Title:    Vice President, Treasurer, and CFO
1 AEC Parkway
Richmond Heights, Ohio  44143
Attention:      Vice President and General Counsel
Telephone:      (216) 797-8780
Facsimile:      (216) 797-8719

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The undersigned, being all of the Subsidiary Guarantors under the Credit Agreement, hereby consent to and approve of the foregoing Amendment and agree that their obligations under the Subsidiary Guaranty shall continue in full force and effect with respect to the Loan, as increased and modified by the foregoing Amendment:

	
		
	SANDLER AT ALTA LAGO, LLC,
a Virginia limited liability company
By:Associated Estates Realty Corporation, 
its sole member
By: /s/ Lou Fatica                                     
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC BEDFORD COMMONS, INC.,
a Delaware corporation
By:  /s/ Lou Fatica                                   
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	BUCKHEAD AERC, LLC,
a Delaware limited liability company
By:Associated Estates Realty Corporation, 
its sole member
By: /s/ Lou Fatica                                        
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC LAKE FOREST, INC.,
a Delaware corporation
By: /s/ Lou Fatica                                    
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC WESTWIND, LLC,
a Delaware limited liability company
By:Associated Estates Realty Corporation, 
its sole member
By: /s/ Lou Fatica                                     
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC MORGAN PLACE, INC.,
a Delaware corporation
By: /s/ Lou Fatica                                    
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC SAN RAPHAEL, LLC,
a Delaware limited liability company
By:Associated Estates Realty Corporation, 
its sole member
By: /s/ Lou Fatica                                    
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC ARROWHEAD STATION, INC.,
a Delaware corporation
By: /s/ Lou Fatica                                    
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

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	AERC SUMMER RIDGE, LLC
A Delaware limited liability company 

By:  AERC Summer, Inc., its Manager

By: /s/ Lou Fatica                                    
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC KENSINGTON GROVE, INC.,
a Delaware corporation
By:/s/ Lou Fatica                                      
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC WILLIAMSBURG, INC.,
a Delaware corporation
By:/s/ Lou Fatica                                     
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC WESTERN RESERVE, INC.,
a Delaware corporation
By:/s/ Lou Fatica                                     
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC WESTCHESTER, INC.,
a Delaware corporation
By: /s/ Lou Fatica                                     
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC OAKS HAMPTON, LLC,
a Delaware limited liability company
By:AERC Oaks, Inc., its Manager
By:/s/ Lou Fatica                                       
  Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC STERLING PARK, INC.,
a Delaware corporation
By: /s/ Lou Fatica                                     
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC LANDINGS AT PRESERVE, LLC,
a Delaware limited liability company
By:AERC Landings, Inc., Manager
By: /s/ Lou Fatica                                    
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC CHRISTOPHER WREN, INC.,
a Delaware corporation

By:  /s/ Lou Fatica                                    
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC GEORGETOWN PARK, LLC,
a Delaware limited liability company
By:AERC Georgetown, Inc., its Manager
By: /s/ Lou Fatica                                      
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

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	AERC DPF PHASE II, LLC,
a Delaware limited liability company

By:AERC DPF Georgia Ventures, LLC
a Delaware limited liability company

By:AERC of Georgia, Inc., 
its Sole Member

By: /s/ Lou Fatica                                        
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC DPF PHASE I, LLC,
a Delaware limited liability company

By:AERC DPF Georgia Ventures, LLC,
a Delaware limited liability company

By:AERC of Georgia, Inc., 
its Sole Member

By: /s/ Lou Fatica                                     
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC HEATHERMOOR, INC.
a Delaware corporation

By: /s/ Lou Fatica                                      
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC WELLINGTON, LLC
A Delaware limited liability company 

By:  Associated Estates Realty Corporation, 
its sole member

By: /s/ Lou Fatica                                    
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC PERIMETER LAKES, INC., 
a Delaware corporation

By:  /s/ Lou Fatica                                    
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC CLINTON  PLACE, LLC,
a Delaware limited liability company 

By:  AERC Clinton, Inc., its Manager

By: /s/ Lou Fatica                                     
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC 2140 MEDICAL DISTRICT, LLC,
a Delaware limited liability company

By:  Associated Estates Realty Corporation, 
its sole member

By: /s/ Lou Fatica                                     
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC ARBORETUM, L.P., 
a North Carolina limited partnership

By: AERC of NC, L.P., a North Carolina limited partnership
By: Associated Estates Management Company,
an Ohio corporation, General Partner

  By: /s/ LouFatica                                        
  Name: Lou Fatica
  Title: Vice President, Treasurer, and CFO

	AERC RIVER FOREST, LLC,
a Delaware limited liability company

By:  Associated Estates Realty Corporation, 
its sole member

By:  /s/ Lou Fatica                                     
Name: Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC BELVEDERE, LLC, 
a Delaware limited liability company

By:  Associated Estates Realty Corporation, 
        its sole member

By: /s/ Lou Fatica                                   
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

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	AERC ARBOR LANDINGS, LLC,
a Delaware limited liability company 

By:  Associated Estates Realty Corporation, 
its sole member

By: /s/ Lou Fatica                                    
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC BARRINGTON, INC., 
a Delaware corporation

By: /s/ Lou Fatica                                   
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

	AERC WATERSTONE, LLC,
a Delaware limited liability company

By:  Associated Estates Realty Corporation, 
its sole member

By: /s/ Lou Fatica                                   
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO
	AERC BRADFORD, INC., 
a Delaware corporation

By: /s/ Lou Fatica                                     
Name:Lou Fatica
Title:Vice President, Treasurer, and CFO

10

		
	COMMITMENT:
	PNC BANK, NATIONAL ASSOCIATION,

		
	$75,000,000
	Individually and as Administrative Agent

By:    /s/ John E. Wilgus, II             
Name:    John E. Wilgus, II
Title:    Senior Vice President, Real Estate Banking
PNC Real Estate
1900 East Ninth Street - 22nd Floor
Mail Stop:  B7-YB13-22-1
Cleveland, OH  44114
Phone:      216-222-6032
Facsimile:     216-222-6070
Attention:    John E. Wilgus, II
Senior Vice President
Real Estate Banking

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	COMMITMENT:
	WELLS FARGO BANK, N.A., individually and as

		
	$75,000,000
	Syndication Agent

By:    /s/ Sam Supple                
Name:    Sam Supple
Title:    Senior Vice President
Wells Fargo REIT Finance Group
123 N. Wacker Drive, Suite 1900
Chicago, IL  60606
Attention:      Sam Supple
Phone:      312-269-4817

12

		
	COMMITMENT:
	CITIBANK, N.A.,

		
	$45,000,000
	Individually and as Co-Documentation Agent

By:    /s/ John C. Rowland            
Name:    John C. Rowland
Title:    Vice President
Citibank, N.A.
388 Greenwich Street, 23rd Floor
New York, NY  10013
Attention:      Rita C. Lai
Phone:      212-723-5931
Facsimile:      212-723-8550

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	COMMITMENT:
	RBS CITIZENS BANK N.A. d/b/a CHARTER ONE,

		
	$45,000,000
	Individually and as Co-Documentation Agent

By:    /s/ Erin L. Mahon            
Name:  Erin L. Mahon
Title:      Vice President
RBS Citizens Bank N.A. d/b/a Charter One
1215 Superior Avenue, OH S675
Cleveland, OH  44114
Attention:      Samuel A. Bluso
Phone:      216-277-0388
Facsimile:      216-277-4600

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	COMMITMENT:
	BANK OF AMERICA, N.A., Individually and as

		
	$45,000,000
	Co-Documentation Agent

By:    /s/ Eyal Namordi                
Name:    Eyal Namordi
Title:    Senior Vice President
Bank of America, N.A.    
135 South LaSalle Street
Mail Stop:  IL4-135-06-11
Chicago, IL  60603
Attention:      Eyal Namordi
Phone:      (312) 828-2575
Facsimile:      (415) 503-5142

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	COMMITMENT:
	RAYMOND JAMES BANK, N.A.

$35,000,000    
By:    /s/ James Armstrong            
Name: James Armstrong
Title:    Vice President
710 Carillon Parkway
St. Petersburg, FL  33716
Attention:      James Armstrong
Phone:      727-567-7919
Facsimile:      866-205-1396

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	COMMITMENT:
	U.S. BANK NATIONAL ASSOCIATION,

$30,000,000    
By:    /s/ Curt M. Steiner            
Name:     Curt M. Steiner
Title:      Senior Vice President
U.S. Bank National Association
209 South LaSalle Street, Suite 210
Chicago, IL 60604
Attention:      Curt M. Steiner, Senior Vice President
Phone:         (312) 325-8756
Facsimile:     (312) 325-8853

17ex10-10.htm

 

 

[***] Represents information which has been redacted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

Prototype Agreement

 

 

This prototype agreement and related Schedules (the “Agreement”) is entered into effective as of February 6, 2012 ("Effective Date") by and between Flux Power, Inc. (“Flux”), with a principal place of business located at 2240 Auto Park Way Escondido, CA 92029, and NACCO Materials Handling Group, Inc. (“NMHG”), with a principal place of business located at 4000 N.E. Blue Lake Road Fairview OR 97024, hereinafter referred together as (“Parties”).

 

 

RECITALS

WHEREAS, Flux develops and supplies energy storage systems and products to the market;

WHEREAS, NMHG develops and supplies electric forklift trucks and similar applications to the marketplace;

WHEREAS, NMHG wishes to engage Flux to develop a custom version of Flux’s energy storage system that can drop-in to NMHG’s electric forklift trucks;

WHEREAS, NMHG wishes to engage Flux to develop interfaces between NMHG’s truck control and battery charger management hardware and software and Flux’s energy storage system and products; and

WHERES, NMHG and Flux wish to memorialize a framework for the deliverables to be provided and negotiate an agreement to govern distinct components of their overall relationship.

NOW THEREFORE, for good and valuable consideration the sufficiency of which is hereby acknowledged, the parties agree to the following:

 

ARTICLE 1.0 DEFINITIONS

 

	
1.1  

	
“Background Technology” of a Party means all Intellectual Property that (a) is (i) owned or licensed by such Party and (ii) is in existence in electronic or written form on or prior to the effective date or (b) is developed, acquired, or licensed by such Party after the effective date and relates to the Business of NMHG or Flux ESS respectively.

 

	
1.2  

	
The “Business of NMHG” shall mean the business of designing, engineering, manufacturing and selling materials handling equipment and components thereof, including but not limited to lift trucks, warehouse lift trucks, counterbalanced lift trucks and large capacity cargo and container handling lift trucks.

 

	
1.3  

	
“NMHG Products” means the materials handling equipment and components thereof (including a battery charger, Software Interface and not including Flux ESS or Flux’s Background Technology), and further including but not limited to lift trucks, warehouse lift trucks, counterbalanced lift trucks and large capacity cargo and container handling lift trucks.

 

 

 

Page 1 of 21                      Confidential                       

  

  

 

 

	
1.4  

	
“Battery Pack Design” means the specific external package design specified in the Deliverables for the use in NMHG Products or related interconnects between Flux’s ESS and NMHG’s Products to the extent they are developed under this Agreement but does not include the Intellectual Property, technology or design of Flux’s ESS or Flux’s Background Technology.

 

	
1.5  

	
 “Deliverables” means any physical deliverables specifically purchased by NMHG in an applicable Schedule, Battery Pack Design and Software Interface that Flux will deliver to NMHG during or at the completion of the performance of each Schedule. Deliverables shall be provided to NMHG in accordance with each Schedule and shall conform to the specifications set forth therein;

 

	
1.6  

	
 “Flux ESS” means Flux’s energy storage systems, technology, know-how and related Intellectual Property and solutions to power vehicles, prototypes, products and solutions including but not limited to lithium-ion battery cells, battery balancing boards, battery control module, battery interconnects, power distribution unit, DC/DC converter, software, firmware, enclosures and any additional products directly related to Flux’s Background Technology and specifically does not include NMHG’s Background Technology;

 

	
1.7  

	
“Intellectual Property” means all algorithms, apparatus, circuit designs and assemblies, databases and data collections, designs, diagrams, documentation, drawings, flow charts, formulae, ideas and inventions (whether or not patentable or reduced to practice), know-how, materials, marketing and development plans, marks (including brand names, product names, logos, and slogans), methods, models, network configurations and architectures, procedures, processes, protocols, schematics, software code (in any form including source code and executable or object code), specifications, subroutines, techniques, tools, uniform resource identifiers, user interfaces, web sites, works of authorship, and other forms of technology and intellectual property.

 

	
1.8  

	
“Intellectual Property Rights” means worldwide common law and statutory rights associated with (i) patents and patent applications; (ii) works of authorship, including mask work rights, copyrights, copyright applications, copyright registrations and "moral" rights; (iii) the protection of trade and industrial secrets and confidential information; (iv) other proprietary rights relating to intangible intellectual property (specifically including trademarks, trade names and service marks); (v) analogous rights to those set forth above; and (vi) divisions, continuations, renewals, reissuances and extensions of the foregoing (as applicable) now existing or hereafter filed, issued or acquired.

 

	
1.9  

	
“PCR” means a mutual written agreement by Parties’ management of a change of Deliverables using Flux’s project change request form.

 

	
1.10  

	
“NMHG’s Control Unit” means any software, firmware or hardware that controls the operation of NMHG’s Products.

 

1.11  “Schedule” means the exhibits to this agreement that further define the Deliverables;

 

	
1.12  

	
“Software Interface” means the software program that specifically developed under this Agreement that provides a logical interface and communication between Flux’s ESS and NMHG’s Control Unit and does not mean any, hardware, software or firmware of Flux’s ESS or Background Technology.

 

ARTICLE 2.0 PERFORMANCE OF SERVICES

 

	
2.1  

	
Flux agrees to provide Deliverables for NMHG pursuant to the terms and conditions set forth in this Agreement and each fully executed Schedule that references this Agreement. At a minimum, Schedules shall include details of the Deliverables, estimated dates the Deliverables should be made available and estimated costs to NMHG of providing such Deliverables.

 

 

 

Page 2 of 21                      Confidential                       

  

  

 

 

 

	
2.2  

	
Flux agrees to use best efforts to provide the Deliverables associated in each Schedule.  Unless agreed upon in a Schedule Flux shall not be penalized for late Deliverables.  In the event Deliverables are not met or in the event Deliverables are late the Parties agree to negotiate a cure period in good faith.

 

	
2.3  

	
When applicable NMHG shall use best efforts to assist Flux in providing Deliverables, which may include but is not limited to access to NMHG’s facilities, personnel, and NMHG Products.

 

	
2.4  

	
Parties agree that due to various reasons and often outside of the control of Parties the scope, types and schedule of the Deliverables may change.  Changes requested by NMHG shall be made using PCR and are subject to additional fees and costs.

 

ARTICLE 3.0 COSTS, INVOICING AND PAYMENTS

	
3.1

	
Upon pre-approval, which shall not be unreasonably denied, NMHG agrees to reimburse Flux for any out-of-pocket expenses incurred in the event travel is required.

 

	
3.2

	
NMHG shall pay Flux the fees set forth in an applicable Schedule in accordance with the Schedule’s payment terms therein. In the case of fees due not specifically identified in an applicable Schedule (i.e. travel expenses) Flux shall provide a true and correct invoice to NMHG and NMHG agrees that all fees shall be paid within thirty (30) days from the date of such invoice.

 

ARTICLE 4.0 CONFIDENTIALITY & INTELLECTUAL PROPERTY

 

	
4.1

	
Each Party shall have and retain exclusive ownership of its Background Technology, including any Intellectual Property Rights therein. All Intellectual Property discovered, created or developed under, or in connection with, this Agreement that directly relates to Flux’s ESS and Flux’s Background Technology shall be and remain the sole property of Flux and its assigns. All Intellectual Property discovered, created or developed under, or in connection with, this Agreement that directly relates to NMHG Background Technology or the NMHG Products shall be and remain the sole property of NMHG and its assigns. To the extent that the Deliverables include a Software Interface and a Battery Pack Design, Flux hereby grants to NMHG the irrevocable, perpetual, fully paid, non-exclusive, worldwide, right and license to use, execute, sell, reproduce, display, perform, distribute copies of, and prepare derivative works of the Software Interface and Battery Pack Design.

 

This Agreement shall in no way limit Flux’s right to market, sell and obtain Intellectual Property protection for Flux’s ESS or the Flux Background Technology and Flux reserves the right to assert any claims based upon any resulting legal protection of such Intellectual Property Rights.  Nothing in this Agreement or any Schedule shall be deemed to be a transfer or license by NMHG to Flux of any NMHG Background Technology.

 

 

 

Page 3 of 21                      Confidential                       

  

  

 

	
4.2

	
Except as provided in this Agreement, neither party may use, reproduce, distribute or disclose Confidential Information it receives from the other party under this Agreement, without the prior written authorization of the disclosing party. Each party must hold in confidence Confidential Information received from the other party and must protect the confidentiality thereof with the same degree of care that it exercises with respect to its own information of like importance, but in no event less than reasonable care, for a period of (2) years from the date of receipt of the Confidential Information).  “Confidential Information” shall mean information which if disclosed (i) in tangible form, is clearly marked as "confidential" or  "proprietary" at the time of disclosure, or (ii) in intangible form (such as orally or visually), the disclosing party identifies as "confidential" or "proprietary" at the time of disclosure to the receiving party within thirty (30) days of disclosure.  Notwithstanding the foregoing marking requirements, the parties agree that technical information regarding prototypes, Flux’s ESS and either party’s Background Technology shall always be deemed and considered Confidential Information.

 

	
4.3

	
During the term of this Agreement and for a period of two (2) years thereafter, neither party shall without the prior written consent of the other party, directly solicit any of the other party’s employees for employment; provided, however, that the foregoing restriction shall not apply to a general solicitation for application for employment made through advertising, web sites or other mediums not involving the direct targeted solicitation of a specific person.

 

ARTICLE 5.0 General

 

	
5.1

	
Either party may terminate this Agreement and/or related Schedule for convenience with a sixty (60) day written notice.  In the event of termination Flux shall use reasonable efforts to scale down any work on this Agreement or related Schedule and provide an itemized invoice of all work performed and expenses incurred up to the date of termination and NMHG agrees to pay said invoice within thirty (30) days.

 

	
5.2

	
With respect to disputes, the parties agree that in the event of any dispute or difference arising out of or relating to this Agreement, except for breach in NMHG’s lack of payment, the parties hereto shall use their best endeavors to settle such disputes or differences.  To this effect, they shall consult and negotiate with each other, in good faith and understanding of their mutual interest, to reach a just and equitable solution within a period of thirty (30) days, and then the disputes or differences shall be finally settled by arbitration administered by the American Arbitration Association.  This Agreement and all matters arising thereunder shall be governed by the laws of the state of California applicable therein without giving effect to the rules respecting conflict of law.

 

	
5.3

	
A party is not liable under this Agreement for non-performance caused by events or conditions beyond that party's control, if the party makes reasonable efforts to perform.

 

	
5.4

	
LIMITATION OF LIABILITY

 

EXCEPT AS EXPRESSLY SET FORTH ABOVE, NO OTHER WARRANTIES ARE EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND FLUX EXPRESSLY DISCLAIMS ALL WARRANTIES NOT EXPRESSLY STATED HEREIN.  THE WORK PERFORMED UNDER THIS AGREEMENT IS FOR THE PRODUCTION OF PROTOTYPE UNITS

IN NO EVENT SHALL FLUX BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOSS OF BUSINESS, REVENUE, PROFITS, GOODWILL, USE, DATA OR OTHER ECONOMIC ADVANTAGE) ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER IN BREACH OF CONTRACT, BREACH OF WARRANTY OR IN TORT, INCLUDING NEGLIGENCE, AND EVEN IF THAT PARTY HAS BEEN ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.

 

 

 

Page 4 of 21                      Confidential                       

  

  

 

 

	
5.5

	
Flux may assign or delegate portions or the entirety of the Deliverables to 3rd parties, subcontractors, contract manufacturers and consultants.

 

	
5.6

	
Except for agreements relating to confidentiality, this Agreement constitutes the entire agreement between NMGH and Flux with respect to the subject matter hereof and shall bind Parties and their perspective parents, subsidiaries and affiliates.  Furthermore this Agreement supersedes all prior agreements, understandings and proposals, whether written or oral. This Agreement may not be amended or modified except by a writing signed by both parties. No oral statement of any person will, in any manner or degree, modify or otherwise effect the terms and provisions of this Agreement.  Except for terms relating to Intellectual Property Rights, the terms and conditions of a related Schedule shall control if and when there is a conflict with any of the terms or conditions of this Agreement.

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their duly authorized representatives and have made effective as of the Effective Date.

 

	
Flux Power, Inc.

 

	
NACCO Materials Handling Group, Inc.

 

	
By: /s/ Craig Miller            

 

	
By: /s/ Rajiv K. Prasad            

	
Name:  Craig Miller

 

	
Name:  Rajiv K. Prasad

	
Title:  VP, Director of Legal Affairs

 

	
Title:  VP Global Product Development

	
Date:   2-20-2012

	
Date:   Feb 22, 2012

	  	  

////

Page 5 of 21                      Confidential                       

  

  

Exhibit A

Schedule No. 1

To

Prototype Agreement

 

This Schedule No. 1 (“Schedule”) to the Prototype Agreement (the “Agreement”) entered into effective as of February 6, 2012 by and between Flux Power, Inc. (“Flux”), and NACCO Materials Handling Group, Inc. is entered into and effective by the parties hereto as of Feb 22, 2012 (“Schedule 1 Effective Date”).  This Schedule is subject to the terms and conditions of the Agreement.

 

 

(Remainder of page intentionally left blank)

 

 

Page 6 of 21                      Confidential                       

  

  

 

 

LiFePO4 Energy Storage System

 

 

 

Prepared For NACCO Materials Handling Group

 

 

CONFIDENTIAL

 

 

Version                                       1.00

Version Date                             2/20/12

 

 

 

	
Purpose and Scope

 

This Schedule defines Deliverables to be provided by Flux for NMHG in accordance with the following project scope.

The Parties agree to the following business objectives and goals, with contingencies are as follows:

	
1.  

	
In the event the parties wish to go forward with the manufacture and distribution of Flux ESS for NMHG Products such will require:

 

 

 

Page 7 of 21                      Confidential                       

  

  

 

 

	
a)  

	
A successful performance demonstration which means meeting or exceeding existing lead acid battery performance under a full rage of NMHG Products in various working environments. This is to be demonstrated through the testing of Flux ESS for NMHG Products prototypes.  The Parties understand that the requirement defined herein are designed to describe attributes only and may not fully represent all of NMHG’s customer expectations; and

	
b)  

	
Viable economic performance, to include initial Flux ESS product costs and total operational costs.  Saving must be compelling enough to entice current NMHG customers that use lead-acid batteries to change to the Flux ESS for NMHG Products.  The January 2012 economic performance point requires a cost less than or equal to $0.50 per W-hr for the Flux ESS based on the volume of 6,000 packs per year at a consistent cell specification.  NMHG shall either confirm or update the economic performance point on a 6-month schedule.

	
c)  

	
Mutual approval of an NMHG Master Supply Agreement (“MSA”), which both parties agree to negotiate in good faith.

	
d)  

	 

	
e)  

	
Upon moving forward with manufacture and distribution of Flux ESS for NMHG Products, NMHG will:

	
f)  

	
offer validated Flux ESS for exclusive non lead-acid energy source sale throughout NMHG’s global dealer distribution network thorough June 2016; and

	
g)  

	
Provide product introduction / order readiness to NMHG dealers NLT December, 2012

 

	
Reference Material

 

	
[1]  

	
SOW Jan 2012.doc, NMHG, Ref: NA, Version: NA, Dated: NA

 

	
[2]  

	
Scope_Draft_01192012, Flux Power, Ref: NA, Version: NA, Dated: NA

 

	
[3]  

	
Non-Disclosure Agreement, Flux Power, Ref: NA, Version: NA, Dated December 1, 2011

 

The foregoing reference materials are provided for general informational purposes only, and the reference materials shall not be construed to be a requirement for any Flux Deliverable unless specifically identified as a requirement in the acceptance test plan or set forth herein.

 

 

	
  

	
Acronyms

 

	
Term

	
Definition

	
ARO

	
After Receipt of Order.

	
BCM

	
Battery Control Module

	
BMSM

	
Battery Management System Module

	
CAN

	
Controller Area Network

	
Flux ESS

	
Flux’s Energy Storage System

	
NMHG

	
NACCO Material Handling Group

	  	  

 

 

 

Page 8 of 21                      Confidential                       

  

  

 

 

	
Deliverables Description

 

	
Project Background

 

NMHG intends to evaluate and test Flux’s ESS to determine whether it would adequate for integration into NMHG Products.  Deliverables shall be designed to retrofit some of NMHG Product for testing and validation.

 

As a part of Deliverables Flux will provide a solution using Flux ESS and current intellectual property and technology to provide a prototype energy storage systems that meets NMHG specifications and drawings to integrate into their existing NMHG Products. As a part of the Schedule, Flux will build at a minimum of three (3) complete working prototypes of Flux’s ESS for NMHG Products.

 

NMHG Project Description

 

NMHG’s objective is to evaluate and test functional prototype Flux ESS’s to work with NMHG Products and support their series/parallel power strategy using Flux’s ESS.

 

NMHG’s goal is to have the first Flux ESS prototypes available for installation and testing by _April 9th 7 weeks post Schedule Effective Date, as defined in 1.1.2 M.2.  To achieve this goal, Parties must lock down NMHG ESS specifications by the Schedule Effective Date. February 20th.

 

	
Flux Power Services Project Description

 

Flux will work with NMHG and third parties to provide and unit test the prototype of Flux ESS.

 

	
Contact Information

 

The following is an initial list of contacts for this Project.

	
Name

	
Title

	
Phone

	
Email

	
Ed Munar

	
VP Business Development

	
877-505-3589

	
ed@fluxpwr.com

	
Alex Smith

	
Senior Applications Engineer

	
877-505-3589 ext 107

	
alex@fluxpwr.com

	
Brian Gallagher

	
Project Manager

	
877-505-3589

	
brian@fluxpwr.com

	
Laurence Dunn

	
Chief Engineer

	
503-721-6244

	
laurence.dunn@nmhg.com

	
Mark Stonick

	
Global Strategic Technology Procurement

	
503-721-6149

	
mark.stonick@nmhg.com

	
Roger Penfound

	
Project Manager

	
503-721-6884

	
roger.penfound@nmhg.com

 

	
Location of Work Facilities

 

During the course of this Schedule, Flux development resources will be located at selected Flux and NMHG facilities. The location of the resource will be based on optimal delivery of Deliverables. The following is a list of proposed work locations.

 

 

Page 9 of 21                      Confidential                       

  

  

 

 

	
NMHG Facilities

 

	
NACCO Material Handling Group, Inc.

	
Address

	
4000 N.E. Blue Lake Road

	
City

	
Fairview

	
State/Province

	
OR

	
Country

	
USA

	
Postal Code

	
97024-8710

	
Telephone

	
503-721-6205

	
Fax

	
503-721-6200

 

	
Flux Power Facilities

 

	
Flux Power, Inc.

	
Address

	
2240 Auto Park Way

	
City

	
Escondido

	
State/Province

	
CA

	
Country

	
USA

	
Postal Code

	
92029

	
Telephone

	
877-505-3589 (FLUX)

	
Fax

	
760-741-3535

 

	
System Overview

 

Flux Power will provide prototype Flux ESS for NMHG Products to meet the functions and requirements specified below.

 

	
Energy Storage System (ESS)

 

Flux’s ESS includes but is not limited to lithium-ion battery cells, battery balancing boards, battery control module, battery interconnects, power distribution unit, DC/DC converter (POC) and an enclosure.  The prototype provided to the NMHG will contain each of these major sub-assemblies and they are described below:

 

	
1.  

	
Lithium Battery Cells – [***] battery cells with cell voltage ranges from [***] minimum, [***] nominal and [***] maximum.

 

	
2.  

	
Battery Balancing Boards – Monitors voltage and temperature measurements up to 4 battery cells and performs charge balancing.

 

	
3.  

	
Battery Control Module – Centralize controller for managing and monitoring the ESS’s batteries and controls the charging and system level interfaces.

 

	
4.  

	
Battery Interconnects - Buss bars and wiring.

 

	
5.  

	
Power Distribution Unit – Contactors, fusing, interlocks and battery protection.

 

	
6.  

	
DC/DC Converter – Provides regulated 12V power source by bucking down the ESS’s high voltage from the batteries. (POC)

 

	
7.  

	
Enclosure – Battery box with fastening/attachments and lid.

 

The first prototype Flux ESS design will be a nominal [***] lithium-ion battery [***] utilizing [***] cells arrayed in [***] separate [***] cell groups with independent positive and negative connections brought out to recommended connectors from NMHG.  The Flux ESS will allow either parallel or series connections of the [***] groups of [***] cells such that the NMHG can either be discharged or charged in series or parallel configuration.

The figure below will be assembled in a battery enclosure case designed by NMHG with suggested modifications from Flux.

 

 

Page 10 of 21                      Confidential                       

  

  

[***]

Figure 1 – NMHG Enclosure Design

 

	
Work Packages

 

The Deliverables will consist of the following work packages:

 

	
High Level Design

 

Flux will complete a high level design of the Flux ESS for use in NMHG Product prior to the start of detailed hardware design tasks. Specific tasks to be completed by Flux in this High Level Design work package include, but are not limited to:

 

· Select major critical components and develop high-level hardware block diagram.

 

· Identify long lead or otherwise at-risk components.

 

· Develop preliminary Bill of Materials (BOM).

 

· Prepare a Hardware Design Document.

 

· Review Hardware Design Document with MNHG.

 

This work will be carried out at Flux Power’s Escondido office.

 

	
Mechanical Design Package

 

Flux will design the detailed drawings and assemblies to implement the features of the Flux’s ESS into NMHG Products enclosure and mounting structure. Specific tasks to be completed by Flux in this mechanical design work package include, but are not limited to:

 

	
·  

	
Develop detailed mechanical 2D and 3D drawings into CAD package.

 

	
·  

	
Create detailed Bills of Materials.

 

	
·  

	
Review detailed mechanical designs with NMHG and peers.

 

The work will be carried out at Flux’s Escondido office.

 

	
Electrical / Wiring Design Package

 

Flux will design the detailed electronics wiring and interfaces to implement the features of the Flux ESS into NMHG Products power and communications distribution. Specific tasks to be completed by Flux in the Electrical / Wiring work package include, but are not limited to:

 

	
·  

	
Develop detailed wiring design and enter the design into 2D wiring schematics.

 

	
·  

	
Create detailed Bills of Materials.

 

	
·  

	
Review detailed electronics design with NMHG and peers.

 

The work will be carried out at Flux Power’s Escondido office.

 

	
Hardware Prototyping Support

 

Flux will procure engineering prototype components and fabrication and assembly services for the NMHG Product.  Specific tasks to be completed by Flux in this hardware prototyping work package include, but are not limited to:

 

 

Page 11 of 21                      Confidential                       

  

  

	
·  

	
Flux will procure components to build engineering prototype electronics and wiring assemblies.

 

	
·  

	
Flux will procure engineering prototype mechanical assemblies for the enclosure from a local quick turn fabrication source or local source provided by NMHG.

 

	
·  

	
Flux will inventory and assembly prototype Flux ESS units and perform functional checkouts.

 

	
·  

	
Flux will provide technician support for troubleshooting and test assistance.

 

This work will be carried out at Flux Power’s Escondido office.

 

	
Engineering Prototype Verification

 

Flux will conduct design verification tasks on engineering prototype Flux ESS units. Specific tasks to be completed by Flux in this engineering verification work package include, but are not limited to:

 

	
·  

	
Assemble and perform functional checkout of Flux ESS units.

 

	
·  

	
Support software/hardware integration and testing.

 

	
·  

	
Test hardware features against design requirements.

 

	
·  

	
Verify fit of prototype of components in Flux ESS enclosure for installation into NMHG Products.

 

This work will be carried out at both Flux’s Escondido office and NMHG’s Fairview office.

 

	
Software development

 

Flux will develop BCM software to provide both internal and external links to interface with prototype Flux ESS units for NMHG Product and demonstrate correct operation.  Flux will perform the following software development tasks:

 

	
·  

	
Establish communication protocols and provide diagnostics.

 

	
·  

	
Unit test all software modules interfacing with BCM.

 

	
·  

	
Update code as issues and defects are uncovered during prototype testing.

 

	
Acceptance Test

 

Flux Power will develop and document a Test Plan and Acceptance Test Procedure and perform integration testing using the software, prototype electronics and enclosure. Specific tasks to be completed by Flux in this work package include:

 

	
·  

	
Prepare Acceptance Test Plan.

 

	
·  

	
Prepare Acceptance Test Procedure.

 

	
·  

	
Perform Software integration testing.

 

	
·  

	
Perform Functional testing.

 

	
·  

	
Perform Final acceptance testing.

 

 

Page 12 of 21                      Confidential                       

  

  

 

 

The work will be carried out at Flux’s Escondido office.  Flux shall use best efforts to design to meet specifications defined herein and provide a test plan identified above but will not be providing testing under this Schedule including but not limited to environmental and life testing.

 

 

	
Requirements

 

	
General Requirements

 

	
R.1  

	
Flux ESS shall be operational in a temperature range of [***] deg C to [***] deg C

 

	
R.2  

	
Flux ESS shall be have a storage temperature range of [***] deg C to [***] deg C

 

	
R.3  

	
Flux ESS shall be designed with best design engineering practices to protect from electrical short circuits with the following devices:

 

	
·  

	
Fuses/circuit breakers/contactors/PTC devices and used where appropriate

 

	
·  

	
Surge and preventative protection from key off load during high discharge currents.

 

	
R.4  

	
Flux ESS prototype units shall be designed with best design engineering practices to comply with the following standards:

 

	
·  

	
Thermal Shock: SAE J1455

 

	
·  

	
Humidity: SAE J1455

 

	
·  

	
Salt Spray: SAE J1455

 

	
·  

	
Dust and Moisture (NMHG is responsible for overall case sealing): IEC IP 66 or 68

 

	
·  

	
Emissions: EN 12895

 

	
·  

	
Susceptibility:  EN 12895 [***]

 

	
·  

	
ESD: SAE J1455

 

	
·  

	
Vibration: SAE J1211

 

 

Page 13 of 21                      Confidential                       

  

  

 

ESS Requirements

 

 

	
R.5  

	
Flux ESS prototype unit’s case will be powder coated black.

 

	
R.6  

	
Flux ESS prototype units will have the supplied drawings to fabricate a battery case.

 

	
R.7  

	
Flux ESS prototype unit’s BCM will support [***] protocol.

 

	
R.8  

	
Flux ESS prototype unit’s BCM will have a communication’s rate of [***]kbs.

 

	
R.9  

	
Flux ESS prototype unit’s BCM [***]

 

	
R.10  

	
Flux ESS prototype unit’s BCM [***]

 

	
R.11  

	
Flux ESS prototype unit’s communication wiring will be twisted pair and in compliant with SAE J1939.

 

	
R.12  

	
Flux ESS prototype units will utilize battery cables with a minimum size of 4/0

 

	
R.13  

	
Flux ESS prototype units will provide discharge currents up to [***] amps for [***] second durations.

 

	
R.14  

	
Flux ESS prototype unit’s communications connector will be a [***] device as defined in Figure 1.

 

	
R.15  

	
Flux ESS prototype unit’s internal wiring will use [***]

 

	
R.16  

	
Flux ESS prototype unit’s batteries will be capable of minimum charge rate of [***]

 

	
Assumptions

 

The following list shows some of the most important assumptions used in preparing the schedule and estimates for this project. If an Assumption is proved to be false, a cost and/or schedule impact may occur and will be managed as a project change

	
Ref.

	
Assumption

	
A.1 

 

	
NMHG will assume responsibility of securing [***]

	
A.2 

 

	
NMHG will assume responsibility [***]

	
A.3 

 

	
Flux will source lithium-ion battery cells and select preferred source.

	
A.4 

 

	
Flux will design and implement battery cell mounting and fastening schemes into Flux ESS prototype units.

 

 

 

Page 14 of 21                      Confidential                       

  

  

 

	
Flux Power Standard Product

 

There will be Flux products and intellectual property used within this statement of work.  The products include but are not limited to Flux ESS, battery control modules (BCM) and battery management system modules (BMSM).

 

	
Deliverables

 

 

	
Flux Deliverables

 

The following Deliverables shall be deemed deliverables Flux shall provide to NMHG’s in accordance with the terms of the Schedule.

 

	
Documentation Deliverables

 

Flux will provide a license to use for internal use purpose only but not create derivative works of the following documentation deliverables as a result of the Schedule.

	
Ref.

	
Description

	
Type

	
Format

	
Media

	
Mechanical Hardware Design

	
D.1

	
Top Level Block Diagram

	
—

	
PDF or Visio

	
FTP/email

	
D.2

	
    CAD Solid Models

	
—

	
.IGS

	
FTP/email

	
D.3

	
Bill(s) of Materials

	
—

	
MS Excel

	
FTP/email

	
D.4

	
2D Build Prints

	
—

	
PDF

	
FTP/email

	
D.5

	
Assembly Instructions

	
—

	
PDF

	
FTP/email

	
D.6

	
Engineering Change Orders

	
—

	
PDF or MS Word

	
FTP/email

	
Electrical / Wiring Design

	
D.7

	
Electrical wiring schematics

	
—

	
Visio

	
FTP/email

	
D.8

	
Installation Instructions

	
—

	
Text

	
FTP/email

	
D.9

	
Power and Communication Interface Document

	  	
MS Word

	
FTP/email

	
   D.10

	
Software Build Release Notes

	
—

	
Text

	
FTP/email

	
Acceptance Test Plan

	
   D.11

	
Test Plan Document

	
—

	
MS Word or TRACE

	
FTP/email

	
   D.12

	
Acceptance Test Procedure

	
—

	
PDF or TRACE

	
FTP/email

 

 

 

Page 15 of 21                      Confidential                       

  

  

 

	
  

	
Prototype Hardware Deliverables

 

Flux Power will provide the following prototype Deliverables as a result of the Schedule.

	
Ref.

	
Prototype Description

	
Qty Built

	
Qty to NMHG

	
Qty to Flux Power

	
D.13

	
Flux ESS prototype units for NMHG Products

	
3

	
3

	
0

 

	
Planning and Reporting

 

As part of the Services under this Agreement, Flux will assign a project manager to ensure effective management of the development activities carried out by Flux.

The Project Manager will:

 

	
1.  

	
Provide the necessary project management support to the project to ensure effective management of the Flux development activities.

 

	
2.  

	
Participate in Flux and NMHG project management meetings.

 

	
3.  

	
Act as the focal point for all issues and problem reports. These problem reports can be informal (via email) but will be used to report and act upon any issue/problem requiring investigation or changes.

 

	
4.  

	
Identify, assess, and prepare contingency or mitigation plans for project risks to reduce or eliminate negative impacts to schedule, cost, and technical execution of the project.

 

	
5.  

	
Provide NMHG with the following reports/plans on a mutually agreed schedule: Status report – includes an executive summary, project progress for reporting period, issues summary, action item summary, project task plans, milestones, deliverables summary, PCR summary.

 

	
a.  

	
Risk report – Risks are tracked and managed throughout the project. Risk detail and summary reports can be exported as an excel file or PDF.

 

	
b.  

	
Issue Report– Issues are tracked and managed through Trace and can be accessed on line. Issue detail and summary reports can be exported as an excel file or PDF.

 

	
c.  

	
Action Items Report – Action items are tracked and managed through Trace and can be accessed on line. Action items detail and summary reports can be exported as an excel file or PDF.

 

	
d.  

	
Schedule Report – Project schedule is tracked using Microsoft Project and schedule report is issued as a PDF file.

 

	
e.  

	
PCR (as required).

 

Project plans will take into account NMHG’s timescale requirements, the availability of Flux staff, and will be agreed upon with NMHG before the Project proceeds.  All Deliverables and reports shall be considered Confidential.

 

 

Page 16 of 21                      Confidential                       

  

  

 

 

	
Estimated Major Events of Project

 

The following estimated schedule will apply to the Deliverables:

	
Ref.

	
Project Major Events

	
Estimated Completion

	
Elapsed Time

	
M.1 

 

	
Project Start

	
Receipt of Order*

	
0 Week

	
M.2 

 

	
Flux ESS prototype requirements frozen

	
2 Weeks after M.1

	
2 Weeks

	
M.3 

 

	
NMHG approves design Flux ESS units mechanical enclosures and design review  complete

	
2 Weeks after M.1

	
2 Weeks

	
M.4 

 

	
NMHG approves design Flux ESS units electrical and wiring and design review complete

	
2 Weeks after M.1

	
2 Weeks

	
M.5 

 

	
Flux ESS design document review completed and design released

	
1 Week after M.2

	
3 Weeks

	
M.6 

 

	
Flux ESS materials and parts ordered

	
1 Week after M.5

	
4 Weeks

	
M.7 

 

	
Flux ESS material request date (MRD)

	
3 Weeks after M.6

	
7 Weeks

	
M.8 

 

	
Flux ESS prototypes assembled and tested

	
2 Weeks after M.7

	
9 Weeks

	
M.9 

 

	
Flux ESS prototypes shipped to NMHG

	
1 Week after M.8

	
10 Weeks

The Project schedule is based on dependencies. Failure to complete tasks and responsibilities as indicated or NMHG failure to deliver prerequisites as required could result in schedule slips and additional charges to NMHG.

* Flux shall begin staffing the Schedule and Project after the Receipt of Order (ARO) as evidenced by (1) receipt of NMHG’s Purchase Order, (2) receipt of signed Agreement, and (3) receipt of signed Schedule.

 

 

	
Fixed Price

 

All fees contained in this Schedule are based on fixed priced numbers and are estimates made purely for budgeting purposes and may change upon Flux discretion.

 

	
Estimated Professional Services Fees

 

Based on the foregoing, the following are estimated fees for Professional Services. Flux Power reserves the right to use third party and additional engineering resources if required for the Project.

 

 

Page 17 of 21                      Confidential                       

  

  

 

 

	
Type of Engineering Resource

	
Estimated Hours

	
Standard Hourly Rate

	  	
Fees

	
Project Manager

	
[***]

	
[***]

	
$

	
[***]

	
Senior Mechanical Engineer

	
[***]

	
[***]

	
$

	
[***]

	
Mechanical CAD Designer

	
[***]

	
[***]

	
$

	
[***]

	
Senior Electrical Engineer

	
[***]

	
[***]

	
$

	
[***]

	
Embedded Engineer

	
[***]

	
[***]

	
$

	
[***]

	
Systems Integration Engineer

	
[***]

	
[***]

	
$

	
[***]

	
Total Engineering Estimate

	
$

	
64,000

 

	
Estimated Prototype and Materials Fees

 

The following are the Prototyping product costs:

	
Type of Prototyping Charge

	
Estimated Hours

	  	
Estimated Fees

	
Components

	
$

	
[***]

	
Assembly

	
$

	
[***]

	
Other

	
$

	
[***]

	
Total Prototype and Materials Fee Per Unit

	
$

	
18,320

 

	
Travel Costs

 

Any travel required of Flux Power Personnel will be approved by NMHG. NMHG will reimburse Flux Power for actual, reasonable travel, living expenses and per diem. Flux Power will provide NMHG with detailed expense reports for such travel.

 

	
Start Payment and Invoicing

 

An initial payment (“Start Payment”) shall be due upon execution of this Schedule, which amount shall be equal to forty percent (40%) of the total estimated fees as summarized herein. Work will begin when the NMHG purchase order is received and as such deliverables may be delayed without penalty to Flux.  Flux shall invoice NMHG immediately upon purchase order receipt and as defined in the Payment Schedule below.  NMHG shall pay said invoices within one (1) week of receipt.

 

	
Summary of Total Costs

 

The estimated total fees for the Project are summarized below. Due to the nature of development work for this Project, it is not possible to accurately reflect a minimum or maximum amount of fees.

	
Fee Category

	  	
Total

	
Professional Services ($64,000 with a 20% discount)

	
$

	
51,200

	
Prototype and Materials Services (Estimated Fees for 3 units at $18,320)

	
$

	
54,960

	
Project Total

	
$

	
106,160

	
The start payment for the Project is

	
$

	
42,464

 

 

Page 18 of 21                      Confidential                       

  

  

 

Payment Schedule

 

	
Date (Milestone)

	
Amount %

	
Start of Project

	
40% of total

	
M.5 - ESS design document review completed and design released

	
30% of total

	
M.9 - ESS prototypes shipped to customer

	
Remainder of total balance due

 

IN WITNESS WHEREOF, the parties have caused this Schedule to be signed by their duly authorized representatives and have made effective as of the Schedule 1 Effective Date.

 

	
Flux Power, Inc.

 

	
NACCO Materials Handling Group, Inc.

 

	
By:  /s/ Craig Miller            

 

	
By:  /s/ Rajiv K. Prasad            

	
Name:  Craig Miller

 

	
Name:  Rajiv K. Prasad

	
Title:  VP, Director of Legal Affairs

 

	
Title:  VP Global Product Development

	
Date:  2-20-2012

	
Date:   Feb 22, 2012

Page 19 of 21                      Confidential

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