Document:

Agreement dated December 2, 2004

 Exhibit 10.13 
  
 Agreement No: 8735             
 Amount: $1,000,000         
 Type: Fixed-Price     
  
 Agreement 
  
 Agreement dated this 2nd day of December, 2004 by and between the NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT
AUTHORITY (“NYSERDA”), a New York public benefit corporation having its principal office and place of business at 17 Columbia Circle, Albany, New York 12203-6399, and
DAYSTAR TECHNOLOGIES, INC. having its principal office and place of business at 13 Corporate Drive, Halfmoon, New York 12065 (the “Contractor”). 
  
 In consideration of the premises and of the mutual covenants and agreements
hereinafter set forth, the parties do hereby agree as follows: 
  
 Article I 
  
 Definitions 
  
 Section 1.01. Definitions. Unless the context otherwise requires, the
terms defined below shall have, for all purposes of this Agreement, the respective meanings set forth below, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined. 
  
 (a) General Definitions: 
  
 Agreement: This Agreement and Exhibits A, B, C, and D hereto, all of
which are made a part hereof as though herein set forth in full. 
  
 Budget: The Budget incorporated within the Statement of Work as set forth in Exhibit A hereto. 
  
 Contract Administrator: NYSERDA’s Director of Contract Management, Cheryl L. Earley, or such other person who may be designated, in writing,
by NYSERDA. 
  
 Effective Date: The effective date of this
Agreement shall be the date in the first paragraph of page one, above. 
  
 Final Report: The Final Report required by the Statement of Work hereof. 
  
 Person: An individual, a corporation, an association or partnership, an organization, a business or a government or political subdivision thereof, or any governmental agency or instrumentality. 
  
 Progress Reports: The Progress Reports required by the Statement of
Work hereof. 
  
 Statement of Work: The Statement of Work
attached hereto as Exhibit A. 

 Subcontract: An agreement for the performance of Work by a Subcontractor, including any purchase
order for the procurement of permanent equipment or expendable supplies in connection with the Work. 
  
 Subcontractor: A person who performs Work directly or indirectly for or on behalf of the Contractor (and whether or not in privity of contract with
the Contractor) but not including any employees of the Contractor or the Subcontractors. 
  
 System Benefits Charge or (“SBC”). The New York State Public Service Commission (NYSPSC) has established the SBC to promote energy efficiency and conservation throughout New York State. Electric
ratepayers served by the Consolidated Edison Company of New York, Niagara Mohawk Power Corporation, New York State Electric and Gas Corporation, Rochester Gas and Electric Corporation, Orange and Rockland Utilities, Inc., and Central Hudson Gas and
Electric Corporation contribute to the SBC Program via a surcharge on the electric delivery portion of their monthly energy bill. 
  
 Work: The Work described in the Exhibit A (including the procurement of equipment and supplies in connection therewith) and the performance of all
other requirements imposed upon the Contractor under this Agreement. 
  
 (b) Data Rights and Patents Definitions: 
  
 Contract Data: Technical Data first produced in the performance of the contract, Technical Data which are specified to be delivered under the contract, or Technical Data actually delivered in connection with the contract. 

 
 Practical Application: To manufacture in the case of a composition
or product, to practice in the case of a process or method, or to operate in the case of a machine or system, and under conditions which indicate that the benefits of the invention are available to the public on reasonable terms. 
  
 Product: CIGS-based solar cells. 
  
 Proprietary Data: Technical Data which embody trade secrets developed
at private expense, such as design procedures or techniques, chemical composition of materials, or manufacturing methods, processes, or treatments, including minor modifications thereof, provided that such data: 
  

	 	(i)	are not generally known or available from other sources without obligation concerning their confidentiality; 

  

	 	(ii)	have not been made available by the owner to others without obligation concerning its confidentiality; and 

  

	 	(iii)	are not already available to NYSERDA without obligation concerning their confidentiality. 

  
  

 Subject Invention: Any invention or discovery of the Contractor conceived or first actually
reduced to practice in the course of or under this Agreement, and includes any art, method, process, machine, manufacture, design, or composition of matter, or any new and useful improvement thereof, or any variety of plants, whether patented or
unpatented, under the Patent Laws of the United States of America or any foreign country. 
  
 Technical Data: Recorded information regardless of form or characteristic, of a scientific or technical nature. It may, for example, include document research, experimental or developmental, or demonstration,
or engineering work, or be usable or used to define a design or process, or to procure, produce, support, maintain, or operate material. The data may be graphic or pictorial delineations in media such as drawings or photographs, text in
specifications or related performance or design type documents or computer software (including computer software programs, computer software data bases, and computer software documentation). Examples of Technical Data include research and
engineering data, engineering drawings and associated lists, specifications, standards, process sheets, manuals, technical reports, catalog item identification, and related information. Technical Data as used herein does not include financial
reports, cost analyses, and other information incidental to contract administration. 
  
 Unlimited Rights: Rights to use, duplicate, or disclose Technical Data, in whole or in part, in any manner and for any purpose whatsoever, and to permit others to do so. 
  
 Article II 
  
 Performance of Work 
  
 Section 2.01. Manner of Performance. Subject to the provisions of Article XII hereof, the Contractor shall perform all of the Work described in the
Statement of Work, or cause such Work to be performed in an efficient and expeditious manner and in accordance with all of the terms and provisions of this Agreement. The Contractor shall perform the Work in accordance with the current professional
standards and with the diligence and skill expected for the performance of work of the type described in the Statement of Work. The Contractor shall furnish such personnel and shall procure such materials, machinery, supplies, tools, equipment and
other items as may reasonably be necessary or appropriate to perform the Work in accordance with this Agreement. 
  
 Section 2.02. Project Personnel. It is understood and agreed that Mr. Steven Aragon shall serve as Project Director and as such shall have the
responsibility of the overall supervision and conduct of the Work on behalf of the Contractor and that the persons described in the Statement of Work shall serve in the capacities described therein. Any change of Project Director by the Contractor
shall be subject to the prior written approval of NYSERDA. Such approval shall not be unreasonably withheld, and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days after receipt of request for
approval by NYSERDA, the requested change in Project Director shall be considered approved. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request
for approval that additional time is required and shall specify the additional amount of time necessary up to 90 days. 
  

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 Article III 
  
 Deliverables 
  
 Section 3.01. Deliverables. All deliverables shall be provided in accordance with the Exhibit A Statement of Work. 
  
 Article IV 
  
 Compensation 
  
 Section 4.01. Payments. The Contractor will be paid, upon submission of proper invoices, the prices stipulated herein for Work delivered or
rendered and accepted, less deductions, if any as herein provided. Invoices shall be addressed to NYSERDA, “Attention: Accounts Payable.” The total price which NYSERDA will pay to the Contractor represents the price of the Work. Subject to
the limiting provisions of Article XII hereof, as NYSERDA’s price of the Work, NYSERDA will pay to the Contractor the total price of $1,000,000, payment of which will be made according to the Schedule of Payments contained in Section 4.02
hereof. 
  
 Section 4.02. Schedule of Payments. At the
completion of each Milestone Billing Event so identified, the Contractor may submit invoices requesting payment by NYSERDA of the amounts set forth in the Milestone Payment Schedule set forth in the Exhibit A, Statement of Work. NYSERDA shall make
payment to the Contractor in accordance with and subject to its Prompt Payment Policy Statement attached hereto as Exhibit D. The Contractor shall be notified by NYSERDA in accordance with Section 5.04.4 (b)(2) of such Exhibit D, of any information
or documentation which the Contractor did not include with such invoice. 
  
 Section 4.03. Title to Equipment. Title shall vest in the Contractor to all equipment purchased hereunder. 
  
 Section 4.04. Final Payment. Upon final acceptance by NYSERDA of the Final Report and all other deliverables contained in Exhibit A, Statement of
Work pursuant to Section 6.02 hereof, the Contractor shall submit a request for final payment with respect to the Work, together with such supporting information and documentation as, and in such form as, NYSERDA may require. A request for final
payment shall include a statement as to whether any invention or patentable devices have resulted from the performance of the Work. All requests for final payment hereunder must, under any and all circumstances, be received by NYSERDA prior to
December 2, 2010. In accordance with and subject to the provisions of NYSERDA’s Prompt Payment Policy Statement, attached hereto as Exhibit D, NYSERDA shall pay to the Contractor within the prescribed time after receipt of such request for
final payment, the total amount payable pursuant to Section 4.01 hereof, less all Milestone Billing payments previously made to the Contractor with respect thereto. 
  

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 Section 4.05. Release by the Contractor. The acceptance by the Contractor of final payment shall
release NYSERDA from all claims and liability that the Contractor, its representatives and assigns might otherwise have relating to this Agreement. 
  
 Section 4.06. Maintenance of Records. The Contractor shall keep, maintain, and preserve at its principal office throughout the term of the
Agreement and for a period of three years after acceptance of the Work, full and detailed books, accounts, and records pertaining to the performance of the Agreement, including without limitation, all bills, invoices, payrolls, subcontracting
efforts and other data evidencing, or in any material way related to, the direct and indirect costs and expenses incurred by the Contractor in the course of such performance. 
  
 Section 4.07. Maximum Commitment. The maximum aggregate amount payable by NYSERDA to the Contractor hereunder is
$1,000,000. NYSERDA shall not be liable for any costs or expenses in excess of such amount incurred by the Contractor in the performance and completion of the Work. 
  
 Section 4.08. Audit. NYSERDA shall have the right from time to time and at all reasonable times during the term of
the Agreement and such period thereafter to inspect and audit any and all books, accounts and records related to this Agreement at the office or offices of the Contractor where they are then being kept, maintained and preserved pursuant to Section
4.06 hereof. Any payment made under the Agreement shall be subject to retroactive reduction for amounts included therein which are found by NYSERDA on the basis of any audit of the Contractor by an agency of the United States, State of New York or
NYSERDA not to constitute an allowable charge or cost hereunder. 
  
 Article V 
  
 Assignments, Subcontracts and Purchase
Orders 
  
 Section 5.01. General Restrictions. Except
as specifically provided otherwise in this Article, the assignment, transfer, conveyance, subcontracting or other disposal of this Agreement or any of the Contractor’s rights, obligations, interests or responsibilities hereunder, in whole or in
part, without the express consent in writing of NYSERDA shall be void and of no effect as to NYSERDA. 
  
  
 Section 5.02. Subcontract Procedures. Without relieving it of, or in any way limiting, its obligations to NYSERDA
under this Agreement, the Contractor may enter into Subcontracts for the performance of Work or for the purchase of materials or equipment. Except for a Subcontractor or supplier specified in a team arrangement with the Contractor in the
Contractor’s original proposal, and except for any Subcontract or order for equipment, supplies or materials from a single Subcontractor or supplier totaling under $15,000, the Contractor shall select all Subcontractors or suppliers through a
process of competitive bidding or multi-source price review. A team arrangement is one where a Subcontractor or supplier specified in the Contractor’s proposal is performing a substantial portion of the Work and is making a substantial
contribution to the management and/or design of the Project. In the event that a competitive bidding or multi-source price review is not feasible, the Contractor shall document an 
  

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 explanation for, and justification of, a sole source selection. The Contractor shall document the process by which a
Subcontractor or supplier is selected by making a record summarizing the nature and scope of the work, equipment, supplies or materials sought, the name of each person or organization submitting, or requested to submit, a bid or proposal, the price
or fee bid, and the basis for selection of the Subcontractor or supplier. An explanation for, and justification of, a sole source selection must identify why the work, equipment, supplies or materials involved are obtainable from or require a
Subcontractor with unique or exceptionally scarce qualifications or experience, specialized equipment, or facilities not readily available from other sources, or patents, copyrights, or proprietary data. All Subcontracts shall contain provisions
comparable to those set forth in this Agreement applicable to a Subcontractor or supplier, and those set forth in Exhibit B to the extent required by law, and all other provisions now or hereafter required by law to be contained therein. The
Contractor shall submit to NYSERDA’s Contract Administrator for review and written approval any Subcontract(s) specified in the Statement of Work as requiring NYSERDA approval. 
  
 Section 5.03. Performance. The Contractor shall promptly and diligently comply with its obligations under each
Subcontract and shall take no action which would impair its rights thereunder. The Contractor shall not assign, cancel or terminate any Subcontract without the prior written approval of the Contract Administrator as long as this Agreement remains in
effect. Such approval shall not be unreasonably withheld and, in the event that notice of approval or disapproval is not received by the Contractor within thirty days after receipt of request for approval by NYSERDA, the requested assignment,
cancellation, or termination of the Subcontract shall be considered approved by NYSERDA. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request
for approval that additional time is required and shall specify the additional amount of time necessary up to 90 days. 
  
 Article VI 
  
 Schedule; Acceptance of Work 
  
 Section 6.01. Schedule. The Work shall be performed as expeditiously as possible in conformity with the schedule requirements contained herein and in the Statement of Work. The draft and final versions of the
Final Report shall be submitted by the dates specified in the Exhibit A Schedule. It is understood and agreed that the delivery of the draft and final versions of such reports by the Contractor shall occur in a timely manner and in accordance with
the requirements of the Exhibit A Schedule. 
  
 Section 6.02.
Acceptance of Work. The completion of the Work shall be subject to acceptance by NYSERDA in writing of the Final Report and all other deliverables as defined in Exhibit A, Statement of Work. 
  
 Article VII 
  
 Force Majeure 
  
  

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 Section 7.01. Force Majeure. Neither party hereto shall be liable for any failure or delay in the
performance of its respective obligations hereunder if and to the extent that such delay or failure is due to a cause or circumstance beyond the reasonable control of such party, including, without limitation, acts of God or the public enemy,
expropriation or confiscation of land or facilities, compliance with any law, order or request of any Federal, State, municipal or local governmental authority, acts of war, rebellion or sabotage or damage resulting therefrom, fires, floods, storms,
explosions, accidents, riots, strikes, or the delay or failure to perform by any Subcontractor by reason of any cause or circumstance beyond the reasonable control of such Subcontractor. 
  
 Article VIII 
  
 Technical Data; Patents 
  
 Section 8.01. Rights in Technical Data 
  
 (a) Technical Data: Rights in Technical Data shall be allocated as follows: 
  
 (1) NYSERDA shall have: 
  

	 	(i)	unlimited rights in Contract Data first produced in the performance of this Agreement except as otherwise provided below with respect to Proprietary Data; and

  

	 	(ii)	no rights under this Agreement in any Technical Data which are not Contract Data, except as provided in Section 8.01 (2) (ii) below. 

  
 (2) The Contractor shall have: 
  

	 	(i)	the right to withhold Proprietary Data except as otherwise provided in paragraph (ii) below; and 

  

	 	(ii)	the right to make, use and sell the Product. If, within five years from the Contractor’s receipt of Final Payment as described in Section 4.04 hereof, the Contractor fails to
make, use, and sell the Product under conditions which indicate that the benefits of the Product are available to the public on reasonable terms, NYSERDA shall have an, exclusive, worldwide license sufficient in scope to allow NYSERDA to make, use
or sell the Product and to allow others to do so, including a non-exclusive right in Proprietary Data. The Contractor agrees to disclose such Proprietary Data to NYSERDA, and NYSERDA may disclose such Proprietary Data to its sublicensees who have
agreed to keep such Proprietary Data confidential; and 

  

	 	(iii)	Contract Data it first produces in the performance of this Agreement. 

  

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 The Contractor agrees that to the extent it receives or is given access to Proprietary Data or other
technical, business or financial data in the form of recorded information from NYSERDA or a NYSERDA contractor or subcontractor, the Contractor shall treat such data in accordance with any restrictive legend contained thereon, unless another use is
specifically authorized by prior written approval of the Contract Administrator. 
  
  
 Section 8.02. Patents. 
  
 (a) The Contractor retains the entire right, title and interest throughout the world to each Subject Invention of the Contractor conceived or first
actually reduced to practice in the performance of the Work under the Agreement; except, that with respect to any Subject Invention conceived or first actually reduced to practice in the performance of the Work under the Agreement which the
Contractor retains title, NYSERDA shall have a non-exclusive, non-transferable, irrevocable, license for itself, the State of New York and all political subdivisions and other instrumentalities of the State of New York, to practice or have practiced
for or on their behalf the Subject Invention throughout the world, exclusively for their own use of the Subject Invention up to the value of the contributions made by NYSERDA under this Agreement. 
  
 (b) Within six months of the time a Subject Invention that is first developed
in the performance of this Agreement, or as part of the request for Final Payment, whichever shall occur first, the Contractor shall submit to NYSERDA a written invention disclosure. The Contractor shall file the patent application for a Subject
Invention within two years of the date of election, subject to the opinion of the Contractor’s counsel as to the Subject Invention’s patentability. If the Contractor fails to make, use and sell the Product within the time specified in this
paragraph, the Contractor shall convey to NYSERDA title to the Subject Invention unless NYSERDA shall waive in writing its right to take title. In the event the Contractor elects not to retain principal rights in a Subject Invention, the Contractor
shall retain a non-exclusive, royalty-free license throughout the world in such Subject Invention transferable only with the written approval of NYSERDA. Such approval shall not be unreasonably withheld, and, in the event that notice of approval or
disapproval is not received by the Contractor within thirty days after receipt of request for approval, the requested transfer shall be considered approved. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall
notify the Contractor within thirty days of receipt of the request for approval that additional time is required and shall specify the additional amount of time necessary up to 90 days. 
  
 (c) The Contractor shall submit to NYSERDA, not less frequently than annually, and for that period not to exceed three (3)
years after the Final Payment from NYSERDA, a written report that indicates the status of utilization of Subject Inventions in which the Contractor retains principal rights. The report shall include information regarding the status of development,
and the date of first commercial sale or use, and gross royalties received by the Contractor. Such reports shall be furnished to NYSERDA not later than March 2 following the calendar year covered by the report. In the event the Contractor fails to
demonstrate that the Contractor has taken effective steps within three years after a patent is issued to bring the Subject Invention to the point of Practical Application, then NYSERDA shall have the right to grant a non-exclusive or exclusive

  

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 license to responsible applicants under terms that are reasonable under the circumstances, or to require the Contractor
to do so. 
  
 (d) The Contractor shall include the foregoing
patent clauses, suitably modified to identify the parties, in all subcontracts which involve the performance of Work under this Agreement. The Subcontractor shall retain all rights provided for the Contractor, and the Contractor shall retain all
rights provided for NYSERDA, as set forth above. 
  
 Article IX

  
 Warranties and Guarantees 
  
 Section 9.01. Warranties and Guarantees. The Contractor warrants and
guarantees that: 
  
 (a) it is financially and technically
qualified to perform the Work; 
  
 (b) it is familiar with and
will comply with all general and special Federal, State, municipal and local laws, ordinances and regulations, if any, that may in any way affect the performance of this Agreement; 
  
 (c) the design, supervision and workmanship furnished with respect to performance of the Work shall be in accordance with
sound and currently accepted scientific standards and engineering practices; 
  
 (d) all materials, equipment and workmanship furnished by it and by Subcontractors in performance of the Work or any portion thereof shall be free of defects in design, material and workmanship, and all such materials
and equipment shall be of first-class quality, shall conform with all applicable codes, specifications, standards and ordinances and shall have service lives and maintenance characteristics suitable for their intended purposes in accordance with
sound and currently accepted scientific standards and engineering practices; 
  
 (e) neither the Contractor nor any of its employees, agents, representatives or servants has actual knowledge of any patent issued under the laws of the United States or any other matter which could constitute a basis
for any claim that the performance of the Work or any part thereof infringes any patent or otherwise interferes with any other right of any Person; 
  
 (f) there are no existing undisclosed or threatened legal actions, claims, or encumbrances, or liabilities that may adversely affect the Work or
NYSERDA’s rights hereunder; 
  
 (g) it has no actual
knowledge that any information or document or statement furnished by the Contractor in connection with this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement not misleading,
and that all facts have been disclosed that would materially adversely affect the Work; and 
  

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 (h) at its Halfmoon Facility, Contractor certifies that it presently contributes to the System Benefits
Charge (“SBC”) through a surcharge on the electric delivery portion of its monthly electricity bill and the Contractor further certifies that will continue to contribute to the SBC in this fashion at this Facility or an expansion thereof
during the period for which work is done under this Agreement; and 
  
 (i) at the new facility to be developed under this Agreement, the Contractor certifies that it will contribute to the SBC through a surcharge on the electric delivery portion of its monthly electricity bill and will continue to contribute
to the SBC during the period for which work is done under this Agreement; and 
  
 (j) Contractor certifies that all information provided to NYSERDA with respect to Executive Order Number 127 is complete, true and accurate. 
  
 Article X 
  
 Indemnification 
  
 Section 10.01. Indemnification. The Contractor shall protect, indemnify and hold harmless NYSERDA and the State of New York from and against all
liabilities, losses, claims, damages, judgments, penalties, causes of action, costs and expenses (including, without limitation, attorneys’ fees and expenses) imposed upon or incurred by or asserted against NYSERDA or the State of New York
resulting from, arising out of or relating to the performance of this Agreement. The obligations of the Contractor under this Article shall survive any expiration or termination of this Agreement, and shall not be limited by any enumeration herein
of required insurance coverage. 
  
 Article XI 
  
 Insurance 
  
 Section 11.01. Maintenance of Insurance; Policy Provisions. The Contractor, at no additional cost to NYSERDA, shall
maintain or cause to be maintained throughout the term of this Agreement, insurance of the types and in the amounts specified in the Section hereof entitled Types of Insurance. All such insurance shall be evidenced by insurance policies, each
of which shall: 
  
 (a) name or be endorsed to cover NYSERDA, the
State of New York and the Contractor as additional insureds; 
  
 (b) provide that such policy may not be cancelled or modified until at least 30 days after receipt by NYSERDA of written notice thereof; and 
  
 (c) be reasonably satisfactory to NYSERDA in all other respects. 
  

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 Section 11.02. Types of Insurance. The types and amounts of insurance required to be maintained
under this Article are as follows: 
  
 (a) Commercial general
liability insurance for bodily injury liability, including death, and property damage liability, incurred in connection with the performance of this Agreement, with minimum limits of $1,000,000 in respect of claims arising out of personal injury or
sickness or death of any one person, $1,000,000 in respect of claims arising out of personal injury, sickness or death in any one accident or disaster, and $1,000,000 in respect of claims arising out of property damage in any one accident or
disaster; and 
  
  
 (b) Commercial automobile liability insurance in respect of motor vehicles owned, licensed or hired by the Contractor and the Subcontractors for bodily injury liability, including death and property damage, incurred
in connection with the performance of this Agreement, with minimum limits of $500,000 in respect of claims arising out of personal injury, or sickness or death of any one person, $1,000,000 in respect of claims arising out of personal injury,
sickness or death in any one accident or disaster, and $500,000 in respect of claims arising out of property damage in any one accident or disaster. 
  
 (c) Prior to commencement of work under Phase III, product liability insurance for bodily injury liability, including death, and property damage
liability, arising out of the use of the Product with minimum limits of $1,000,000 in respect of claims arising out of personal injury or sickness or death of any one person, $1,000,000 in respect of claims arising out of personal injury, sickness
or death in any one accident or disaster, and $1,000,000 in respect of claims arising out of property damage in any one accident or disaster. 
  
 Section 11.03. Delivery of Policies; Insurance Certificates. Prior to commencing the Work, or in the case of product liability Insurance as set
forth in 11.02 (c), prior to commencing work under Phase III, the Contractor shall deliver to NYSERDA certificates of insurance issued by the respective insurers, indicating the Agreement number thereon, evidencing the insurance required by this
Article and bearing notations evidencing the payment of the premiums thereon or accompanied by other evidence of such payment satisfactory to NYSERDA. In the event any policy furnished or carried pursuant to this Article will expire on a date prior
to acceptance of the Work by NYSERDA pursuant to the section hereof entitled Acceptance of Work, the Contractor, not less than 15 days prior to such expiration date, shall deliver to NYSERDA certificates of insurance evidencing the renewal of
such policies, and the Contractor shall promptly pay all premiums thereon due. In the event of threatened legal action, claims, encumbrances, or liabilities that may affect NYSERDA hereunder, or if deemed necessary by NYSERDA due to events rendering
a review necessary, upon request the Contractor shall deliver to NYSERDA a certified copy of each policy. 
  
 Article XII 
  
 Stop Work Order; Termination 
  
 Section 12.01.
Stop Work Order. 
  

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 (a) NYSERDA may at any time, by written Order to the Contractor, require the Contractor to stop all or
any part of the Work called for by this Agreement for a period of up to 90 days after the Stop Work Order is delivered to the Contractor, and for any further period to which the parties may agree. Any such order shall be specifically identified as a
Stop Work Order issued pursuant to this Section. Upon receipt of such an Order, the Contractor shall forthwith comply with its terms and take all reasonable steps to minimize the incurrence of costs allocable to the Work covered by the Order during
the period of work stoppage consistent with public health and safety. Within a period of 90 days after a Stop Work Order is delivered to the Contractor, or within any extension of that period to which the parties shall have agreed, NYSERDA shall
either: 
  

	 	(i)	by written notice to the Contractor, cancel the Stop Work Order, which shall be effective as provided in such cancellation notice, or if not specified therein, upon receipt by the
Contractor, or 

  

	 	(ii)	terminate the Work covered by such order as provided in the Termination Section of this Agreement. 

  
 (b) If a Stop Work Order issued under this Section is cancelled or the period of the Order or any extension thereof expires,
the Contractor shall resume Work. An equitable adjustment shall be made in the delivery schedule, the estimated cost, the fee, if any, or a combination thereof, and in any other provisions of the Agreement that may be affected, and the Agreement
shall be modified in writing accordingly, if: 
  

	 	(i)	the Stop Work Order results in an increase in the time required for, or in the Contractor’s cost properly allocable to, the performance of any part of this Agreement, and

  

	 	(ii)	the Contractor asserts a claim for such adjustments within 30 days after the end of the period of Work stoppage; provided that, if NYSERDA decides the facts justify such action,
NYSERDA may receive and act upon any such claim asserted at any time prior to final payment under this Agreement. 

  
 (c) If a Stop Work Order is not cancelled and the Work covered by such Order is terminated, the reasonable costs resulting from the Stop Work Order shall
be allowed by equitable adjustment or otherwise. 
  
 (d)
Notwithstanding the provisions of this Section 12.01, the maximum amount payable by NYSERDA to the Contractor pursuant to this Section 12.01 shall not be increased or deemed to be increased except by specific written amendment hereto. 
  
 Section 12.02. Termination. 
  
 (a) This Agreement may be terminated by NYSERDA at any time during the term
of this Agreement with or without cause, upon 30 days prior written notice to the Contractor. In such event, compensation shall be paid to the Contractor for Work performed and expenses incurred 
  

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prior to the effective date of termination in accordance with the provisions of the Article hereof entitled Compensation and in reimbursement of any
amounts required to be paid by the Contractor pursuant to Subcontracts; provided, however, that upon receipt of any such notice of termination, the Contractor shall cease the performance of Work, shall make no further commitments with respect
thereto and shall reduce insofar as possible the amount of outstanding commitments (including, to the extent requested by NYSERDA, through termination of subcontracts containing provisions therefor). 
  
 (b) Nothing in this Article shall preclude the Contractor from continuing to
carry out the Work called for by the Agreement after receipt of a Stop Work Order or termination notice at its own election, provided that, if the Contractor so elects, (1) any such continuing Work after receipt of the Stop Work Order or termination
notice shall be deemed not to be Work pursuant to the Agreement and (ii) NYSERDA shall have no liability to the Contractor for any costs of the Work continuing after receipt of the Stop Work Order or termination notice. 
  
  
 (c) NYSERDA reserves the right to terminate this agreement in the event it is found that the certification filed by the Contractor in accordance with New York State Executive Order Number 127, signed by Governor Pataki on June 16, 2003, was
intentionally false or intentionally incomplete. Upon such finding, NYSERDA may exercise its termination right by providing written notification to the Contractor as set forth in Article XV of this Agreement. 
  
 Article XIII 
  
 Independent Contractor 
  
 Section 13.01. Independent Contractor. The status of the Contractor under this Agreement shall be that of an independent contractor and not that of
an agent, and in accordance with such status, the Contractor, the Subcontractors, and their respective officers, agents, employees, representatives and servants shall at all times during the term of this Agreement conduct themselves in a manner
consistent with such status and by reason of this Agreement shall neither hold themselves out as, nor claim to be acting in the capacity of, officers, employees, agents, representatives or servants of NYSERDA nor make any claim, demand or
application for any right or privilege applicable to NYSERDA, including, without limitation, rights or privileges derived from workers’ compensation coverage, unemployment insurance benefits, social security coverage and retirement membership
or credit. 
  
 Article XIV 
  
 Compliance with Certain Laws 
  
 Section 14.01. Laws of the State of New York. The Contractor shall
comply with all of the requirements set forth in Exhibit B hereto. 
  
 Section 14.02. All Legal Provisions Deemed Included. It is the intent and understanding of the Contractor and NYSERDA that each and every provision of law required by the laws of the State of New York to be contained in this
Agreement shall be contained herein, and if, 
  

 13 

 
through mistake, oversight or otherwise, any such provision is not contained herein, or is not contained herein in correct form, this Agreement shall, upon
the application of either NYSERDA or the Contractor, promptly be amended so as to comply strictly with the laws of the State of New York with respect to the inclusion in this Agreement of all such provisions. 
  
 Section 14.03. Other Legal Requirements. The references to particular
laws of the State of New York in this Article, in Exhibit B and elsewhere in this Agreement are not intended to be exclusive and nothing contained in such Article, Exhibit and Agreement shall be deemed to modify the obligations of the Contractor to
comply with all legal requirements. 
  
 Article XV 
  
 Notices, Entire Agreement, Amendment, Counterparts 
  
 Section 15.01. Notices. All notices, requests, consents, approvals and
other communications which may or are required to be given by either party to the other under this Agreement shall be deemed to have been sufficiently given for all purposes hereunder when delivered or mailed by registered or certified mail, postage
prepaid, return receipt requested, (i) if to NYSERDA, at 17 Columbia Circle, Albany, New York 12203-6399 or at such other address as NYSERDA shall have furnished to the Contractor in writing, and (ii) if to the Contractor, at 13 Corporate Drive,
Halfmoon, New York 12065, or such other address as the Contractor shall have furnished to NYSERDA in writing. 
  
 Section 15.02. Entire Agreement; Amendment. This Agreement embodies the entire agreement and understanding between NYSERDA and the Contractor and
supersedes all prior agreements and understandings relating to the subject matter hereof. Except as otherwise expressly provided for herein, this Agreement may be changed, waived, discharged or terminated only by an instrument in writing, signed by
the party against which enforcement of such change, waiver, discharge or termination is sought. 
  
 Section 15.03. Counterparts. This Agreement may be executed in counterparts each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument. 
  
 Article
XVI 
  
 Publicity 
  
 Section 16.01. Publicity. 
  
 (a) The Contractor shall collaborate with NYSERDA’s Director of
Technical Communications to prepare any press release and to plan for any news conference concerning the Work. In addition the Contractor shall notify NYSERDA’s Director of Technical Communications regarding any media interview in which the
Work is referred to or discussed. 
  

 14 

 (b) It is recognized that during the course of the Work under this Agreement, the Contractor or its
employees may from time to time desire to publish information regarding scientific or technical developments made or conceived in the course of or under this Agreement. In any such information, the Contractor shall credit NYSERDA’s funding
participation in the Project, and shall state that “NYSERDA has not reviewed the information contained herein, and the opinions expressed in this report do not necessarily reflect those of NYSERDA or the State of New York.” Notwithstanding
anything to the contrary contained herein, the Contractor shall have the right to use and freely disseminate project results for educational purposes, if applicable, consistent with the Contractor’s policies. 
  
  

 15 

 (c) Commercial promotional materials or advertisements produced by the Contractor shall credit NYSERDA,
as stated above, and shall be submitted to NYSERDA for review and recommendations to improve their effectiveness prior to use. The wording of such credit can be approved in advance by NYSERDA, and, after initial approval, such credit may be used in
subsequent promotional materials or advertisements without additional approvals for the credit, provided, however, that all such promotional materials or advertisements shall be submitted to NYSERDA prior to use for review, as stated above. Such
approvals shall not be unreasonably withheld, and, in the event that notice of approval or disapproval is not received by the Contractor within twenty days after receipt of request for approval, the promotional materials or advertisement shall be
considered approved. In the event that NYSERDA requires additional time for considering approval, NYSERDA shall notify the Contractor within thirty days of receipt of the request for approval that additional time is required and shall specify the
additional amount of time necessary up to 90 days. If NYSERDA and the Contractor do not agree on the wording of such credit in connection with such materials, the Contractor may use such materials, but agrees not to include such credit. 

 
 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day, month and year first above written. 
  

									
	 DAYSTAR TECHNOLOGIES, INC.
	 	 	 	 NEW YORK STATE ENERGY RESEARCH AND
DEVELOPMENT AUTHORITY

					
	By	 	/s/    John R. Tuttle        	 	 	 	By	 	/s/    Jeffrey J. Pitkin        
					
	 Name
	 	 John R. Tuttle 

	 	 	 	 	 	 Jeffrey J. Pitkin
 Treasurer

					
	Title	 	CEO	 	 	 	 	 	 

  

 16 

													
	STATE OF NY	  	)	  	 	  	 	  	 	  	 	  	 
	 	  	)	  	 SS.:
	  	 	  	 	  	 	  	 
	COUNTY OF SARATOGA	  	)	  	 	  	 	  	 	  	 	  	 

  
 On this 10th
day of January     , 2005, before me personally came John R. Tuttle, to me known, who being duly sworn, did depose and say that he resides at 17 Pinewood Ave, Saratoga springs; that he is the CEO of
DayStar Technologies, Inc., the corporation described in and which executed the foregoing instrument; and that (s)he executed the same by the authority of the Board of Directors or By-Laws of said corporation. 
  

	
	
	 Deborah Dzingle

	                 Notary Public

  

 17 

 EXHIBIT A 
 Statement of Work 
 Project 8735 
 High Performance CIGS Solar Cells 
 DayStar Technologies, Inc. 

 
 Introduction 
  
 DayStar has located a solar cell manufacturing plant in Halfmoon (the “Facility”) for commercial production.
Following the initiation of production, DayStar shall expand production on an incremental basis from 20-100 kW/year, to 1-2 MW/year, to 25MW/year, and then to 100 MW/year over the next five years. DayStar has located its facility in Halfmoon, New
York for the next 18-24 months and shall subsequently expand into or relocate to a new 40,000-ft2 facility at the
Saratoga Technology + Energy Park. 
  
 Scope of Services 
  
 Task 1.    Project Management 
  
 Subtask 1.1: Project Management. DayStar Technologies, Inc.
(“DayStar”) shall be responsible for meeting the project objectives and conforming to the project schedule and budget. 
  
 Subtask 1.2: Project Meetings. DayStar shall arrange and schedule several meetings with NYSERDA as the overall plan for the program is developed. These
meetings shall include the following: 
  

	 	•	 	Project Kick-off Meeting — DayStar shall schedule a kickoff meeting with NYSERDA. DayStar shall coordinate with NYSERDA’s Project Manager to schedule this meeting; provide
an agenda 3 days in advance of each meeting, and follow with meeting minutes. 

  

	 	•	 	Phase 1 Meeting — Upon Completion of Phase 1, DayStar shall schedule a review meeting with NYSERDA. DayStar shall coordinate with NYSERDA’s Project Manager to schedule
this meeting, provide an agenda and the Phase 1 Report at least three days in advance of the meeting, and follow-up with meeting minutes. DayStar shall invite NYSERDA’s Project Manager and other identified representatives to review
DayStar’s performance and discuss areas for program modification and improvement. 

  

	 	•	 	Phase 2 Meeting — Upon Completion of Phase 2, DayStar shall schedule a review meeting with NYSERDA. DayStar shall coordinate with NYSERDA’s Project Manager to schedule
this meeting, provide an agenda at least 3 days in advance of the meeting, and follow-up with meeting minutes. DayStar shall invite NYSERDA’s Project Manager and other identified representatives to review DayStar’s performance and discuss
areas for program modification and improvement. 

  

 18 

	 	•	 	Phase 3 Meeting — Upon Completion of Task 9 but preceding the Phase 3 Go/ No Go decision, DayStar shall schedule a review meeting with NYSERDA. DayStar shall coordinate with
NYSERDA’s Project Manager to schedule this meeting, provide an agenda and Task 9 Summary Report at least 3 days in advance of the meeting, and follow-up with meeting minutes. DayStar shall invite NYSERDA’s Project Manager and other
identified representatives to review DayStar’s performance and discuss areas for program modification and improvement. 

  

	 	•	 	Final Meeting — At the conclusion of Phase 3, DayStar shall schedule a final review meeting at NYSERDA’s Albany offices. DayStar shall coordinate with
NYSERDA’s Project Manager to schedule this meeting. DayStar shall invite NYSERDA’s Project Manager and other identified representatives. 

  

Task 2:    Reporting 
  
 DayStar shall provide NYSERDA’s Project Manager with reports regarding program status and progress as described in this task. NYSERDA’s Project Manager shall be
copied on all correspondence regarding the project that is relevant to the expenditure of NYSERDA funds. 
  
 Subtask 2.1: Phase 1 Report. Upon completion of Phase 1, DayStar shall submit a Phase 1 Report to NYSERDA’s Project Manager. DayStar shall include a discussion of the progress of the Facility
development and identify any changes from the planned design. DayStar shall also provide a forecast of the economic impact of the project for the remaining phases and use the format shown in Table 1, Metrics Reporting Schedule, to report to update
actual economic impact values until project completion. 
  
 TABLE 1: Metrics Reporting Schedule 
  

																					
	 	 	 	  	2005	  	2006	  	2007	  	Through forecast
period n*
	Annual income paid to New York employees	 	Actual	  	 	  	 	  	 	  	 
	 	 	Forecasted	  	 	  	 	  	 	  	 
	Annualized number of New York State jobs in full-time equivalents (FTE’s)	 	Actual	  	 	  	 	  	 	  	 
	 	 	Forecasted	  	 	  	 	  	 	  	 
	No. of units sold	 	Actual	  	 	  	 	  	 	  	 
	 	 	Forecasted	  	 	  	 	  	 	  	 

  

 19 

																					
	 Total capacity of units
sold
	 	Actual	  	 	  	 	  	 	  	 
	 	 	Forecasted	  	 	  	 	  	 	  	 
	 Total sales revenues
	 	Actual	  	 	  	 	  	 	  	 
	 	 	Forecasted	  	 	  	 	  	 	  	 
	 Percent of sales in New York
	 	 	  	 	  	 	  	 	  	 

	*	The value (n) shall be defined as the year from contract execution that the final incentive payment is expected. 

  

 20 

 Subtask 2.2: Phase 2 Report. Upon completion of Phase 2, DayStar shall submit a Phase 2 Report to
NYSERDA’s Project Manager. DayStar shall include a discussion of the progress of the Facility development and include a description of the production facility and a discussion of any problems and costs incurred. Daystar shall discuss the status
of attracting funding from various economic development agencies. DayStar shall also provide actual figures and updated forecasts of the economic impact of the project for the remaining using the format shown in Table 1. These reports shall be
submitted by the 15th day of the month following the end of Phase 2. The format of this report shall be determined during Phase I. 
  
 Subtask 2.3: Phase 3 Quarterly Reports. Throughout Phase 3, DayStar shall submit quarterly progress reports to NYSERDA’s Project Manager that include
project status in terms of production, any problems, and revenue/cost calculations including value-added. DayStar shall also provide actual figures to date and updated/ adjusted forecasts of the economic impact of the project using the format shown
in Table 1. These reports shall be submitted to NYSERDA’ Project Manager by the 15th day of the month following the reporting period. These reports shall include production data, including units manufactured, units sold in-state, units sold out
of state, total revenue from sales, and total energy output associated with in-state sales. DayStar shall also provide other metrics as required by individual milestones completed during that particular quarterly review period. Daystar may submit
invoices to coincide with these Phase 3 Quarterly Reports using the procedure described in Article 4 of this Agreement. The final Phase 3 Quarterly Report shall also include the Final Report as described in Subtask 2.3. 
  
 Subtask 2.4: Final Report. DayStar shall submit a Final Report in accordance
with Exhibit C to NYSERDA’s Project Manager that summarize the technical, production and economic impact information provided in previous reports. The Final Report shall be included as part of the final Phase 3 Quarterly Report (Subtask 2.3).

  
 Deliverables: 
 Phase 1 Completion Report 
 Phase 2 Completion Report 
 Phase 3 Quarterly Reports 
 Final Project Report 
  
 Phase 1:    Site and Project Assessment 
  
 Task 3:      Site Characterization and Design 
  
 Subtask 3.1: Site Characterization and Design. DayStar has entered into a 5-year lease agreement for an 18,000-ft2 manufacturing facility in Halfmoon, New York. The facility is commercially zoned and is approximately 5000-ft2 of office space with 13,000-ft2 of hi-bay manufacturing space. In July 2004, DayStar acquired the change of tenant approval and has received a use approval from the Town of Halfmoon for this site. The building has adequate services
with the exception of electrical. The current available power is 150 KVA. 
  

 21 

 DayStar shall design and complete plans to equip the warehouse facility with plumbing, ventilation, HVAC, electrical,
chilled water, process gas, waste stream, and equipment housing systems for use as a thin-film CGIS solar cell production plant. DayStar shall coordinate with a local electrical contractor and Niagara Mohawk for the installation of a new
transformer. 
  
 DayStar shall pursue all available funding opportunities from
economic development programs, including federal, state and local assistance and abatement programs. 
  
 Subtask 3.2: Facility and Site Design Plans and Go/No Go Decision. Daystar shall provide NYSERDA’s project manager with the final facility and site design plans as defined by Subtask 3.1. Upon
receipt of the final plans, NYSERDA’s project manager shall issue a written go/no go decision on continuing the project. Work on the following phases shall not be initiated prior to receiving written approval to proceed from NYSERDA’s
Project Manager. 
  
 Deliverables: (to be included in the
Phase 1 Completion Report) 
 Preliminary site plan 
 Review of available economic development programs with application to the project 
 Facility and site design plans including expected production 
  
 Phase 2:    Project Development and Construction 
  
 Task 4:      Site Permits and Approvals 
  
 DayStar’s 18,000-ft2 Halfmoon facility (the “Facility”) was constructed in 1998 and zoned for commercial use. DayStar has entered into a 5-year lease agreement for this space. In July 2004, DayStar has acquired a change of tenant
approval and has received a use approval from the Town of Halfmoon for this site. DayStar shall apply for and obtain all permits necessary to operate the Facility. 
  

			
	Permit Schedule	  	 
		
	Change of Tenant Approval	  	Received July, 2004
	Building Use Approval	  	Received July, 2004
	Air and Sewer Permit Applications	  	Submitted July, 2004
	Air and Sewer Permit Approvals	  	Expected by month 3 of this project
	Pending Other GORR Applications	  	Submitted June, 2004
	Pending Other GORR Approvals	  	Expected by month 3 of this project
		
	Deliverables	  	 
		
	    Evidence of execution of site agreements	  	 
	    Evidence of permits / regulatory approvals	  	 

  

 22 

 Task 5:    Facility Design and Engineering and Construction / Renovation 
  
 DayStar shall make minor modifications to the office space to accommodate 7 new offices and
cubicles to accommodate approximately 25 employees. DayStar shall fit the warehouse facility with plumbing, ventilation, HVAC, electrical, chilled water, process gas, waste stream, and equipment housing systems for use as a solar cell production
plant. 
  
 Deliverables 
 Final construction documents and improvement agreements 
 Evidence of facility upgrades: 
 Office Space 
 Electrical Upgrades 
 Mechanical Upgrades 
 Finalized project budget with a table of identifying expected project expenditures 
  
 Task 6:    Financial Plan 
  
 DayStar shall update its financial plan for the Facility which includes a 3-year business plan. 
  
 Deliverables 
 Updated
3-year business plan 
  
 Task 7:    Equipment Procurement

  
 DayStar shall identify appropriate equipment supply sources. DayStar
shall procure the equipment and conduct or witness appropriate tests and inspections at the factory (if necessary) and upon arrival at the site. Table 2, Major Equipment List, describes the major equipment acquisitions (acquisition and/or
refurbishing costs greater than $100,000). 
  

			
	                                        
                                        
         Table 2: Major Equipment List

	 	 
	 Control Process Apparatus 1, 2 and 3
	  	 Co-evaporation System

	 Magnetron
	  	 In-line Thermal System

	 SEM/ EDS
	  	 CdS Hood

	 Cluster Tool System
	  	 

  
 Deliverables

 Letter stating that the major equipment has been tested and performs to DayStar’s satisfaction 
  

 23 

 Task 8:    Facility Completion 
  
 Subtask 8.2: Facility Completion. DayStar shall complete upgrading the Facility, including plumbing, ventilation, HVAC,
electrical, chilled water, process gas, waste stream, and equipment housing systems for use as a solar cell production plant. 
  
 Subtask 8.2: Facility Completion and Go/No Go Decision. Daystar shall provide NYSERDA’s project manager with evidence of the completion of the facility
as defined by Tasks 4 through 8. DayStar shall provide a Certificate of Insurance covering product liability as described in Section 11.02 (c) of this Agreement. Upon the successful completion of the facility and provision of the Certificate of
Insurance, NYSERDA’s project manager shall issue a written go/no go decision to commence work on Phase 3. Work on the following tasks shall not be initiated prior to receiving written approval to proceed from NYSERDA’s Project Manager.

  
 Deliverables 
 Phase 2 Report including verification of facility operability 
 Certificate of Insurance covering product liability 
  
 Phase 3:    Project Commercial Operation 
  
 DayStar shall notify NYSERDA in writing of the date and time the Facility enters commercial operation. Commercial operation shall be defined
as that time when the project successfully demonstrates that it can produce at a rate of 4W/day ultra-lightweight solar cells, a minimum of 24-cm2 in size, that have a verifiable conversion efficiency (“CE”) in excess of 10% (under Air Mass 1.5 simulated illumination). 
  
 Task 9:    Facility Operation 
  
 For Task 9, DayStar shall provide production documentation, production samples, and certification (test) results for each deliverable
specified in each subtask. Production documentation shall verify throughput and yield data. For this task, production samples shall serve as evidence of factory operation. Certification data shall demonstrate achievement of cell
conversion-efficiency targets and that all cells produced are operational at the specified CE level. 
  
 Subtask 9.1: Initiate Ultra-light Cell Commercial Production. DayStar shall commence commercial production by manufacturing of DayStar’s ultra-light CIGS solar cell product designed for orbital and
airborne vehicle applications and produce at a minimum rate of 4W/day for 24-cm2 Ultra-light solar cells.

  

	 	Deliverable:	Documentation of the production of 24-cm2 Ultralight solar cells at a production rate of 4W/day for a minimum of 10 days or a total aggregate of 40 Watts of UL product, whichever
comes first. 

  
 Subtask 9.2: Commence Terrestrial Cell
Commercial Production at a Rate of 8 W/Day with a 5% Conversion Efficiency (CE). DayStar shall commence commercial production on DayStar’s Terrestrial CIGS solar cell product designed for ground-based applications. DayStar shall 

  

 24 

 
produce 100-cm2
Terrestrial solar cells with a 5% CE at a rate of at least 8W/day. 
  

	 	Deliverable:	Documentation of the production of 100-cm2 Terrestrial solar cells with a 5% CE (AM1.5) at a production rate of 8W/day for a minimum of 15 days or a total aggregate of 120 Watts of
Terrestrial product, whichever comes first. 

  
 Subtask 9.3:
Increase Terrestrial Cell Production to a Rate of 64 W/day, 6% CE%. DayStar shall improve the production process and produce 100-cm2 Terrestrial solar cells with a 6% CE at a minimum rate of 64W/day. 
  

	 	Deliverable:	Documentation of the production of 100-cm2 Terrestrial solar cells with a 6% CE (AM1.5) at a production rate of 64W/day for a minimum of 20 days or a total aggregate of 1280 Watts
of Terrestrial product, whichever comes first. 

  
 Subtask
9.4: Facility Scale-Up and Go/No Go Decision. Daystar shall provide NYSERDA’s project manager with evidence that the performance targets in Task 9 have been met and that a lease agreement to develop an enlarged solar cell production
facility at the Saratoga Energy + Technology Park (“STEP”) has been negotiated in good faith with STEP developer IDEA Partnerships. Upon successfully meeting performance targets and executing a lease agreement for STEP, NYSERDA’s
project manager shall issue a written go/no go decision to submit invoices on Task 10. Work on the following task shall not be initiated prior to receiving written approval to proceed from NYSERDA’s Project Manager. 
  
 Deliverables: 
  
 Summary of Task 9 deliverables and progress in commercial
production 
 Fully-executed STEP leasing agreement satisfactory to DayStar and STEP Developer IDEA Partnerships 

 
 Task 10:    Incentive-Based Cell Production 
  
 DayStar shall continue to improve the production process. Certification data shall provide
verification that all cells produced are operational at the specified CE level. DayStar shall tabulate production and New York-content and report this data quarterly (see Subtask 2.3) which shall form the basis to calculate NYSERDA performance
incentive payments (see Contract Milestones). DayStar shall provide purchase orders as evidence of intended sales which may be used as a means of triggering incentive payments. Also, DayStar shall provide a calculation of New York State value-added
and all supporting documentation for this estimate. DayStar shall provide information requested by NYSERDA to verify production and value-added claims. 
  

	 	Deliverable:	Quarterly Production and Sales Report documenting production process improvements, purchase orders and value added data for use in calculating incentive payments. (This can be
included as part of the Phase 3 Quarterly Reports). 

  

 25 

 CONTRACT MILESTONE PAYMENT SCHEDULE 
 Agreement #8735 
  
 Consistent with Exhibit D, payments shall be made upon acceptance of NYSERDA’s Project Manager of the following Milestones: 
  

												
	 Phase

	  	Task

	  	Description

	 	 Milestone / Deliverable

	  	 Time
 (mo. #)

	  	 Milestone
 Payment

	 	  	1	  	Project
Management	 	 n  Meetings
	  	As needed	  	 	 
	 	  	2	  	Reporting	 	 n  Phase 1 Completion
 n  Phase 2 Completion
 n  Phase 3 Quarterly
 n  Final Report
	  	As required	  	 	 
	 1
	  	3	  	Site
Characterization
& Design	 	 •   Preliminary Site Plan
 •   Other Programs
 •   Facility & Site Design
	  	1	  	 	 
	 	  	 	  	Total: Phase 1	 	 	  	 	  	$	0
	 	  	4	  	Site Permits &
Approvals	 	 •   Site Agreements
 •   Regulatory Approvals
	  	3-5	  	 	 
	 2
	  	5	  	Facility Design,
Engineering, and
Renovation	 	 •   Construction Docs
 •   Project Budget
 •   Construction Agreements
	  	3-5	  	 	 
	 	  	6	  	Financial Plan	 	 •   Financing Plan and 5-year pro forma update
	  	3-5	  	 	 
	 	  	7	  	Equipment
Procurement	 	 •   Procurement Documents
 •   Equipment Acceptance
	  	4-7	  	 	 
	 	  	8	  	Facility
Completion	 	 •   Confirmation of Phase 2 completion
	  	7	  	$	250,000
	 	  	 	  	Total: Phase 2	 	 	  	 	  	$	250,000
	 	  	9	  	Facility  Operation	 	 	  	 	  	 	 
	 3
	  	9.1	  	Initiate Ultra-light
(UL) Cell
Commercial
Production	 	 •   Documentation of the production of 24-cm2 Ultralight solar cells at a production rate of 4W/day for a minimum of 10
days or a total aggregate of 40 Watts of UL product, whichever comes first.
	  	8	  	$	50,000

  

 26 

												
	 Phase

	  	Task

	  	 Description

	  	 Milestone / Deliverable

	  	 Time
 (mo. #)

	  	 Milestone
 Payment

	 	  	9.2	  	Commence Terrestrial Cell Commercial Production at 8W/day, 5% CE.	  	 •   Documentation of the production of 100-cm2 Terrestrial solar cells with a 5% CE (AM1.5) at a production rate of 8W/day
for a minimum of 15 days or a total aggregate of 120 Watts of Terrestial product, whichever comes first.
	  	12	  	$	150,000
	 	  	Task

	  	 Description

	  	 Milestone / Deliverable

	  	 Time
 (mo. #)

	  	 Milestone
 Payment

	 3
	  	9.3	  	Increase Terrestrial Cell Production to 64 W/day, 6% CE%.	  	 •   Documentation of the production of 100-cm2 Terrestrial solar cells with a 6% CE (AM1.5) at a production rate of
64W/day for a minimum of 20 days or a total aggregate of 1280 Watts of Terrestial product, whichever comes first.
	  	13	  	$	150,000
	 	  	9.4	  	Facility Scale-Up and Go/No Go Decision	  	 •   Summary of Task 9 deliverables and progress in commercial production

•   Executed STEP leasing agreement satisfactory to DayStar and STEP Developer IDEA
Partnerships
	  	14	  	$	0
	 	  	 	  	 Total: Phase 3
 (Milestone
Only)
	  	 	  	 	  	$	350,000
	 	  	10	  	 Task 10 shall be an incentive-based payment plan. NYSERDA shall pay up to 25% of the total New York State value added
(“NYSVA”) per product produced or sold as evidenced by purchase orders or bills of sale. NYSVA shall be calculated using the following formula:
  
 NYSVA= [New York State-attributable labor cost per unit] + [New York State-attributable overhead] + [cost of New York State-produced raw materials] + [cost of New York
State-produced components]
  
 DayStar shall provide evidence** of these New York
State-attributed costs. New York State overhead does not include costs of financing, depreciation or income taxes. Quarterly incentive payments shall be available for 60 months from contract execution or until the maximum of $400,000 is
reached.
	  	 
 	$400,000
maximum

  

 27 

											
	 Phase

	  	Task

	  	Description

	  	 Milestone / Deliverable

	  	 Time
 (mo. #)

	  	 Milestone
 Payment

	 	  	 	  	Total:
Phase 3
Milestone
and
Incentive	  	 	  	 	  	750,000
	 	  	 	  	TOTAL	  	 	  	 	  	1,000,000

  
 *
Documentation shall include evidence of production including certified test results of conversion efficiency, verifiable documentation of production line output rates, and product samples. 
  
 ** Evidence must be presented that shows clearly the method
for calculating each component of the formula. Individual costs, such as production labor, can be aggregated over the course of the reporting period. 
  

 28Warrant issued to Highbridge International LLC on December 8, 2003

 Exhibit 4.1 
  

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED OR REGISTERED
UNDER STATE SECURITIES OR BLUE SKY LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND THE APPLICABLE RULES AND REGULATIONS THEREUNDER. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS. 
  
 drugstore.com, inc. 
  
 Warrant for the Purchase of Shares of Common Stock 
  

			
	Name of Registered Holder:	 	Highbridge International LLC
	 	 	(the “Initial Holder”)
		
	No. W-5	 	500,000 Shares of Common Stock

  
 This certifies that,
for value received, the Initial Holder (or any registered assignee of the Initial Holder) (each of the Initial Holder and any such registered assignee being hereinafter referred to as the “Holder”) is entitled, subject to the conditions
and upon the terms of this Warrant, to purchase from drugstore.com, inc. (the “Company”), at any time or from time to time during the Exercise Period (as defined in Section 1 hereof), the number of shares of Common Stock (as defined in
Section 1 hereof) set forth above. The number of shares of Common Stock to be received upon the exercise of this Warrant and the Exercise Price are subject to adjustment from time to time as hereinafter set forth. 
  
 Section 1. Certain Definitions. Terms defined in the preceding
paragraph and elsewhere in this Warrant have the respective meanings provided for therein. The following additional terms, as used herein, have the following respective meanings: 
  
 “Act” means the Securities Act of 1933, as amended. 
  
 “Common Stock” means the fully paid and nonassessable shares of common stock of the Company, $0.0001 par value
per share, together with any other equity securities that may be issued by the Company in addition thereto or in substitution therefor in accordance with Section 7 herein. 
  
 “Exercise Period” means the period beginning on the date hereof and ending on December 5, 2008. 
  
 “Exercise Price” means $7.76 per share, subject to change or
adjustment pursuant to Section 7 hereof. 
  
 “Reorganization
Event” means (i) any capital reorganization or reclassification of the Common Stock (other than as a result of a subdivision, combination or stock dividend for which adjustment is provided in Section 7(a) hereof and other than a change in the
par value of the Common Stock or an increase in the authorized capital stock of the Company not involving the issuance of any shares thereof), or (ii) any consolidation of the Company with, or merger of the Company with or into, another person
(including any partnership, joint venture, limited liability company, limited partnership, corporation. trust, other entity or group thereof) (other than a consolidation or merger in which the Company is the surviving corporation and which does not
result in a reclassification or change of the outstanding Common Stock (or for which adjustment is provided in Section 7(a) hereof)) or any sale, lease, transfer or conveyance of all or substantially all of the property and assets of the Company.

  

 1 

 “Warrant” means this warrant and any warrant or warrants which may be issued pursuant to
Section 4 hereof in substitution or exchange for or upon transfer of this warrant, any warrant which may be issued pursuant to Section 2 hereof upon partial exercise of this warrant and any warrant which may be issued pursuant to Section 5 hereof
upon the toss, theft, destruction or mutilation of this warrant. 
  
 “Warrant Register” means the register maintained at the principal office of the Company, or at the office of its agent, in which the name of the Holder of this Warrant shall be registered. 
  
 “Warrant Shares” means the shares of Common Stock, as adjusted
from time to time in accordance with Section 7 hereof, deliverable upon exercise of this Warrant. 
  
 Section 2. Exercise of Warrant. Subject to compliance with all applicable securities laws, this Warrant may be exercised, in whole or in part, at
any time or from time to time during the Exercise Period, by presentation and surrender hereof to the Company at its principal office at the address set forth on the signature page hereof (or at such other address of the Company or any agent
appointed by the Company to act hereunder as the Company or such agent may hereafter designate in writing to the Holder), with the exercise form annexed hereto (the “Exercise Form”) duly executed and accompanied by cash or a certified or
official bank check drawn to the order of “drugstore.com, inc.” (or its successor in interest, if any) in the amount of the applicable Exercise Price, multiplied by the number of Warrant Shares specified in such Exercise Form, together
with applicable transfer taxes, if any. If this Warrant should be exercised in part only, the Company or its agent shall, upon surrender of this Warrant, execute and deliver a Warrant evidencing the right of the Holder thereof to purchase the
balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company during the Exercise Period of this Warrant and such Exercise Form in proper form for exercise, together with proper payment of the applicable Exercise Price at its
principal office, or by its agent at its office, the Holder shall be deemed to be the holder of record of the number of Warrant Shares specified in such Exercise Form; provided, however, that if the date of such receipt by the Company
or its agent is a date on which the stock transfer books of the Company are closed, such person shall be deemed to have become the record holder of such Warrant Shares on the next business day on which the stock transfer books of the Company are
open. Any Warrant issued upon partial exercise of this Warrant pursuant to this Section 2 shall be dated the date of this Warrant. 
  
 Section 3. Reservation of Shares. The Company agrees that at all times it will keep reserved solely for issuance and delivery pursuant to this
Warrant the number of shares of its Common Stock that are or would be issuable from time to time upon exercise of this Warrant in full. All such shares shall be duly authorized and, when issued upon such exercise, shall be validly issued, fully paid
and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free of all preemptive rights. Before taking any action that would cause an adjustment pursuant to Section 7 hereof
reducing the Exercise Price below the then par value (if any) of the Warrant Shares issuable upon exercise of this Warrant, the Company will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue fully paid and nonassessable Warrant Shares at the Exercise Price as so adjusted. 
  
 Section 4. Transfer in Compliance with Applicable Securities Laws. Neither this Warrant nor any of the Warrant Shares, nor any interest in either,
may be sold. Assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, in whole or in part, except in accordance with applicable United States federal and state securities laws and the terms and conditions
hereof. The Company may require the Holder to obtain an opinion of counsel, at the expense of the Holder, reasonably satisfactory to the Company, that the proposed sale, offer for sale, pledge, hypothecation or other transfer or disposition may be
effected without registration under the Act or state securities or Blue Sky laws. No opinion of counsel shall be necessary for a transfer by the Holder to one or more Affiliates (as such term is defined in Section 11(f) of this Warrant). Each
Warrant shall bear a legend in substantially the same form as the legend set forth on the first page of this Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are
registered under the Act, shall bear a legend-substantially in the following form: 
  

 2 

 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED OR REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION, AND NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE SOLD, OFFERED
FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND THE APPLICABLE RULES AND REGULATIONS THEREUNDER. THE ISSUER OF
THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS. 
  
 Subject to this Section 4, this Warrant may
be transferred and assigned, in whole or in part, upon surrender of this Warrant to the Company at its principal office or to the Company’s agent at its office, with the Warrant Assignment Form duly executed and accompanied by funds sufficient
to pay any transfer tax, except that no transfer or assignment of this Warrant may be made unless (A) the Company consents in writing to such transfer or assignment, which consent may be withhold in its absolute discretion, and (B) the transferee
has agreed in writing for the benefit of the Company to be bound by the provisions of this Section 4 to the extent this Section 4 is then applicable. Notwithstanding the foregoing, the Company agrees that consent will not be withheld in the case of
a transfer or assignment of the Warrant in whole or in part by the Holder to one or more Affiliates; provided, however, that if the Warrant is transferred or assigned in part by the Holder to one or more Affiliates, at least 100,000 Warrant Shares
subject to adjustment pursuant to Section 7) must underlie each transferred or assigned part of the Warrant. 
  
 The Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees named in such Warrant Assignment Form and, if the
Holders entire interest is not being transferred or assigned, in the name of the Holder, and this Warrant shall promptly be cancelled. 
  
 Section 5. Lost, Mutilated or Missing Warrant. Upon receipt by the Company or its agent of evidence satisfactory to it of the loss, theft or
destruction of this Warrant, and of satisfactory indemnification, and upon surrender and cancellation of this Warrant if mutilated, the Company or its agent shall execute and deliver a Warrant of like tenor and date in exchange for this Warrant.

  
 Section 6. Rights of the Holder. The Holder shall not,
by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant. 
  
 Section 7. Certain Events. 
  

(a) Stock Dividends, Subdivisions, Combinations. If the Company shall (A) declare a dividend or distribution on the Common Stock (or other
securities deliverable hereunder) payable in shares of capital stock (whether shares of Common Stock or capital stock of any other class), (B) subdivide shares of the Common Stock into a greater number of shares or (C) combine the Common Stock into
a smaller number of shares, then, in any such event, the Holder shall be entitled to receive the aggregate number and kind of shares which, if the Warrant had been exercised immediately prior to the record date for such action, he would have been
entitled to receive by virtue of such dividend. distribution, subdivision or combination, and the Exercise Price shall be appropriately adjusted. Such adjustment shall be made successively whenever any event listed above shall occur. 
  
 (b) Reorganization Event. In case of any Reorganization Event, the
Company shall, as a condition precedent to the consummation of the transaction constituting, or announced as, such Reorganization Event, cause effective provisions to be made so that the Holder shall have the right immediately thereafter, by
exercising this Warrant, to receive the aggregate amount and kind of shares of stock and other securities and property that were receivable upon such Reorganization Event by a holder of the number of shares of Common Stock that would have been
received immediately prior to such Reorganization Event upon exercise of this Warrant. Any such provision shall include provision for adjustments in respect of such shares of stock and other, securities and property that shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 7(a). The foregoing provisions of this Section 7(b) shall similarly apply to successive Reorganization Events. 
  

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 (c) Certain Events. If any event occurs of the type contemplated by the provisions of this
Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors in its
reasonable judgment shall make an appropriate adjustment in the number of Warrant Shares obtainable upon exercise of this Warrant so as to protect the rights of the Holders of the Warrant. 
  
 (d) Fractional Shares. No fractional shares of Common Stock (or other
securities deliverable hereunder) or scrip shall be issued to any Holder in connection with the exercise of this Warrant. Instead of any fractional share of Common Stock (or other securities deliverable hereunder) that would otherwise be issuable to
such Holder, the Company shall pay to such Holder a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Exercise Price on the date of such exercise. 
  
 (e) Carryover. Notwithstanding any other provision of this Section 7,
no adjustment shall be made to the number of shares of Common Stock (or other securities deliverable hereunder) to be delivered to each Holder (or corresponding change to the Exercise Price) if such adjustment would represent less than one percent
of the number of shares to be so delivered, but any such adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to one
percent or more of the number of shares to be so delivered. 
  
 (f) Notices of Certain Events. If at any time after the date hereof and before the expiration of the Exercise Period: 
  
 (i) the Company declares any dividend or distribution on its Common Stock payable in shares of its capital stock or otherwise subdivides or combines the
Common Stock; 
  
 (ii) there shall be any Reorganization Event;

  
 (iii) there shall be any voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or 
  
 (iv) there shall be any other event that would result in an adjustment pursuant to this Section 7 in the Exercise Price or the number of Warrant Shares that may be purchased upon the exercise hereof; 
  
 the Company will cause to be mailed to the Holder, at least twenty days before the applicable
record or effective date, as applicable, for the action hereinafter specified, a notice stating (A) the date as of which the holders of Common Stock of record entitled to receive any such dividends or distributions is to be determined, or (B) the
date on which any such subdivision, combination, Reorganization Event, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record will be entitled to
exchange their shares of Common Stock for securities or other property, if any, deliverable upon such Reorganization Event, dissolution, liquidation or winding-up. 
  
 (g) Failure to Give Notice. The failure to give the notice required by Section 7(f) hereof or any defect therein
shall not affect the legality or validity of any dividend or distribution, subdivision, combination, Reorganization Event, dissolution, liquidation or winding-up or the vote upon any such action. 
  
 Section 8. Officer’s Certificate. Whenever the number of Warrant
Shares that may be purchased on exercise of this Warrant or the Exercise Price is adjusted as required by the provisions of Section 7 hereof, the Company will forthwith file in the custody of its Secretary or an Assistant Secretary at its principal
office and at the office of its agent an officer’s certificate showing the adjusted number of Warrant Shares that may be purchased at the Exercise Price on exercise of this Warrant and the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officer’s certificate shall be signed by the Chief Executive Officer, President or Chief Financial Officer of the
Company. Each such officer’s certificate shall be made available at all reasonable times for inspection by the Holder. The Company shall, promptly after each such adjustment, cause such certificate to be mailed to the Holder. 
  

 4 

 Section 9. Warrant Register. The Company will register this Warrant in the Warrant Register in the
name of the record holder to whom it has been distributed or assigned in accordance with the terms hereof. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof (notwithstanding any notation of ownership
or other writing hereon made by anyone) for the purpose of any exercise hereof or any distribution to the Holder and for all other purposes, and the Company shall not be affected by any notice to the contrary. 
  
 Section 10. Representations and Warranties of the Company. The Company
hereby represents and warrants to the initial Holder as of the date of this Agreement as follows: 
  
 (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all
requisite corporate power and authority to execute and deliver this Warrant and to perform its obligations hereunder. 
  
 (b) This Warrant has been duly authorized, executed and delivered by the Company and constitutes its valid and legally binding obligation, enforceable in
accordance with its terms except (i) as limited by any applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or other equitable remedies. 
  
 (c) The Warrant Shares have been duly authorized and reserved for issuance in accordance herewith, and, upon issuance in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free of all preemptive rights. 
  
 Section 11. Representations and Warranties of each Holder. The Holder
hereby represents and warrants that: 
  
 (a) Purchase
Entirely for Own Account. This Warrant and the right to acquire the Common Stock issuable upon exercise of the Holder’s rights contained herein will be acquired for investment for the Holder’s own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. The Holder does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to this Warrant or any of the shares of Common Stock issuable upon exercise of the Holder’s rights contained
herein. 
  
 (b) Investment Experience. The Holder (i)
possesses sufficient knowledge and experience in financial and business matters (including experience with investments of a similar nature) to be capable of evaluating the merits and risks of an investment in the Company and (ii) has adequate net
worth and means of providing for its current needs and personal contingencies to sustain a complete loss of its investment in the Company and has no need for liquidity in his investment in the Company. 
  
 (c) Access to Information. The Holder acknowledges that (i) it has
been furnished or been afforded access to information describing the Company, the terms of an investment in the Company, the Company’s past, present and anticipated future activities and any other matters the Holder has deemed relevant to its
decision to make an investment in the Company; (ii) it has been provided an opportunity to obtain additional information concerning the Company, the Company’s past, present and anticipated future activities and any other matters the Holder has
deemed relevant to its decision to make an investment in the Company; and (iii) it has been given the opportunity to ask questions of, and receive answers from the Company concerning the Company, the Company’s past, present and anticipated
future activities and any other matters the Holder has deemed relevant to its decision to make an investment in the Company. 
  

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 (d) Accredited Investor. The Holder is an “accredited investor,” as that term is
defined in Rule 501 of Regulation D as promulgated under the Act. 
  
 (e) Restricted Securities. The Holder understands that this Warrant and the shares of Common Stock issuable upon exercise hereof have not been registered under the Act nor registered or qualified under state securities laws
(including the securities laws of his, her or its state of residence) by reason of specific exemptions there from, which exemptions depend upon, among other things, the bona fide nature of Holder’s investment intent as expressed herein. The
Holder understands that this Warrant and any shares of Common Stock issued upon exercise hereof must be held indefinitely unless such securities are subsequently registered under the Act and all applicable state securities laws and regulations or an
exemption from such registration or qualification is available, and that the Company is under no obligation to register or qualify such securities. 
  
 (f) Restriction on Sale of Common Stock. The Holder agrees that the Holder, together with its Affiliates, will not, in any 90-day period, sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights with respect to (or, with respect to any of the foregoing, offer to do so), except, in any such case, to one or more Affiliates of the Holder, more than 250,000 shares
of the Common Stock (subject to adjustment pursuant to Section 7). “Affiliate” means an entity that directly or indirectly Controls, is Controlled by or is under common Control with another entity. “Control” means possession,
directly or indirectly, of the power to direct or cause the direction of the management and policies of another entity, whether by contract or through the ownership of voting securities, including, without limitation, the ownership of more than 50%
of the equity, partnership or similar interest in such entity. 
  
 Section 12. Successors. All of the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors and assigns. 
  
 Section 13. Headings. The headings of sections of this Warrant have
been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 
  
 Section 14. Amendments. The terms of this Warrant may be amended, modified or waived only with the written consent of
the Holder and the Company. 
  
 Section 15. Notices. Unless
otherwise provided in this Warrant, any notice or other communication required or permitted to be made or given to any party hereto pursuant to this Warrant shall be in writing and shall be deemed made or given if delivered by hand, on the date of
such delivery to such party or, if mailed, on the fifth day after the date of mailing, if sent to such party by certified or registered mail, postage prepaid, addressed to it (in the case of a Holder) at its address in the Warrant Register or (in
the case of the Company) at its address on the signature page hereto, or to such other address as is designated by written notice, similarly given to each other party hereto. 
  
 Section 16. Governing Law. This Warrant shall be governed by and construed under and in accordance with the laws of
the State of Washington without giving effect thereof to the principles of conflict of laws. 
  
 Section 17. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which together will constitute one instrument. 
  
 [Remainder of page intentionally left blank] 
  

 6 

 IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed and attested by its duly
authorized officer and to be dated as of December 5, 2003. 
  

			
	drugstore.com, inc.
		
	By:	 	 /s/ Alesia Pinney

	Name:	 	Alesia Pinney
	Title:	 	Vice President and General Counsel
	
	13920 SE Eastgate Way
	Suite 300
	Bellevue, WA 98005
	Fax: 425-372-3808
	
	Attn: General Counsel

  
 ACCEPTED AND AGREED:

  

			
	Highbridge International LLC
	by Highbridge Capital Management LLC
		
	By:	 	 /s/ David Zalta

	Title:	 	Head of Operations

  
 Highbridge International LLC

 c/o Highbridge Capital Management, LLC 
 9 West 57th Street 
 27th Floor 
 New York, NY 10019

 Fax: 212-287-4915 
  
 Attention: David Zalta 
  

 7 

 EXERCISE FORM 
  

	1.	The undersigned,
                                       
                     , hereby irrevocably elects to purchase
                                        
shares of Common Stock pursuant to the terms of the attached Warrant and hereby makes payment of
$                                 in payment of the purchase price of such shares
in full, together with all applicable transfer taxes, if any. 

  

	2.	Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned. 

  

	3.	The undersigned represents it is acquiring the shares of Common Stock solely for its own account and not as a nominee for any other party and not with a view toward the resale or
distribution thereof and that such acquisition is in compliance with Section 4 and Section 5 of the Warrant. The undersigned further confirms and acknowledges the investment representations and warranties previously made to the Company in Section 11
of the Warrant with respect to the shares being acquired upon exercise hereof. 

  

			
	 Date:                     ,
        
	 	  

	 	 	[Signed]
		
	 	 	  

	 	 	[Print Name of Holder]
		
	 	 	  

	 	 	[Street Address]
		
	 	 	  

	 	 	[City and State]

  

 8 

 WARRANT ASSIGNMENT FORM 
  
 FOR VALUE RECEIVED, the undersigned, ___________________________________(“Assignor”), hereby sells, assigns
and transfers unto 
  
 Name:
____________________________________________________(“Assignee”) 
  
 (Please type or print in block letters) 
  
 Address: __________________________________________________ 
  
 ____________________________________________________ 
  
 This Warrant and
all rights evidenced thereby and does hereby irrevocably constitute and appoint the Company and any of its officers, secretary, or assistant secretaries, as attorneys-in-fact to transfer the same on the books of the Company, with full power of
substitution in the premises. 
  

			
	 Date:
                        ,         
	 	  

	 	 	[Name of Holder]
		
	 	 	  

	 	 	[Title]

  
 In the presence of:
___________________________________________ 
  
 Note: The signature of this
Warrant Assignment must correspond to the name as it appears on the face of this Warrant. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing
Warrant. 
  

 9

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