It shall be understood and agreed, however, that in order to arrive at a normal cost, preliminary costs of "tuning up" of manufacturing plant, demonstrating through cooperation of agricultural experiment stations, county agricultural agents, and farmers, the use on various crops of the concentrated fertilizer produced (as provided in subdivision (1) of this article) on the leased premises, and other initial and preliminary expenses made and incurred during the period after the commencement of this lease and prior to operation of the first unit of the plant for manufacture of such concentrated fertilizer and property incident to the concentrated-fertilizer business, shall be carried as deferred charges and distributed equally in the cost of such concentrated fertilizer over the first ten years of production after the operation fo such first unit at full capacity has commenced; and that similar initial and preliminary expenses made and incurred in connection with the putting into operation of the second and each subsequent unit of the plant for manufacture of such concentrated fertilizer shall likewise be carried as deferred charges and distributed equally in the cost of such concentrated fertilizer over the first ten years of production after the operation at full capacity of each unit, respectively.

In case the lessee and/or any sublessee of the said lessee shall utilize any part of the nitrate properties for purposes other than the manufacture of such concentrated fertilizer, the expense of maintenance and operation of such part of such properties when so utilized shall not be included in the cost of such concentrated fertilizer, and any profits obtained by the lessee and/or said sublessee through such utilization shall not be credited to the cost of such concentrated fertilizer.

There shall not be included in the cost of such concentrated fertilizer any royalties paid or payable on any processes utilized in the manufacture of such concentrated fertilizer, which are now owned or which may hereafter be acquired by said American Cyanamid Company and/or by any subsidiary and/or allied corporation of said American Cyanamid Company; nor shall there be included in the cost of such concentrated fertilizer any royalties upon inventions or discoveries by the lessee or any officer, agent, or employee thereof made through and in the course of the manufacturing herein contemplated and the research provided for in subdivision (4) of this article.

There shall not be included in the cost of such concentrated fertilizer any compensation paid to any person holding the office of president, vice president, secretary, or treasurer or any other corporate office in said American Ĉyanamid Company, nor any compensation paid to any person holding like office in any subsidiary or allied corporation of said company; but this provision shall not be deemed to exclude from such cost compensation paid to any officer enployed by a corporation engaged exclusively in the manufacture of such concentrated fertilizer under this lease.

In computing the cost of all electric power used in the manufacture of such concentrated fertilizer

(a) The term "primary power" shall mean power that is continuously available, and produced wholly by water or by water supplemented by steam. All other power produced wholly by water shall be deemed to be "secondary power."

(b) The cost per horsepower-year of primary power used in the manufacture of such concentrated fertilizer shall be deemed to be the total average cost per horsepower-year of all primary power produced by the lessee upon and by means of the property covered by this lease during the fiscal year.

(c) The cost per kilowatt-hour of any secondary power used in the manufacture of such concentrated fertilizer shall be deemed to be the average cost per kilowatthour of all secondary power produced by the lessee upon and by means of the property covered by this lease during the fiscal year.

In computing the cost of primary power there shall be included-

(a) All expense of administration and all rentals, payments, contributions, expenses and expenditures of the lessee paid and/or accrued, whether in the form of power or of cash, for maintenance and operation of the dams, power houses, locks, gates and navigation facilities and/or for interest and/or amortization upon the lessor's investment in the dams, power houses, locks, gates and navigation facilities, except expenditures for rental by way of interest and amortization upon the lessor's investment in equipment not used in the production of primary power.

(b) All interest, amortization, reasonable depreciation, and other proper fixed charges relating to that part of the power development acquired, constructed, and/or purchased at the cost and expense of the Isesee, and used in the production of primary power (whether or not exclusively so used).

(c) The cost of production by the lessee of power by steam to supplement the hydroelectric-power development in the production of primary power.

(d) The cost of maintaining auxiliary steam-power plants in stand-by condition and costs of stand-by crews of operators therefor.

(e) The cost to the lessee of any power purchased by it to supplement the hydroelectric-power development in the production of primary power, whether such purchase be for payment of cash or for power given by the lessee in exchange for other or different power.

(f) Unless otherwise provided for in, or precluded by, specific provisions of this lease, any expenditure made or obligation incurred at fair current prices for the specific purpose of performing the acts and things required to be performed by the lessee in connection with the production of such primary power under this lease, which the accountants hereinafter provided for shall certify to have been reasonably necessary, as of the time incurred, in connection with such performance, shall be considered items of cost.

In computing the cost of secondary power there shall be included:

(a) All items properly charged in the accounts of the lessee as the cost of power and not included in the cost of primary power, including fixed charges relating to any part of the power development not used as aforesaid in the production of primary power.

No purchase of power by the lessee shall cause an increase in the average cost per unit of power charged against the manufacture of such concentrated fertilizer and no profit shall accrue to the lessee or to any allied or subsidiary corporation of the lessee upon any part of the power (or upon items included in the cost thereof) used in the manufacture of such concentrated fertilizer, other than the said 8 per centum upon the cost of such concentrated fertilizer, and the lessee shall use secondary power for the manufacture of such concentrated fertilizer whenever in the judgment of the lessee secondary power is available for such purpose and its use will reduce the cost of such concentrated fertilizer. The average cost of power charged by the lessee in each year as part of the expense of manufacture of such cencentrated fertilizer shall not exceed the lowest selling price for that year charged to said American Cyanamid Company and its subsidiary and/or allied corporations and/or any other consumers by the lessee for power, of the same class and kind, utilized for purposes other than the manufacture of such concentrated fertilizer.

There shall be included in the cost of primary power in each fiscal year such amounts as shall be paid for such fiscal year by the lessee as rental by way of interest and amortization, in accordance with the terms of Article A hereof, and not any different amounts which may have accrued during such fiscal year and part of which (as provided in Article A hereof) shall have been deferred to subsequent years, and such amounts so deferred shall be charged against the cost of primary power in the years when payments of such deferred amounts are made in accordance with the terms and provisions of Article A hereof.

It is the intention of the parties to this agreement that in computing cost there shall be no duplication, and to that end it is agreed that any item included in cost under any one provision of this subdivision (2) of Article F shall not be included as an item of cost under any other provision of this subdivision (2) of Article F.

(3) Each year the fair actual cost of producing and selling such concentrated fertilizer shall be estimated in the first instance by the lessee for the purpose of fixing the selling prices at which such concentrated fertilizer shall be offered for sale, but shall finally be determined annually by a reputable firm of certified public accountants to be chosen in the following manner: On or before the 1st day of April of each year, the lessee shall nominate to said farmer board three such firms. Said farmer board shall select one of the three so nominated, or, if no one of the three be satisfactory to it, said farmer board shall in turn, on or before the 1st day of May next following, nominate to the lessee three such firms. On or before the 1st day of June next following such nomination one of the said three firms shall be selected by the lessee, or, if no one of said three firms be satisfactory to it, the then President of the United States shall designate promptly in writing one of said six firms and it shall act. For the fiscal year ending June 30 next following, such firm of certified public accountants shall examine the business, books and accounts of the lessee and/or any allied or subsidiary corporation relating to the manufacture and sale of such concentrated fertilizer so far as may be necessary to determine the cost of such concentrated fertilizer, and shall certify to said farmer board and to the lessee what was the actual cost of such concentrated fertilizer, as provided in subdivision (2) of this

article, and the prices (being such cost plus 8 per centum) at which such concentrated fertilizer should have been sold to farmers and other purchasers during such fiscal year, but the accountants shall not certify or make public in any manner the details of the cost of such concentrated fertilizer, except that the accountants shall, upon the request of said farmer board, furnish to said farmer board the details of sales and general administrative expense. Upon receipt of the certificate of the accountants stating the actual cost and the prices at which such concentrated fertilizer should have been sold, in case any farmer or other purchaser shall have paid to the lessee for such concentrated fertilizer a sum greater than such price, the amount of such excess payment shall be promptly refunded to said purchaser by the lessee. Such certificate of the accountants shall be final and conclusive on all parties hereto, said farmer board and purchasers of such concentrated fertilizer, subject only to the provisions of Article N hereof;

(4) The lessee will establish on the leased premises as a part of the group of plants devoted to the manufacture of such concentrated fertilizer a laboratory for chemical research in fields of interest to agriculture, such as the production of nitrogen, phosphoric acid, and potash (either separately or in combination with other materials), in improved concentrated forms, and will expend upon such research annually such amount, not exceeding $1 per ton of such concentrated fertilizer produced and sold during the preceding fiscal year under the provisions of subdivision (1) of this article, as shall be determined by said farmer board, the cost and expense of such research to be charged to and included in the cost of such concentrated fertilizer; and the lessee shall employ, so far as reasonably practicable, such improved processes developed by such research as in its judgment will reduce the cost of such concentrated fertilizer;

(5) The distribution of such concentrated fertilizer to farmers and other consumers shall be subject to such reasonable regulations as may be prescribed by said farmer board. Such regulations shall be adopted or revised at annual meetings of said farmer board, to take place on or before June 30 of each year, and the regulations so adopted or revised shall take effect on the 1st day of January next following. It shall be entirely in the discretion of said farmer board whether any such regulations shall be adopted or amended in any one year. Such regulations shall apply solely to distribution and shall not require the lessee to extend credit to purchasers. It shall be the privilege and duty of said farmer board as often as it sees fit, to confer and advise with the lessee as to the forms, kinds, and sorts of such concentrated fertilizer to be manufactured by the lessee, and also as to the means and methods to be employed by the lessee in introducing among the farmers of the country the use of such concentrated fertilizer, and also as to the distribution, location, and shipment of such concentrated fertilizer into different sections of the country at different seasons of the year to meet the demands and needs of the users of such concentrated fertilizer, but such advice by the farmer board shall be merely advisory and shall not be binding or obligatory upon the lessee: and

(6) Said farmer board shall consist of not more than nine voting members, two of whom (who need not be farmers) shall be appointed by the lessee, and seven of whom shall be appointed through nomination by the President of the United States from lists submitted by national farm organizations and confirmation by the Senate. In addition to the voting members the President shall designate a representative of the Bureau of Markets of the Department of Agriculture, or its legal successor, to serve upon such board in an advisory capacity but without a vote. The voting members appointed by the lessee shall serve at the pleasure of the lessee, which shall appoint their successors. The voting members nominated by the President and confirmed by the Senate shall be chosen in the following manner: On or before the 1st day of September in the year 1928 and thereafter whenever a vacancy occurs, the American Farm Bureau Federation, the National Grange, and the Farmers' Educational and Cooperative Union of America, or their successor or successors, as leading representative farm organizations, national in fact, shall each designate to the President of the United States, in writing, not less than five nor more than ten candidates for voting membership on said board. The President shall nominate to the Senate at its then existing or next regular session a sufficient number of the candidates so designated to fill all the vacancies in said board, the candidates so nominated to be selected by the President in such a manner, so far as he finds practicable, as that representation shall be given to each of the above-mentioned organizations or their successors and that not more than one member of the board shall be a resident of any one State. Such nominations shall be subject to confirmation by the Senate, and if the Senate shall not confirm a sufficient

number to fill all vacancies, the President shall make additional nominations from among candidates designated as hereinabove provided, until the Senate shall have confirmed a sufficient number. If any controversy shall arise as to the existence or successorship of any such organization or whether it be national in fact, it shall be determined by the Secretary of Agriculture; and if one or more of the above-mentioned farm organizations or their successors, by reason of expiration of charter or ceasing to function or failing to maintain an organization national in fact, or for any other reason, shall decline, fail, or neglect to make such designation of candidates, as above provided, the Secretary of Agriculture shall make such designations for the organization or organizations so declining, failing, or neglecting to make the same; but a failure in any one year to make such designations shall not deprive any of the said farm organizations or their successors of the right and privilege to make such designations in future years. On all such questions the decision of the Secretary of Agriculture shall be in writing and final and conclusive on all persons and organizations. The terms of office of the members of the said board first appointed shall commence on the 1st day of January, 1929. Two of the seven members first appointed on the nomination of the President shall be designated by him to serve for a period of two years, two for a period of four years, and three for a period of six years; and their successors shall serve for six-year terms. The members of the said board shall receive a per diem compensation to be fixed by the Secretary of Agriculture, and shall be reimbursed for their actual and necessary expenses in attending to the business of the board, such compensation and expenses, and all actual and necessary expenses of the board itself, to be paid by the lessee and charged to the cost of producing such concentrated fertilizer. The said board shall appoint and employ a permanent secretary and such other employees as it shall deem necessary to serve at its pleasure, and shall fix the compensation of such secretary and employees, to be paid in like manner by the lessee and charged in like manner to the cost of production of such concentrated fertilizer. Said permanent secretary shall keep an accurate record of the proceedings of said board, and the same shall be published annually as a report to Congress.

The said board shall meet at the call of the Secretary of Agriculture and at least once each year at Washington, in the District of Columbia, or at Muscle Shoals, in the State of Alabama, or at such other place or places as the Secretary of Agriculture shall designate.

G. The lessee covenants and agrees that the electric power obtained by it from said demised premises, to the extent that said power is not required for such production of said concentrated fertilizer and/or such operation and lighting of said locks and/or is not used in local industry for the production of other electrochemicals and/or electrometals, essential or useful to the national defense and/or but the lessee or said American Cyanamid Company and/or a subsidiary corporation of either of said corporations, will be disposed of by the lessee for use in local industry and/or for the purpose of distribution (subject to the applicable State and Federal laws) for general, domestic, industrial, and commercial use, and the lessee may enter into contracts for the construction and/or use of transmission lines with persons, corporations, municipalities, districts, counties and individual States of the United States to which such electric power may reasonably be transmitted.

H. Upon the termination of this lease for any cause whatsoever

(1) The lessor shall take any steam power plants or any additions or extensions thereto, transmission lines, or other electric or hydroelectric installations or extensions erected or installed on the leased premises by the lessee at its expense during the period of the lease and pay to the lessee therefor such fair value as, subject to the provisions of article N hereof, shall be fixed by agreement between the Secretary of War and the lessee, which fair value shall in no case exceed actual cost less reasonable depreciation;

(2) All buildings, machinery, equipment, fixtures, facilities, appurtenances and improvements not embraced in subdivision (1) of this article, which shall have been installed at said United States nitrate plant numbered 1 and/or said United States nitrate plant numbered 2 and/or elsewhere as herein provided by the lessee, at its own cost and expense, and used in the manufacture of such concentrated fertilizer, shall be and become the property of the lessor without any payment therefor to the lessee; and

(3) All manufacturing plants, machinery, equipment, facilities, appurtenances, and improvements, and structures placed or erected on the leased premises by the lessee or its subtenants, not embraced in subdivisions (1) and (2) of this article, shall not become the property of the lessor, but may be removed from

the leased premises by the lessee or its subtenants at the termination of this lease or any renewal or extension thereof, or within a reasonable time thereafter. I. The lessor covenants and agrees that it owns, by good and marketable title, free from all material defects and encumbrances, the aforesaid demised properties and has full right and power to make this lease thereof, except that it does not now own the properties described in paragraph (2) of the granting clauses hereof. The lessor further covenants and agrees that the properties demised and described in paragraphs (1), (3), and (4) of the granting clauses hereof constitute all such lands, rights, easements, and servitudes as may be necessary for the construction, operation, and maintenance of said dams and power houses. The lessor also covenants and agrees that in case the title to the said lands, rights, easements, and servitudes shall be found defective or encumbered, or said lands, rights, easements, and servitudes be found insufficient within the meaning of the covenants herein contained, the lessor, at its own cost and expense, shall and will remedy and remove such defects or encumbrances and make good any such insufficiency. The lessor covenants and agrees to acquire the properties described in paragraph (2) of the granting clauses hereof by good and marketable title, free from all defects and encumbrances, including all such lands, rights, easements, and servitudes as may be necessary for the construction, operation, and maintenance of said Dam Numbered 3 and its power house when the same is constructed, operated, and maintained in accordance with the terms and provisions of this lease; and, upon the completion of said Dam Numbered 3, the said properties so purchased and acquired, except the locks and navigation facilities, shall ipso facto, and without any further conveyance or assignment, become and be a part of the properties demised by this lease, and as such, subject to all the applicable terms and provisions of this lease for and during the balance of the unexpired said term of fifty years hereinabove mentioned and described, as fully and completely as though specifically leased and demised by this lease. It is mutually agreed that in the event of any litigation, attacking the title or possession of the property, rights, privileges, and franchises demised, the lessor shall defend such litigation at its own cost and expense, but the lessee may, at its own cost and expense, be represented by its counsel in any such litigation and in the event of any litigation involving the title or possession of the property, rights, privileges, and franchises herein demised and which are reasonably essential to the performance of the obligations assumed by the lessee by the terms of this lease, the lessee shall be relieved from said obligations pending the termination of such litigation: Provided that, if the lessee shall during the pendency of such litigation continue to have possession of such property, rights, privileges, and franchises and shall utilize and/or sell electric power obtained by it from the demised premises or any part thereof, the lessee shall not be relieved, during the period of such utilization and/or sale, from the payment of rent by way of amortization, interest, payments for repairs and for maintenance, or electric power, as provided in Articles A and T hereof, with respect to that part of the demised premises from which the electric power so utilized and/or sold shall be derived. The lessor also covenants and agrees that it will at any time, upon the request of the lessee, and at the lessor's cost and expense, execute and deliver to the lessee any and all such other or further instruments and assurances in the law for the better granting, demising, and securing to the lessee the said franchises, rights, privileges, easements, real estate, and property by this lease granted and demised, or intended so to be, or to describe accurately the said properties, or any of them, intended to be embraced in this lease, the description thereof herein before given being wholly general and to be thus supplemented, which the lessee or its counsel learned in the law shall reasonably advise and require. The lessor covenants and agrees to keep and perform all the terms and conditions hereof on its part to be kept and performed, in manner and form as the same are herein set forth.

The lessor covenants and agrees to deliver Dam Numbered 2 and its power plant to the lessee in good operating order and condition and promptly to replace any of its structures and/or equipment which, within thirty days from the date hereof, may prove to have been defective in design, material, or workmanship for the purpose or operation for which the same was intended. In case the lessor fails or refuses to replace promptly any such defective structures and/or equipment, the lessee may, upon giving notice to the lessor, replace the same at the cost and expense of the lessor, and in such event the lessee may deduct and retain out of the payments to be made by it by way of rental hereunder all such sums as it shall pay or incur on account of such replacements: Provided, however, That nothing contained herein shall render the lessor liable for damages or delays to the lessee on account of any such defective structures and/or equipment.