**Exhibit10.1**

** **

**FlextronicsProduct and Manufacturing Development Agreement**

 

This Product and Manufacturing Development Agreement (“Agreement”) is made as of May 3, 2004, between MedisTechnologies Ltd, having its place of business at 805 Third Ave, New York, NY10022 (“Client”) and Flextronics International Ltd. having its place ofbusiness at

 

 

1 HatahasiaStreet, Ramat Gavriel Industrial Zone, Migdal-Haemek 23108, Israel(“Flextronics”).

 

 

Client has created specifications for fuelcell products it desires to have manufactured in a low-volume New ProductIntroduction (NPI) manufacturing environment (“Product IntroductionCenter”).  Flextronics has developedprocesses and practices for providing such services for many different electronic applications, and atClient’s request desires to provide said services in accordance with Client’sspecifications. The parties agree as follows:

 

**1.0**    SCOPE, SERVICES, LICENSE.  This Agreement sets forth the terms andconditions for the low-volume manufacturing, limited manufacturing and testengineering, associated logistics and rework activities related to the Client’sproducts or assemblies (“Products”) described in the written designs andspecifications of Client (“Specifications”). This Agreement does not apply to higher-volume manufacturing activitiesoccurring outside the Product Introduction Center.  Any agreement related to such manufacturing must be separatelynegotiated between the parties.

** **

Flextronics agrees to usereasonable commercial efforts to perform the services (hereinafter “Services”)pursuant to purchase orders or changes thereto issued by Client and accepted byFlextronics.  Services shall mean theitems detailed in the Client’s written specifications attached hereto(hereinafter “Statement of Services”) in Exhibit 1 or added later as defined inthe paragraph herein titled “Additional Services”.

 

Client grants Flextronics a non-exclusive license during the term ofthis Agreement to use all of Client’s patents, trade secrets and otherintellectual property required to perform Flextronics’ obligations under thisAgreement.

 

**2.0    Payment ForServices and Expenses.**  Flextronics will invoiceClient and Client shall pay, in accordance with the terms stated in “Scheduleof Fees” herein (in Exhibit 2), the amount of such invoices submitted byFlextronics.  In the event that Clientfails or refuses, for any reason, to make any payment due Flextronics pursuantto this Agreement, and in the event such payment remains delinquent for aperiod of thirty (30) days from and after the due date thereof, Flextronics mayafter providing written notification to the Client’s representative (seeSection 7) stop all Services under this Agreement and retain all work inprocess until all outstanding invoices are paid in full.  To the extent that Flextronics projectpersonnel cannot be reassigned to other billable work during such stoppageand/or in the event restart cost are incurred, additional fees may be due andpayable before the Services can resume.

 

As set forth in the Schedule of Fees, Client shall reimburseFlextronics at cost for all reasonable expenses incurred by Flextronics in theperformance of Services.

 

Client agrees to pay all invoices in U.S. Dollars within thirty (30)days of the date of the invoice.  Clientagrees to pay one and one-half percent (1.5%) monthly interest on all latepayments.  

 

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Furthermore, if Client is late with payments, or Flextronics hasreasonable cause to believe Client may not be able to pay, Flextronics mayrequire prepayment or after providing written notification to the Client’srepresentative (see Section 7) delay shipments or suspend Services untilassurances of payment satisfactory to Flextronics are received.

 

**3.0****          ****Materials Related To Services.**  There arethree classes of materials covered by this contract:

 

**1)****            **“Inventory” is the set of components,boards, materials and supplies purchased with Client authorization byFlextronics, or its designee, to be used by Flextronics to perform theServices, and

 

**2)****            **“Consigned Materials” is the set ofboards, materials and supplies provided by the Client to be used by Flextronicsto perform the Services, and

 

**3)****            **“Total Inventory” is the set of“Inventory” purchased by Flextronics plus “Consigned Materials” provided by theClient.

 

A predictable and meaningful forecast against a stable bill ofmaterials (“BOM”) for the Product may not be immediately available andFlextronics will therefore use written or email authorization from Client toinitiate procurement activities.  Theauthorization will include a reference to a current BOM or list ofmaterials.  Client hereby authorizesFlextronics to procure Inventory to perform the Services with two exceptions:

 

**1)****            **Flextronics will not purchase materialsthat the Client has specified in writing will be consigned, and

 

**2)****            **Purchases in excess of $25,000 on behalfof Client require the Client’s explicit written or email approval before beingplaced.  Client will respond withinthree (3) business days to these requests.

 

In the event Client provides Consigned Materials,Client agrees to consign adequate quantities to timely manufacture Products andagrees to cover any production-related attrition at Customer’s sole expense.Title to Consigned Materials remains at all times with Client and Flextronicshas no obligation to purchase the Consigned Materials.  Flextronics shall ensure that such ConsignedMaterials will be allocated part numbers to indicate Client’s ownership.  Flextronics will bear responsibility for anydamage or loss of Consigned Materials related to non-production causes whilethey are on the premises of Flextronics. Upon reasonable notice, Client may observe the warehouse space in whichthe Consigned Materials are stored.

 

Client agrees to pay Flextronics a fee, to benegotiated later, of not less than **[Subjectto a request for confidential treatment; Separately filed with the Commission]**or more than **[Subject to a request forconfidential treatment; Separately filed with the Commission]** of thevalue of the Consigned Materials. During 2004 and 2005, Client expects that the value of the ConsignedMaterials will exceed the value of Inventory purchased by Flextronics on theClient’s behalf.  The value of each itemin the Consigned Materials list will be updated not more frequently than everyfour (4) months by Client to reflect price adjustments realized by the Client.

 

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Client will be responsible for the Total Inventory, including TotalInventory that may become excess or obsolete for several reasons, including,without limitation, the following:

 

a.         Total Inventory purchased before aProduct design is complete in order to secure supply; such Total Inventory mayinclude Total Inventory with long lead times,

b.        Total Inventory in excess of requirements because ofminimum lot sizes available from suppliers,

c.         Total Inventory in excess of requirements in order toachieve price targets,

d.        Total Inventory purchased in excess of currentrequirements in order to establish a supply line and stockpile Total Inventoryfor a later volume production ramp, or,

e.         Total Inventory purchased and later made obsolete byClient’s design changes.

 

Client will pay Flextronics a monthly carrying fee of **[Subject to a request for confidential treatment; Separately filed withthe Commission]**of the purchased value (excluding expediting fees) for all Inventory(Note: not Total Inventory) that has been held by Flextronics for longer thanthirty (30) days from receipt at Flextronics’ facility and is not covered by aPO backlog deliverable in the next thirty (30) days.

 

Clientagrees to pay any expedite charges required by suppliers to receive Inventoryprior to the end of the normal procurement lead-time of Inventory.  Such charges may include broker fees.  **The term “lead time” in this Section shall mean thelead time recorded on Flextronics’ MRP system at the time of procurement ofInventory or at the time of the cancellation of the purchase order ortermination of this Agreement whichever is greater.**

 

Flextronics will provide the Total Inventory status (includingInventory procurement status) any time a reasonable request is received fromClient and the status will include on hand, receipt date, on order, and excessand obsolete.  Client may then requestactions to limit Client’s liability for Inventory.  Flextronics will then use commercially reasonable efforts tomitigate the liability of Client for Inventory.

 

In the event that any Inventory remains at the completion of theServices in the Statement of Work or thirty (30) days after either partyearlier terminates this Agreement, Client agrees to pay all reasonable shippingfees as well as a material handling fee capped at **[Subject to a request for confidential treatment; Separately filed withthe Commission]**of the listed value of the Inventory. These fees are due and payable prior to Flextronics’ shipping theInventory elsewhere.  Additionally,Client agrees to the disposal of the Inventory in the following manner:

 

i.            Inventory will be offered to a production facilityselected by Client.  If Flextronics isrequired to sell the Inventory at a cost lower than its standard cost, Clientwill pay any difference between this standard cost used in the productionfacility and Flextronics’ standard cost.

 

ii.         Client may request that Flextronics return Inventoryto the supplier.  In this case, Clientwill pay any supplier return fees such as a re-stocking charge.

 

iii.      Client will buy all remaining Inventory includingInventory which is non-returnable, non-cancelable, or not sold pursuant to (i)and (ii) above and will pay a price equal to Inventory cost.

 

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Upon request, Consigned Materials and/or capital equipment purchased orprovided by Client shall be returned to the Client with no additional or“special” fees excepting reasonable shipping charges.

 

The term “cost” in thissection shall mean the cost represented on the bill of materials supporting themost current Product price at the time of cancellation or termination or, ifthe cost of an item of Inventory is not on a bill of materials for the Product,than the amount actually paid for said item.

 

**4.0    ConfidentialInformation.**  During the term of this Agreement and forthree (3) years thereafter each party will not, disclose without the permissionof the other party any of the other party’s information which is conspicuouslymarked to indicate its confidential or proprietary nature or which the otherparty has otherwise instructed in writing to maintain as confidential.  This paragraph shall not apply to anyinformation which is publicly available or which is available from a thirdparty without similar restrictions on disclosure. Upon written request of aparty, the other shall return all such confidential information of therequesting party and shall destroy all copies thereof.  In the event the parties have executed anagreement related to confidential information prior to this agreement the termsand conditions of that agreement shall govern confidential information.

 

**5.0    Relationship OfParties, Nonsolicitation.**  Nothing in this Agreementshall be construed to constitute a partnership, joint venture, agency, oremployment relationship between Client and Flextronics or Flextronics’employees or contractors.  It isunderstood that Flextronics shall at all times remain an independent contractorand that Client shall in no event be liable for the debts, liabilities, orother obligations of Flextronics.

 

Each of the parties hereto agrees that, during the term of thisAgreement and for a period of six (6) months following termination of thisAgreement, neither party will, except with the other party’s prior writtenapproval, solicit, offer employment to, or contract with the other party’semployees or contractors.  In the eventan employee or contractor of a party becomes an employee of the other party incontravention of this section, then the other party shall promptly pay to theparty a sum equaling seventy-five percent (75%) of the said employee orcontractor’s annual base salary to be paid by said other party.

 

**6.0    New Developments.** Except for Flextronics’ existing intellectual property including,without limitation, Flextronics’ design tools, methodologies, software,algorithms, or other means that may be used to design production means or theprocesses by which products are manufactured, assembled, or tested, Flextronicsagrees that all designs, plans, reports, specifications, drawings, schematics,prototypes, models, inventions, copyrights, and all other information and itemsmade or conceived by Flextronics or by its employees, contract personnel, oragents during the course of this Agreement and related to the Products andServices shall be and are assigned to Client as its sole and exclusiveproperty.  Upon Client’s requestFlextronics agrees to assist Client, at Client’s expense, to obtain patents forany such inventions, including the disclosure of all pertinent information anddata with respect thereto, the execution of all applications, specifications,oaths, and assignments, and all other instruments and papers which Client shalldeem necessary to apply for and to assign or convey to Client, its successorsand assigns or nominees, the sole and exclusive right, title and interest insuch inventions, copyrights, applications and patents.  Flextronics agrees to obtain or has obtainedwritten assurances from its employees and contract personnel of their agreementto substantially the same terms as contained herein with regard to confidentialinformation and such new developments.

 

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**7.0    ClientRepresentative.**The Client Representative shall represent Client during the performance of thisAgreement with respect to the Services and deliverables defined herein, and hasauthority to execute modifications or additions to this Agreement as defined inthe paragraph herein titled “Additional Services”.  Client may change its Client Representative upon 10 days priorwritten notice to Flextronics.  ErikToomre, Director of Operations, will be the initial Client Representative.

 

**8.0    Liability andIndemnification.**  Client and Flextronics hereby acknowledgeand agree that: (1) the Services to be performed hereunder by Flextronics maybe incorporated into a product, process or service to be developed by Client,(2) Client is responsible for final review, testing, and approval of allfeatures of the Product and the results of the Services, and (3) Client hasprovided Flextronics with data, information and/or Specifications regarding theProduct and the Services which have been used by and relied upon by Flextronicswithout independent verification or investigation.  Accordingly, Client shall defend, indemnify, and holdFlextronics, its affiliated companies, officers, directors, employees, andagents (“Indemnified Parties”) harmless from any obligations, costs, claims,judgments, losses, expenses and liabilities (including reasonable attorneysfees) incurred in connection with any such claim or alleged claim suffered orincurred by any of the Indemnified Parties as a result of any third party claimor threatened claim which arises in connection with the Services, Flextronics’performance under this Agreement, or any Product, process or service of Client,including but not limited to any claim that any results from the Servicesinfringe any third party’s copyright, patent, trademark, or other intellectualproperty rights. This section shall survive termination or expiration of thisAgreement.

 

**9.0    ProductAcceptance and Warranties.**

 

**9.1****                  ****Product Acceptance**.  The Products delivered by Flextronics will be inspected andtested as required by Customer within ten (10) days of receipt.  If Products are found to be defective inmaterial or workmanship, Customer has the right to reject such Products duringsaid period.  Products not rejectedduring said period will be deemed accepted. Customer may return defective Products, freight collect, after obtaininga return material authorization number from Flextronics to be displayed on theshipping container and completing a failure report.  Rejected Products will be promptly repaired or replaced, atFlextronics’s option, and returned freight pre-paid. Customer shall bear all ofthe risk, and all costs and expenses, associated with Products that have beenreturned to Flextronics for which there is no defect found.  If the Product is source inspected byCustomer prior to shipment, Customer will inspect goods five (5) days prior tothe requested shipment date.

 

**9.2****                  ****ExpressLimited Warranty**. Flextronics warrants that the Products will have been manufactured inaccordance with Customer’s applicable Specifications and will be free fromdefects in workmanship for a period of ninety (90) days from the date ofshipment.  Materials are warranted to thesame extent that the original manufacturer warrants the Materials.  This express limited warranty does not applyto (a) Materials consigned or supplied by Customer to Flextronics; (b) defectsresulting from Customer’s Specifications or the design of the Products; (c)Product that has been abused, damaged, altered or misused by any person orentity after title passes to Customer. With respect to first articles, prototypes, pre-production units, testunits or other similar Products, Flextronics makes no representations orwarranties whatsoever.  Notwithstandinganything else in this Agreement, 

 

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                                    Flextronicsassumes no liability for or obligation related to the performance, accuracy,Specifications, failure to meet Specifications or defects of or due to tooling,designs or instructions produced or supplied by Customer and Customer shall beliable for costs or expenses incurred by Flextronics related thereto.  Upon any failure of a Product to comply withthe above warranty, Flextronics’s sole obligation, and Customer’s sole remedy,is for Flextronics, at its option, to promptly repair or replace such unit andreturn it to Customer freight prepaid. Customer shall return Products covered by the warranty freight pre-paidafter completing a failure report and obtaining a return material authorizationnumber from Flextronics to be displayed on the shipping container.  Customer shall bear all of the risk, and allcosts and expenses, associated with Products that have been returned toFlextronics for which there is no defect found.  Customer will provide its own warranties directly to any of itsend users or other third parties. Customer will not pass through to end users or other third parties thewarranties made by Flextronics under this Agreement.  Furthermore, Customer will not make any representations to endusers or other third parties on behalf of Flextronics, and Customer willexpressly indicate that the end users and third parties must look solely toCustomer in connection with any problems, warranty claim or other mattersconcerning the Product.

 

FLEXTRONICSMAKES NO OTHER WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS, IMPLIED,STATUTORY, OR IN ANY OTHER PROVISION OF THIS AGREEMENT OR COMMUNICATION WITHCUSTOMER, AND FLEXTRONICS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY ORCONDITION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

 

 

 

 

 

 

**10.0  Enforcement ofAgreement.**  If the scope of any of the provisions ofthis Agreement is too broad in any respect whatsoever to permit enforcement toits full extent, then such provisions shall be enforced to the maximum extentpermitted by law, and the parties hereto consent and agree that such scope maybe judicially modified accordingly and that the whole of such provisions ofthis Agreement shall not thereby fail, but that the scope of such provisionsshall be curtailed only to the extent necessary to conform to law.

 

**11.0  AdditionalServices.**  Client and Flextronics agree:

 

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11.1     The fees quoted herein, whether on a “timeand materials” basis or a “fixed price” basis, are contingent upon the accuracyand completeness of the Specifications and key assumptions, and the performanceof Client’s responsibilities, as described in this Agreement.  Additional fees will be due if Flextronicsis required to perform Additional Services or incur additional out-of-pocketcosts due to (1) changes in scope or Specifications, (2) invalid assumptions,(3) failure of Client or a subcontractor of Client’s to perform itsresponsibilities under this Agreement, or (4) extension of any milestonecompletion schedule due to causes outside of Flextronics’ control. IfFlextronics identifies a requirement for Additional Services, it will notifyClient as soon as practical, and will receive Client’s written approval beforecontinuing.

 

11.2     Additional fees at Flextronics’ standardhourly billing rates, plus any out-of-pocket costs incurred by Flextronics,will be due if Flextronics must stop Services due to delays caused by Client ora subcontractor of Client’s failure to perform its responsibilities, to theextent that Flextronics project personnel cannot be reassigned to otherbillable work.

 

11.3     It is the intention that specific workpackages will be covered by Addendums to Exhibit 1 of this Agreement.  Each Addendum will have a description ofwork to be performed, deliverables and a price quotation.  Additionally, each Addendum will not beconsidered accepted unless countersigned by both parties.

 

Examples include: a)manufacturing of a specific product, b) rework activities covering the returnof product from a customer and its repair or replacement, c) logistics servicesinvolved in sending manufactured product directly to a customer, and d) failureanalysis and rework associated with “fixing” product diagnosed asnon-conforming in the manufacturing and test steps of a product.

 

**12.0  Notices.** Notices to the parties should be addressed as follows:

 
| **Medis  Technologies Ltd:**                       |   | **Flextronics:**                                       |
|----------------------------------------------------|--------|--------------------------------------------------------|
| 805 Third Ave

New York, NY 10022

Attn: President |   | 2090 Fortune Drive

San Jose CA 95131

attn: President |

 

**13.0  Assignment.** Neither this Agreement, nor any duties or obligations under thisAgreement may be assigned by either party without the prior written consent ofthe other party.  Except for thisprohibition on assignment, this Agreement shall be binding upon and inure tothe benefit of the heirs, successors, and assigns of the parties hereto.

 

**14.0  Term andTermination.**  The term of this Agreement shall be from thedate first mentioned above until the Services have been completed in accordancewith the Statement of Work unless otherwise terminated or canceled as providedherein.  Client can cancel the projectat any time upon written notice to Flextronics.  In the event of cancellation prior to completion of the Services,Client shall pay Flextronics all outstanding invoices and shall compensateFlextronics for all work in progress and out-of-pocket costs incurred up to thedate of cancellation plus reasonable shut-down costs.  Flextronics agrees to deliver all results of Services paid for upto the time of cancellation.  In theevent that Flextronics cannot deliver under this Agreement due to causes beyondits control, Client will compensate Flextronics for work performed atFlextronics’s standard hourly billing rates quoted in Schedule of Fees, and forout-of-pocket costs incurred prior to the date of stoppage.  In the event that Client cannot performunder this Agreement through causes beyond its control, Flextronics will beresponsible for the return of payments 

 

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made prior to the date of stoppage that are in excessof work performed and out-of-pocket costs incurred.  No such termination or cancellation shall affect the obligationsof the parties under the sections herein titled “Confidential Information” and“New Developments”.

 

**15.0  DisputeResolution.**  Before invoking the binding disputemechanism set forth in this Agreement, the parties shall first participate inmediation of any dispute arising under this Agreement. If such mediation is notconcluded within forty-five (45) days from the date of the notice of breach byone of the parties, then any controversy or claim relating to this Agreement(whether contract, tort, or both), or the breach of this Agreement, other thanclaims for a temporary restraining order, order to show cause or otherextraordinary, equitable relief for which monetary damages are inadequate,shall be arbitrated by and in accordance with the then existing commercial arbitrationrules of the American Arbitration Association. Judgment on the award rendered by such arbitrator(s) may be entered inany court having jurisdiction.  If sucharbitration is not convened within seventy-five (75) days from the date of thenotice of breach by one of the parties, then either party may file a lawsuit toresolve the dispute.  Any dispute thatarises under or relates to this Agreement shall be resolved in Santa ClaraCounty, California, or if necessary, in the state and federal courts located inSanta Clara.  This Agreement, and anydispute arising from the relationship between the parties to this Agreement,shall be governed by California law, excluding its choice of law principles.  The parties consent to the exclusivejurisdiction of the State and Federal courts in Santa Clara County,California.  In any litigation,arbitration, or other proceeding by which one party either seeks to enforce itsrights under this Agreement (whether in contract, tort, or both) or seeks adeclaration of any rights or obligations under this Agreement, the prevailingparty shall be awarded reasonable attorney fees, together with any costs andexpenses, to resolve the dispute and to enforce the final judgment.

 

**16.0 Sales Tax.**      Should all or any portion of the Servicesperformed by Flextronics under this Agreement be deemed, at any time, by theCalifornia State Board of Equalization to be taxable as a result of anydetermination, audit, regulation, or statute; Flextronics shall invoice Clientfor such taxes and Client shall promptly pay all such invoices submitted byFlextronics.

 

**17.0Complete Agreement.**  This Agreement contains the entire agreementbetween the parties hereto with respect to the matters covered herein.  No other agreements (other than a precedentagreement related to confidential information), represented by or on behalf ofthe parties hereto or by their employees, contract personnel, or agents, orcontained in any sales materials or brochures, shall be deemed to bind theparties hereto with respect to the subject matter hereof.  Client acknowledges that it is entering intothis Agreement solely on the basis of the representations contained herein.

 

 

**INWITNESS WHEREOF,**theparties hereto have signed this Agreement as of the date indicated below.

 

| **Medis  Technologies Ltd.:** |   | **FLEXTRONICS****International, Ltd.:** |
|-------------------------------|--------|-----------------------------------------|
|                          |   |                                    |
| /s/                           |   | /s/                                     |
|                          |   |                                    |
| By:                           |   |                                    | By: |   |
|                          |   |                                    |   |   |
| Title:                        |   |                                    | Title: |   |
|                               |        |                                         |  |  |  |  |

 

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EXHIBIT1

 

STATEMENTOF SERVICES

** **

** **

**PowerPack Industrialization**

**Phase1 Proposal**

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**Prepared for Medis Technologies Ltd.**

**Quote Number PTX2246**

 

 

Contact Name: Michelle Rush

 

MedisTechnologies Ltd.

805Third Avenue, 15th Floor

NewYork, NY 10022

 

 

 

 

***CONFIDENTIAL***

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Flextronics Design

Rev 1

April 28, 2004

 

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**RevisionHistory**

 
| **Revision** |   | **Release********Date** |   | **Description** |   | **Author** |   | **Approval** |   |
|--------------|--------|-------------------------|--------|-----------------|--------|------------|--------|--------------|--------|
| 1            |   | 4/28/04                 |   | Initial Release |   | JR         |   |         |   |
|         |   |                    |   |            |   |       |   |         |   |
|         |   |                    |   |            |   |       |   |         |   |
|         |   |                    |   |            |   |       |   |         |   |
|         |   |                    |   |            |   |       |   |         |   |
|         |   |                    |   |            |   |       |   |         |   |
|         |   |                    |   |            |   |       |   |         |   |
|         |   |                    |   |            |   |       |   |         |   |

 

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| **1**   | **PROJECT  OVERVIEW**                    |   |
|---------|------------------------------------------|--------|
|    |                                     |   |
| **2**   | **STATEMENT OF  WORK**                   |   |
|    |                                     |   |
| **2.1** | **Scope**                                |   |
|    |                                     |   |
| **2.2** | **Tasks**                                |   |
|    |                                     |   |
| **2.3** | **Assumptions**                          |   |
|    |                                     |   |
| **2.4** | **Deliverables**                         |   |
|    |                                     |   |
| **2.5** | **Project Assignments**                  |   |
|    |                                     |   |
| **3**   | **SCHEDULE**                             |   |
|    |                                     |   |
| **4**   | **QUOTATION**                            |   |
|    |                                     |   |
| **5**   | **TERMS  AND CONDITIONS**                |   |
|    |                                     |   |
| **6**   | **CHANGE APPROVAL AND  RISK MANAGEMENT** |   |

 

 

# **Project Overview**

Flextronics understandsthat Medis’ initial target market is in the US.  However, Medis’ R&Dand technical team is presently based in Israel.  Based on our observationof our most successful customers, we strongly recommend that Medis’ build asmall but strong product development, procurement and operations team in thenext months.  This team should be organizationally separated from Medis’base R&D team in Israel.  Elements of this team should be based in Medis’primary markets.

 

In order to best support Medis’ existingstructure, Flextronics Israel will be Medis’ primary point of contact in theearly stages of the product, supported by Flextronics world-wideresources.  As Medis’ build out Medis’ own operational team in NorthAmerica and identify an optimal manufacturing strategy, Flextronics will matchMedis’ structure with resources in appropriate locations.

 

Moreover, as Medis’ major OEM customers begin toengage in the products integrated with tablet PC, PDA ormilitary products, Flextronics will provide resources from each of our centersof excellence in such products to support Medis’ in these efforts.

 

From discussions with Medis and a review of the provided materials,Flextronics believes that a multiple phase approach as outlined below isappropriate for the industrialization and volume production launch 

 

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of the Power Pack Fuel Cell Cartridge We believe that the needs for theproduct launch are dynamic and will evolve over the next few months.  Flextronics is prepared to provide supportin a number of tactical areas including design, tooling, compliance, build andtest.  On a more strategic level we canassist with optimizing the Power Pack units for volume production.

 

**NewProduct Introduction Phases**

****Phase1 Analysis and Planning****

****Phase2 Design and Supply of Tooling****

****Phase3 Development of Volume Manufacturing and Test Processes for both low and highvolumes****

****Phase4 Low Volume Manufacturing****

****Phase5 Logistics & Distribution****

****Phase6 Product Transfer to High Volume Manufacturing****

 

The specific focusof this proposal is limited to the Phase 1 activities which will form thefoundation of the subsequent phases leading to volume production.  As efforts with Medis proceeds, proposalsfor the later phases will be prepared.

 

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**Statementof Work**

## **Scope**

This proposal covers theanalysis and planning activities (Phase 1) of the product launch.

 

## **Tasks**

•                  Review existing design indetail with respect to opportunities to reduce cost of unit or productionprocess as well as improvements in quality or performance.

•                  Understand the existing  buildprocess

•                  Understand design validation test requirements

•                  Understand environmental, compliance & certification requirements

•                  Perform design for manufacturability analysis of existing design

•                  Perform mold flow analysis of existing design to optimize toolingdesign

•                  Prepare specification document for production cartridges

•                  Review supply chain

•                  Develop strategy for volume manufacturing, assembly and production testprocesses.  Assembly technology includesconsideration of

    a. Electrode framing - injection molding,ultrasonic welding, etc.

    b. Cartridge assembly & valve assembly

    c. Safety issues (seals and glue)

    d. Testing and QC.

•                  Develop strategy for New Product Introduction

•                  Provide production pricing estimates

 

Optional activities that Flextronics could assist withinclude:

 

•                  Structural and Thermal Analysis using Ansys (Structural) and Icepak(Thermal) of existing product

•                  Analysis of chemical compatibility of materials and fuel leading toselection of materials for production units. A key issue is the KOHenvironment. Candidates today are PE, PP, PVC, and ABS.

•                  Develop industrial design concepts for appearance and operation of unitwith attention to finish, packaging and labeling

 

## **Assumptions**

**•**                  Medis to provide appropriatedocumentation and design materials in a timely manner

**•**                  Medis to provide access to technicalstaff for questions and discussion

** **

## **Deliverables**

Flextronics willdeliver the following items at the completion of phase I.

**•**                  Product Specification

**•**                  Test Requirements

**•**                  DFM Analysis

**•**                  Mold Flow Analysis

**•**                  Volume manufacturing and test strategy

**•**                  Production price estimates

**•**                  New Product Introduction Plan

**•**                  Tooling phase proposal

**•**                  Low volume manufacturing proposal

## ** **

## **ProjectAssignments**

**Uponreceipt of an order to begin the project, Flextronics will assign staffing tothe project as follows:**

** **

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| **Skill Set**               |   | **Location** |   | **Loading**        |
|-----------------------------|--------|--------------|--------|--------------------|
| **Project  Manager**        |   | **US**       |   | **50%**            |
| **Project  Manager**        |   | **Israel**   |   | **50%**            |
| **Mechanical  Engineer**    |   | **Israel**   |   | **75%**            |
| **Mechanical  Engineer**    |   | **US**       |   | **50%**            |
| **Manufacturing  Engineer** |   | **Israel**   |   | **75%**            |
| **Manufacturing  Engineer** |   | **US**       |   | **50%**            |
| **Compliance  Engineer**    |   | **US**       |   | **1  Week Effort** |
| **Electrical  Engineer**    |   | **Israel**   |   | **50%**            |

** **

**Totaleffort is estimated at**[Subject to arequest for confidential treatment; Separately filed with the Commission].

** **

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**Schedule**

Flextronics can begin work on Phase I within one totwo weeks from receipt of approval to start.  Phase I is estimated at a duration of **[Subject toa request for confidential treatment; Separately filed with the Commission]**. However, depending on the efforts involved in the specific tasks phase 1may take longer.

The following table presents high level milestones forthe project:
| **Milestone**                                                |   | **Completion**                                                                               |
|--------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------|
| Detailed  technical review at Medis facilities in Israel     |   | **[Subject to a request for  confidential treatment; Separately filed with the Commission]** |
| DFM  Analysis complete                                       |   | **[Subject to a request for  confidential treatment; Separately filed with the Commission]** |
| Mold  Flow complete                                          |   | **[Subject to a request for  confidential treatment; Separately filed with the Commission]** |
| Preliminary  Design Review & Project Status Presentation |   | **[Subject to a request for  confidential treatment; Separately filed with the Commission]** |
| Delivery  of initial production product specification        |   | **[Subject to a request for  confidential treatment; Separately filed with the Commission]** |
| Review  & update of product spec                         |   | **[Subject to a request for  confidential treatment; Separately filed with the Commission]** |
| Presentation  on volume assembly and test strategy           |   | **[Subject to a request for  confidential treatment; Separately filed with the Commission]** |
| Tooling  phase proposal                                      |   | **[Subject to a request for  confidential treatment; Separately filed with the Commission]** |
| Low  volume manufacturing phase proposal                     |   | **[Subject to a request for  confidential treatment; Separately filed with the Commission]** |

 

 

**Quotation**

This proposal is quotedas a time and materials program.  Forefforts by Flextronics’ staff, the rate will be **[Subject toa request for confidential treatment; Separately filed with the Commission]**. With the assumption of 45 hours/person per week the total estimatedlabor fees for Phase 1 is estimated at **[Subject toa request for confidential treatment; Separately filed with the Commission]**.  Flextronics will invoice for actual time spent.

Travel (as approved by Medis in advance) will be invoiced at cost plus5%.

 

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**Termsand Conditions**

 

**1)****            **This quotation is valid for 30 days fromdate of issue.

 

**2)****            **Please reference this quotation on anyresultant Purchase Order documents.

 

**3)****            **In the event the project is cancelled ora “Stop Work” is issued by Medis at any time, Flextronics has the right toinvoice for all work done to date, all equipment or services purchased or onorder, and work in progress on a time and materials basis.  This will be done according to Flextronicsstandard rates and markup in effect at the time of the cancellation or stopwork.  For all prototype or productiontype orders, cancellations are not allowed within 30 days of scheduleddelivery.  If a cancellation or “StopWork” order is received, Flextronics will be entitled to immediately invoiceMedis for the full price of all product scheduled for delivery within 30 days.Medis will also be invoiced for raw material inventory and work in progressbeyond the 30 day window.

 

**ChangeApproval and Risk Management**

Flextronics will beworking under a Change Approval and Risk Management procedure for thisprogram.  In essence, all changesrequested by Medis,  following releaseof the purchase order, will be subject to the Change Approval process.  This process will include an acknowledgmentfrom Flextronics of a request to deviate from the original released projectscope.  This acknowledgment will includethe requested deviation and the impact of this change in cost and overall programtiming.  A signed approval from theMedis Program Manager and the Medis Management representative will then berequired to complete the final approval of this change.  A commitment from Flextronics is to have asubmission of this Change Approval within 48 hours of the request.

 

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EXHIBIT2

 

SCHEDULEOF FEES

 

Hourlybilling rates for representative Flextronics contributors:

 
| **Functional Area**                                             |   | **Hourly Rate**                                                                               |
|-----------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
| Electrical Engineer                                             |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |
| Logistics Associate  (Shipping & Receiving, Inventory)      |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |
| Manufacturing Engineer                                          |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |
| Manufacturing Associate  (Assembly, Test, Pack Out, Inspection) |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |
|                                                            |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |
| Materials Sourcing                                              |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |
| Mechanical Engineer                                             |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |
| Product Manager                                                 |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |
| Project or Program Manager                                      |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |
| Technician (including  Failure Analysis and/or Rework)          |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |
| Test Engineer                                                   |   | **[Subject  to a request for confidential treatment; Separately filed with the  Commission]** |

 

Note: This is not meant to be an exhaustive list of contributors andFlextronics will perform the Services as it alone deems appropriate.  However, contributions made by individualsin the functional areas above will be billed at the rate shown.

 

TravelExpenses

 

Reasonable travel expenses will be reimbursedby Client at cost plus 5%.  Air travelwill be by Economy class and reasonable efforts will be made to purchasetickets at least one (and preferably two) weeks in advance of the start of thetrip.  Written authorization of Clientis required prior to purchasing tickets or initiating travel if the aggregatecost for an individual or group attending a single meeting is in excess of **[Subject to a request for confidential treatment;Separately filed with the Commission]**.

 

 

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