**Exhibit10.5**

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**AGREEMENTNO.                   DATED MAY 5, 2003**

 

This Agreement is made on May 5th 2003between MEDIS TECHNOLOGIES LTD., a Delaware company (hereinafter the “SELLER”)and GENERAL DYNAMICS C4 Systems, Incorporated, a Delaware company, (hereinafterthe “PURCHASER”) (collectively hereinafter “the Parties”).

 

WHEREAS, the SELLER is developing a unique directliquid fuel system to power portable electronics devices, which is planned tobe a secondary power system (the “Power Pack”); and

 

WHEREAS, the Purchaser is developing a certainruggedized PDA system (the “Military PDA”) for military use for which Purchaserrequires a secondary charging device; and

 

WHEREAS, the Parties desire to cooperate in thedevelopment of an pre-production prototype of a specific application of thePower Pack for Purchaser’s Military PDA, generally in accordance with thetechnical requirements set forth in Annex 1 to this Agreement (the‘“Specifications”),

 

NOW THEREFORE, it is hereby agreed and declared by andbetween the parties as follows;

 

# **ARTICLE1   OBJECT**

 

The SELLER agrees to usecommercially reasonable efforts to design and develop the pre-productionprototype Power Pack for the Military PDA generally in accordance with theSpecifications and the Program Schedule set forth in Annex 2 (“SOW”) and thePurchaser agrees to make payments to the Seller in accordance with the paymentmilestones set forth herein, all in accordance wrath the terms and conditionshereinafter specified. For purposes of final acceptance, the pre-productionprototype is defined as a qualifiable product, subject to final designiterations that may be implemented by Seller after the field-testing process iscompleted.

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# **ARTICLE2   PRICES AND PAYMENT TERMS**

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## 2.1                                 Thetotal purchase price of this Agreement is Five Hundred Thousand United StatesDollars (US$ 500,000), it being understood and agreed that the purchase pricemay not cover the entire costs of Seller in the performance of this Agreement.

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## 2.2                                 Thetotal purchase price shall be paid as follows:

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### (A)                              Aninitial payment based upon Medis providing its preliminary detailed productspecification one week after Agreement signature US$ 100,000 (This is coveredin 2.3 so redundant).

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### (B)                                Uponcompletion of Milestone 1 in the SOW, an additional payment of US$ 50,000;

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### (C)                                Uponcompletion of Milestone 2 in the SOW, but no sooner than January 10, 2004 anadditional payment of US$ 100,000;

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### (D)                               Uponcompletion of Milestone 3 in the SOW, but no sooner than January 10, 2004 anadditional payment of US$ 25,000;

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### (E)                                 Uponcompletion of Milestone 4 in the SOW, but no sooner than January 10, 2004 anadditional payment of US$ 25,000;

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### (F)                                 Uponcompletion of Milestone 5 in the SOW, but no sooner than January 10, 2004 anadditional payment of US$ 50,000;

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### (G)                                Uponcompletion of Milestone 6 in the SOW, but no sooner than January 10, 2005 anadditional payment of US$ 50,000;

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### (H)                               Uponcompletion of Milestone 7 in the SOW, but no sooner than January 10, 2005 anadditional payment of US$ 50,000;

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### (I)                                    Uponcompletion of Milestone 8 in the SOW, but no sooner than January 10, 2005 anadditional payment of US$ 50,000.

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## 2.3                                 Allpayments will be made net thirty (30) days from receipt of invoice andCertificate of Milestone Completion signed by Seller’s Program Manager. Allpayments will be made in freely transferable United States dollars net and freefrom any withholding or other taxes to the account of Seller designated bySeller to purchaser in writing from time to time. In the event Purchasersecures third party funding in support of this development effort or allocatedadditional internal R&D funds, Purchaser agrees to accelerate milestonepayments to the extent possible based upon actual completion dates.

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# **ARTICLE3   INSPECTION AND TESTS**

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## 3.1                                 Inspectionand acceptance of the deliverables shall be carried out in accordance withSeller’s quality assurance requirements for such goods and Seller’s standardcertificate of inspection and acceptance shall be issued with respect to same.

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## 3.2                                 ThePurchaser may send representatives to observe the activity of Seller in thedevelopment and test of the pre-production prototype to be delivered hereunder.The Seller shall provide all the requisite facilities for this purpose to thePurchaser’s representatives. Subject to proprietary elements of the activity,the Purchaser’s representatives will have full access to the relevantdocumentation and facilities in this regard. The Purchaser’s representativeswill act as observers only and will not be held responsible for the quality ofinspection and acceptance of materials. The Purchaser representatives shallabide by the security requirements in force at Seller’s facilities.

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## 3.3                                 Allthe traveling, board and lodging expenses of the Purchaser’s representativesshall be directly paid for by the Purchaser, though Seller will upon requestassist in the administrative aspects of any such visit.

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## 3.4                                 ThePurchaser shall notify the Seller about the arrival of its representatives tothe Seller’s country at least 7 days in advance.

 

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# **ARTICLE4   WARRANTY**

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## 4.1                                 TheSeller warrants that the pre-production prototype to be supplied under thisAgreement shall be free from defects in materials and workmanship at the timeof delivery of same to Purchaser. Notwithstanding the above, it is understoodthat the final product under this Agreement is a pre-production prototype andnot a final production quality product. If within ninety (90) days of thedelivery of a prototype, it is proved defective or deficient in accordance withthis Warranty, Seller shall replace or repair such items free of any charge toPurchaser.

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## 4.2                                 Incase of any discrepancy in quality as required under 4.1 above the Purchasershall give Seller written notice within the warranty period specified above andreturn the engineering prototype to Seller for repair. After which Seller shallreturn the repaired item to Purchaser. The balance of the warranty period shallapply to the repaired item starting from the date of Purchaser’s written noticeto Seller.

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## **4.3****                               ThisWarranty is Purchaser’s sole remedy in the event of defect in thepre-production engineering prototype to be supplied under this Agreement and isin lieu of any other warranty express or implied (including warranty ofmerchantability or fitness for a particular purpose). Seller’s soleresponsibility in the event of such defect shall be to repair or replace theaffected item as sot forth above. In no event will either Party have anyliability in connection with this Agreement for any incidental or consequentialdamages.**

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# **ARTICLE5   FORCE MAJEURE**

 

Force Majeure in thisAgreement shall mean any circumstances beyond the reasonable control of theaffected Party, preventing complete or partial fulfillment by such Party of itsobligations under this Agreement and shall include without limitation fire,acts of nature, war, military operations of any character, blockade, and thelike. The time stipulated for fulfillment of the respective obligations shallbe automatically extended for a period, equal to that during which suchcircumstances remain in force, provided that a written notice is sent by theParty for whom it becomes difficult to meet its obligations not later than 14days from the occurrence of any such circumstances and similarly another noticeof its cessation is sent on cessation.

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# **ARTICLE6   CANCELLATION OF AGREEMENT**

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## 6.1                                 ThePurchaser shall have the right to cancel this Agreement for its convenience bythirty (30) days written notice to Seller in which went Purchaser shall only beobligated to pay to Seller the amount of the next Milestone payment that wouldbe due save for such cancellation.

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## 6.2                                 ThePurchaser will be entitled to cancel this Agreement for default if Seller failsto use commercially reasonable efforts to meet the Milestones set forth herein.In such case, Purchaser will be entitled as its sole remedy to a refund of anymonies paid to Seller hereunder to the date of such cancellation.

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# **ARTICLE7   COMING INTO FORCE**

 

This agreement will comeinto force immediately upon the occurrence of the following:

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### (A)                              thedate of signing by both Parties;

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# **ARTICLE8   LAW AND DISPUTE RESOLUTION**

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## 8.1                                 ThisAgreement shall be governed and interpreted in accordance with the laws of theState of New York.

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## 8.2                                 Anycontroversy or claim arising out of or relating to this Agreement, or thebreach thereof and indicated as such in writing by any one of the contractingParties to the other and which the Parties cannot settle by direct negotiationsshall be settled by arbitration in New York City in accordance with the Rule ofArbitration and Conciliation of the American Arbitration Association. Thearbitration shall be held before a sole arbitrator.

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# **ARTICLE9   ADDRESSES AND COMMUNICATIONS**

 

All communications to thePurchaser are to be addressed to:

 

General Dynamics C4Systems, Inc

 
| Attention: | Michael Harris, Contracts Manager |
|------------|--------------------------------------------------|
| Fax        | (508) 880-1623                              |
| Email:     | michael.harris@gdc4s.com                         |

 

All communications to theSELLER to be addressed to:

 

Medis Technologies Ltd.

805 Third Avenue, 15th Floor

N.Y., N.Y. 10022

Attention:  Robert Lifton, CEO

Fax:  212-744-0385

Email:  robertl@broadviewnet.net

 

Copy to:

 

More Energy Ltd.

14 Shabazi Street, PO Box 132

Yehud Israel 56101

Attention:  Gennadi Finkelshtain, General Manger

Fax:  972 3 632 1671

Email:  more@medisel.co.iland jweiss@medisel.co.il

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# **ARTICLE10   RIGHTS IN KNOW HOW AND DATA**

 

It is agreed that Sellerwill at all times maintain exclusive right and ownership over the know how anddata related to its direct liquid fuel cell technology (“Seller Know How”),whether 

 

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preexisting thisAgreement or whether developed in part by Seller’s efforts expended under thisAgreement, as well as exclusive ownership over any new related data based uponor derived from Seller Know How, regardless of the Party generating such newdata.

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# **ARTICLE11   Reserved**

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# **ARTICLE12   LIABILITIES**

 

Each Party shall takefull and sole responsibility for any injury to its personnel and to any damageto its property however caused and each Party hereunder indemnifies and holdsthe other Party harmless, to the full extent lawful, from and against anylosses, claims, expenses (including legal expenses), damages or liabilitiesrelated to any personal injury to the indemnifying party’s personnel agents orrepresentatives or damage to the indemnifying Party’s property arising inconnection with the signature and/or performance of this Agreement.

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# **ARTICLE13   Exclusive Marketing Rights**

 

In consideration ofentering into this joint covenant Seller (Medis Technologies, Ltd. and itssubsidiaries, including but not limited to More Energy Ltd) hereby grants toPurchaser, with respect to Seller’s DLFC technology, the exclusive marketingand sales right for the US Department of Defense and Department of HomelandSecurity from the date of execution of this Agreement through the period ending31 December 2006, provided that Purchaser uses commercially reasonable effortsduring such time to identify and actively promote opportunities for marketingand selling applications of the DLFC technology in those markets.

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# **ARTICLE14   OTHER CONDITIONS**

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## 14.1                           Afterthe signing of the Agreement, all previous negotiations and correspondencerelating to the provisions herein shall become null and void.

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## 14.2                           Anyalterations and additions to this Agreement shall be valid only if they aregiven in writing and are signed by the persons authorized by both Parties forthis purpose.

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## 14.3                           NeitherParty shall have the right to assign to a third person or firm their rights andobligations arising out of this Agreement or in connection therewith, withoutthe consent in writing of the other Party.

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## 14.4                           TheParties understand that the Purchaser intends to fund milestone payments underthis Agreement using internal funding and, if available, funding provided byone or more third parties, but channeled through the Purchaser. The use ofthird party funding shall have no affect on the terms of this Agreement, whichshall remain in full force and effect.

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## 14.5                           ThisAgreement has been signed in two originals - one has been retained by thePurchaser and the other by the Seller.

 
|   | FOR THE SELLER:          |                 | FOR THE PURCHASER:               |
|--------|--------------------------|----------------------|----------------------------------|
|   |                     |                 |                             |
|   | Medis Technologies Ltd.: |                 | General Dynamics C4 Systems, Inc |
|   |                     |                 |                             |
|   | BY:                      | /s/ Robert K. Lifton |                             | BY: |  /s/ Michael J. Harris | 5/5/03 |
|   |                     |                 |                             |
|   | NAME:                    |                 | Robert K. Lifton                 |   | NAME: |   | Michael J. Harris |
|   |                     |                 |                             |
|   | TITLE:                   |                 | Chairman and CEO                 |   | TITLE: |   | Sr. Manager of  Contracts |
|        |                          |                      |                                  |  |  |  |  |  |  |  |

 

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**StatementOf Work And ScheduleMedis Technologies, acting through More Energy Ltd./GD**

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The following sets forth the activities and goals ofthe Parties in the development by More of a Power Pack for the ruggedized PDAof GDC4S.

 

A.     More will use reasonable commercial efforts to develop and testthe Power pack discussed hereunder.

 

B.      Each party will designate a Program manager and point ofcontact. The parties will carry out periodic program management reviews todiscuss the progress of the development efforts by More in accordance with theSchedule below.

 

C.      The development effort by More, and support by GD, as well asthe Schedule for same, shall generally be as follows;

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#### (1)        Milestone 1 (ARO + 6 weeks) — Definitionof Power Pack specification and test plan;

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#### (2)        Milestone 2 (ARO + 5 months) —Preliminary Design Review (to include implementation of independentorientation; power management system, and selection of cartridge implementationdesign); One week prior to PDR More will deliver draft Preliminary Design toGD;

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#### (3)        Milestone 3 (ARO + 7 months) — Testingbegins on first Prototype in More facility (GD representative may observe);

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#### (4)        Milestone 4 (ARO + 9 months) —Completion of tests and report of results to GD.

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#### (5)        Milestone 5 (ARO + 10 months) — UpdatedDesign and PMR at GD.

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#### (6)        Milestone 6 (ARO + 13) Delivery of finalprototype for testing at GD.

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#### (7)        Milestone 7 (ARO + 14 months) — PMR atGD on test results and final iteration program definition.

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#### (8)        Milestone 8 (ARO + 17) Delivery ofpre-production prototype for field testing with customer.

 

It is agreed that thedates hereinabove set forth are based on the receipt by Seller of payments thatcorrespond to the Milestone dates. If those payments are delayed for anyreason, the Seller, in addition to any other rights it might have, will beentitled to modify this schedule by written notice to Purchaser.

 

6/3/2002

 

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