Document:

Exhibit 10.4

 

TECHNOLOGY
LICENSE AND SERVICES AGREEMENT

 

by and
between

 

O2DIESEL
EUROPE, PLC

 

and

 

KL PROCESS
DESIGN GROUP, LLC

 

March 6,
2008

 

[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED
WITH RESPECT TO THE OMITTED PORTIONS. 
OMITTED TEXT IS INDICATED BY A “*”.

 

 

TECHNOLOGY LICENSE AND SERVICES AGREEMENT

 

This TECHNOLOGY LICENSE AND SERVICES AGREEMENT (the “Agreement”)
is entered into as of March 6, 2008 (the “Effective Date”) by and
between the O2Diesel Europe, Plc, a corporation organized under the laws of
Ireland, with its registered office at 5 Lapps Quay, Cork, Republic of Ireland
(“O2Diesel”), and KL Process Design Group, LLC, a South Dakota limited
liability company, with its principal place of business at 2693-C Commerce
Road, Rapid City, South Dakota 57702 (“KL”).  O2Diesel and KL are each a “Party” and
collectively, the “Parties”.

 

WHEREAS, KL is the
owner of certain proprietary processes relating to the production of ethanol
from alternative feedstocks;

 

WHEREAS, O2Diesel
desires to receive, and KL is willing to grant to O2Diesel, an exclusive
license with respect to such proprietary processes in the Territory;

 

WHEREAS, in
connection with the exercise of such licensed rights, O2Diesel desires to
identify locations, partners, and opportunities related to the development and
construction of facilities for the production of ethanol utilizing such
proprietary processes; and

 

WHEREAS, O2Diesel
desires to procure from KL, and KL is willing to develop and provide, design
services, technical specifications and engineering plans related to the
construction of such facilities.

 

NOW, THEREFORE, in
consideration of the foregoing, of the mutual covenants and undertakings
contained herein and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties, intending to be
legally bound, hereby agree as follows:

 

1.             DEFINITIONS

 

In addition to the other terms defined elsewhere
herein, the following terms shall have the following meanings when used herein
(any term defined in the singular shall have the same meaning when used in the
plural and vice versa, unless stated otherwise):

 

1.1           “Affiliate”
with respect to any Party, shall mean any individual or entity controlling,
controlled by or under common control with, such Party, for only so long as
such control exists.  For these purposes,
“control” shall refer to (i) the possession, directly or indirectly, of
the power to direct the management or policies of an entity, whether through
the ownership of voting securities, by contract or otherwise, or (ii) the
ownership, directly or indirectly, of at least fifty percent (50%) of the
voting securities or other ownership interest of an entity.

 

1.2           “Bankruptcy
Code”  means the United States Federal
Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, et seq.).

 

1.3           “Bankruptcy
Event” means: (i) a Party (a) ceases or fails to be solvent, or
generally fails to pay, or admits in writing its inability to pay, its debts as
they become due, subject to applicable grace periods, if any, whether at stated
maturity or otherwise; (b) voluntarily ceases to conduct its business in
the ordinary course; (c) commences any Insolvency Proceeding with respect
to itself; or (d)

 

 

takes any action to effectuate or authorize any of the foregoing; or (ii) (a) any
involuntary Insolvency Proceeding is commenced or filed against a Party, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of the Company’s assets or properties, and
any such proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated or fully bonded within 60 days after commencement, filing or levy; (b) a
Party admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (c) a Party acquiesces in
the appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar person for itself
or a substantial portion of its assets, property or business.

 

1.4           “Change
in Control” means, and shall be deemed to have occurred upon (as the
context requires):

 

(a)           any
consolidation or merger of KL with or into any other Person, or any other
corporate reorganization, in which the stockholders of KL (in the aggregate)
immediately prior to such consolidation, merger or reorganization, own less
than fifty percent (50%) of the voting power of the surviving entity
immediately after such consolidation, merger or reorganization;

 

(b)           any
transaction or series of related transactions in which in excess of (i) fifty
percent (50%) of KL’s then outstanding voting power is transferred or (ii) fifty
percent (50%) of KL’s then outstanding voting and non-voting securities, taken
together, is transferred;

 

(c)           a
sale, assignment, lease or other disposition of (i) all or substantially
all of the assets of KL or (ii) all or substantially all of the assets of
KL relating to the Licensed Process; or

 

(d)           any
Person or group of related Persons becoming entitled to elect a majority of the
Board of Directors (or any successor governing body) of KL.

 

1.5           “Claims”
shall have the meaning set forth in Section 9.1.

 

1.6           “Confidential
Information” shall have the meaning set forth in Section 7.1.

 

1.7           “Construction
Budget” means the budget established by the Project Representative in the
Project Requirements for the construction of a Project, including construction
contingency, the Construction Manager’s fee and other allowances for items and
services required for completion of a Project.

 

1.8           “Construction
Manager” shall have the meaning set forth in Exhibit D.

 

1.9           “Control”
(including any variations such as “Controlled” and “Controlling”),
in the context of Intellectual Property Rights, shall mean rights to such
intellectual property sufficient to grant the applicable license under this
Agreement without infringing or misappropriating the intellectual property
rights of any Third Party or breaching or otherwise conflicting with the terms
of an agreement with any Third Party.

 

1.10         “Covered
Transaction” means  a sale, license, assignment or other disposition
by KL of Intellectual Property Rights related to the Licensed Process
other than a license solely outside of the Territory.

 

1.11         “Design
and Engineering Services Contract” shall have the meaning set forth in Section 3.4.

 

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1.12         “Disclosing
Party” shall have the meaning set forth in Section 7.1.

 

1.13         “Extension
Term” shall have the meaning set forth in Section 8.1.

 

1.14         “Governmental
Approval” means any material consent, authorization, certificate, permit,
right-of-way grant or approval of any Governmental Authority that is necessary
for the construction of a Production Plant or the manufacture and commercial
sale in the Territory of Products produced at such Production Plant in
accordance with applicable Laws.

 

1.15         “Governmental
Authority” means any court or tribunal in any jurisdiction or any foreign,
federal, state, provincial, regional, tribal, municipal or local government or
other governmental body, agency, authority, department, commission, board,
bureau, instrumentality, arbitrator or arbitral body or any quasi-governmental
or private body lawfully exercising any regulatory or taxing authority.

 

1.16         “Initial
Term” shall have the meaning set forth in Section 8.1.

 

1.17         “Insolvency
Proceeding” means, with respect to any Person, (i) any case, action or
proceeding with respect to such Person before any court or other governmental
agency or authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors or (ii) any
general assignment for the benefit of creditors, composition, marshalling of
assets for creditors, or other, similar arrangement in respect of its creditors
generally or any substantial portion of its creditors, in either case
undertaken under U.S. Federal, state or foreign law, including the Bankruptcy
Code.

 

1.18         “Intellectual
Property Rights” means any and all of the following and all rights in,
arising out of or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or
not), invention disclosures, and improvements; (iii) trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing; (iv) works
of authorship and all copyrights, copyright registrations and applications
therefor, and all other rights corresponding thereto throughout the world; (v) all
industrial designs and any registrations and applications therefor throughout
the world; (vi) all trade names, logos, common law trademarks and service
marks, trademark and service mark registrations and applications therefor
throughout the world; (vii) all databases and data collections and all
rights therein throughout the world; (viii) all moral and economic rights
of authors and inventors, however denominated, throughout the world; and (ix) any
similar or equivalent rights to any of the foregoing anywhere in the world.

 

1.19         “Laws”
means any applicable statute, environmental law, common law, rule, regulation,
judgment, order, ordinance, writ, injunction or decree issued or promulgated by
any Governmental Authority.

 

1.20         “Licensed
Know-How” means (i) any and all inventions, discoveries, developments,
claims, formulae, processes, trade secrets, information, works of authorship,
technology, ideas, concepts, techniques, methods, know-how (including
confidential data and Confidential Information), conversion technologies, and
scientific, technical, regulatory and other proprietary information, whether or
not patentable, relating to, derived from or useful for the practice of the
Licensed Process or the development, manufacture, use, sale, distribution or
exploitation of the Licensed Products, and any upgrades, enhancements or other
improvements to and components of any of the foregoing that (ii)

 

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at any time during the Term are owned or Controlled by KL or its
Affiliates.  The Licensed Know-How
includes, without limitation, the information and know-how described on Exhibit A.

 

1.21         “Licensed
Patents” means any and all Patent Rights
under any patents owned or Controlled by KL or its Affiliates at any time
during the Term that relate to or may be useful for the research, development,
use, improvement, sale, offer for sale, distribution, importation, exportation
or other exploitation of the Licensed Products or Licensed Processes, and
includes all upgrades, enhancements and other improvements to any of the foregoing. 
Licensed Patents include without limitation the patents and
patent applications listed on Exhibit B.

 

1.22         “Licensed
Process” means any and all processes relating to the manufacture of ethanol
from feedstocks other than a simple sugar or starch and all upgrades,
enhancements and other improvements thereto and components thereof, including
any and all processes covered or claimed by the Licensed Patents or utilizing
Licensed Know-How.

 

1.23         “Licensed
Products” means any product derived from the practice of a Licensed
Process, including, without limitation, ethanol or bio-fuel produced from
feedstocks other than a simple sugar or starch, and all upgrades, enhancements
and other improvements thereto and components thereof.

 

1.24         “Losses”
means losses, liabilities, suits, claims, costs, expenses (including reasonable
attorneys’ fees), penalties, fines, judgments and/or damages (including
personal injury or property damages).

 

1.25         “Patent
Rights” means any and all rights under
any patents, patent applications and patents issuing on such patent applications,
together with any continuations, continuations-in-part, divisionals, reissues,
renewals, reexamination certificates, substitutions, extensions, supplementary
protection certificates or certificates of invention with respect to any of the
foregoing.

 

1.26         “Person”
means a natural person, a corporation, a partnership, a limited liability
company, a trust, a joint venture, any governmental authority or any other
entity or organization.

 

1.27         “Nameplate
Capacity” means a Production Plant’s production capacity, in liters of
ethanol per year, based on an assumed operating year of three hundred fifty
(350) days per year 24 hours per day.

 

1.28         “Owner”
shall have the meaning set forth in Section 3.2.

 

1.29         “Parent”
shall have the meaning set forth in Section 4.1.

 

1.30         “Process
Design Documents” means, with respect to any Project, all drawings,
schematics, renderings and other documents that fix and describe the size and
character of an entire Project as to structural, mechanical, process and
production systems, materials and such other elements as may be appropriate for
full functioning of a Project at such Project’s desired Nameplate Capacity, in
any format reasonably requested by Project Representative.

 

1.31         “Production
Plant” means a facility where, pursuant to the rights granted in this
Agreement, the Licensed Processes will be practiced in the Territory.

 

1.32         “Project”
shall have the meaning set forth in Section 3.2.

 

1.33         “Project
Engineer” shall have the meaning set forth in Section 3.4.

 

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1.34         “Project
Representative” shall have the meaning set forth in Section 3.3.

 

1.35         “Project
Requirements” means the Owner or the Project Representative’s initial
overview document for each Project that (i) establishes the design
objectives, constraints, and criteria for such Project; (ii) specifies the
Nameplate Capacity, space requirements and relationships, flexibility and
expandability, special equipment and systems and site requirements for such
Project; (iii) establishes such Project’s Construction Budget; and (iv) includes
any other information or requirements for such Project.

 

1.36         “Receiving
Party” shall have the meaning set forth in Section 7.1.

 

1.37         “Royalty
Fee” shall have the meaning set forth in Section 4.2.

 

1.38         “Royalty
Period” shall have the meaning set forth in Section 4.2.

 

1.39         “Securities”
shall have the meaning set forth in Section 4.4.

 

1.40         “Services”
shall have the meaning set forth in Section 3.3.

 

1.41         “Solicit”
means engage, contact, discuss, negotiate or otherwise communicate with,
directly or indirectly, a Third Party.

 

1.42         “Specifications”
means the specifications, tests, minimum requirements and other standards
pertaining to the Licensed Product all as set forth in Exhibit C
and as may be modified from time to time by mutual written agreement.

 

1.43         “Technology
Fee” shall have the meaning set forth in Section 4.1.

 

1.44         “Term”
shall have the meaning set forth in Section 8.1.

 

1.45         “Territory”
means India and all countries of Europe, including, without limitation,
Albania, Andorra, Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria,
Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania,
Luxembourg, Macedonia, Malta, Moldova, Monaco, Netherlands, Norway, Poland,
Portugal, Romania, Russia, San Marino, Serbia and Montenegro, Slovakia (Slovak
Republic), Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United
Kingdom and Vatican City.

 

1.46         “Third
Party” means any Person that is not a Party to this Agreement and that does
not control and is not controlled by or under common control with a Party.

 

2.             LICENSE

 

2.1           License Grant.  As of
the date hereof, and subject to the terms and conditions hereof, KL hereby
grants to O2Diesel, and O2Diesel hereby accepts, a sole and exclusive
(including with respect to KL) license during the Term, under the Licensed
Patents and Licensed Know-How to practice the Licensed Processes in the
Territory and to research, develop, make, have made, use, market, offer for
sale, sell and/or have sold, import, export, distribute and otherwise exploit
and have exploited any Licensed Products in the Territory.

 

2.2           Sublicensing Rights.  The foregoing license grant shall include the
right of O2Diesel to grant sublicenses (through multiple tiers of sublicensors)
to any Third Party in the Territory, subject to KL’s approval, which shall not
be unreasonably withheld or delayed. 
O2Diesel shall provide 

 

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KL with notice of the grant of any sublicense to a Third Party.

 

2.3           Retained Rights.  KL
shall retain all rights with respect to the Licensed Patents and Licensed
Know-How outside of the Territory and, subject to the terms of this Agreement,
nothing herein shall be construed as limiting those rights outside the
Territory.

 

2.4           Technology Transfer. 
Within sixty (60) days after the Effective Date, KL shall disclose and
provide O2Diesel with copies of any and all Licensed Know-How existing as of
the Effective Date that is material to or reasonably required to enable
O2Diesel and its Affiliates to practice the Licensed Process to produce
Licensed Products satisfying the Specifications.  In addition, at such times throughout the
Term as reasonably requested by O2Diesel, KL shall provide to O2Diesel, its
Affiliates and sublicensees using competent and knowledgeable personnel such
technical assistance as reasonably required to enable O2Diesel and its
Affiliates to practice the Licensed Process to produce Licensed Products
satisfying the Specifications. 
Throughout the Term, KL shall promptly notify O2 Diesel of any material
changes to the existing Licensed Know-How and shall provide O2 Diesel with
copies of any such updates on a quarterly basis or and at such times as
reasonably requested by O2Diesel.  KL
shall incur the reasonable costs associated with the technical transfer and
other cooperation provided by KL pursuant to this Section.

 

2.5           Further Assurances.  KL
agrees to take such further actions, and to execute and deliver such further
instruments and documents, as may be reasonably necessary to accomplish the
transactions contemplated hereby and to vest the rights granted herein to
O2Diesel within the Territory.  KL shall
not take any actions inconsistent with the rights granted to O2Diesel and its
Affiliates herein.

 

2.6           Use of Affiliates.  Notwithstanding any other provision of this
Agreement, any or all of O2Diesel’s rights or obligations hereunder, at
O2Diesel’s option, may be exercised or performed by or transferred to any
Affiliate of O2Diesel.  O2Diesel shall
remain primarily liable to KL for performance and compliance with all of its
obligations hereunder notwithstanding the transfer of any of such obligations
to an Affiliate.

 

3.             DEVELOPMENT OF PRODUCTION PLANTS

 

3.1           Development of Production Plants. 
O2Diesel shall use commercially reasonable efforts (a) to
identify opportunities to develop and construct Production Plants in the
Territory for the production of Licensed Products and (b) to commence
construction of a Production Plant in the Territory on or before the fifth
anniversary of the Effective Date.  Such
Production Plants may be developed by O2Diesel alone or together with Third
Parties, or by one or more Third Party’s designated by O2Diesel.  Such efforts may include, without limitation,
(i) identifying locations and real estate on which to build and develop
one or more Production Plants in the Territory; (ii) identifying Third
Parties who may be interested in partnering with O2Diesel in the construction
and management of Production Plants and/or the subsequent production of
Licensed Products; and (iii) engaging a general contractor or other
construction firm to build a Production Plant. 
O2Diesel shall have the right to select Third Parties, including joint
ventures in which it is a participant, to perform or participate in the
ownership, development, construction and operation of Production Plants.  O2Diesel may choose in its sole discretion
whether to engage in such activities alone or with one or more Third Parties
selected by O2Diesel and how to structure the commercial arrangements with such
Third Parties with respect thereto.

 

3.2           Construction Projects.  O2Diesel
shall notify KL each time it elects to proceed with the development and
construction of a Production Plant in the Territory and whether such Production
Plant shall be owned by O2Diesel or a Third Party designated by O2Diesel, such
as a joint venture 

 

6

 

established to operate such plant (such entity, the “Owner”).  The development and construction of each
Production Plant that O2 Diesel elects to proceed with shall be referred to
herein as a “Project.”  O2Diesel
and its Affiliates shall have no obligation to proceed with any Projects.

 

3.3           Process Design Services.    In
connection with each Project, KL agrees to provide to O2Diesel and its
Affiliates, the Owner, or such other Third Party as designated by O2Diesel
(such entity the “Project Representative”) the services set forth on Exhibit D,
as such Exhibit may be modified by mutual written agreement of the Parties
with respect to any particular Project (the “Services”) for the fees set
forth in Section 4.1.  Such Services
shall be provided upon the Project Representative’s written request on the
schedules agreed to therein.

 

3.4           Design and Engineering Services. 
After acceptance of the Process Design Documents by the
Project Representative as set forth in Exhibit D, the Project
Representative and KL shall cooperate in selecting an engineering or
architecture firm to provide construction and engineering design services for
an individual Project (a “Project Engineer”).  The Owner shall enter into an agreed upon
design and construction services contract setting forth in greater detail each
of the Project Representative, Project Engineer and KL’s rights and obligations
with respect to such Project, which contract shall be on customary commercial
terms standard in the industry for similar projects (the “Design and
Engineering Services Contract”). 
Each Design and Engineering Services Contract shall include and be based
on the Project Requirements and Process Design Documents for such Project,
including the Nameplate Capacity for the Production Plant.

 

3.5           Production Validation. 
The Owner and KL shall mutually agree on a Third Party engineering firm
to test and confirm the actual Nameplate Capacity of such Production Plant (a “Validation”).  In the event that such Production Plant’s
actual Nameplate Capacity does nor meet or exceed the desired Nameplate
Capacity set forth in the Project Requirements, the Owner shall not be required
to pay any Royalty Fees as set forth in Section 4.2 below until such time
as the Production Plant meets or exceeds its Nameplate Capacity.

 

3.6           Further Involvement. 
After completion of construction of a Production Plant, KL hereby agrees
to, at the request of the Owner: (i) provide to the Owner and the Owner’s
representatives and designees training relating to Production Plant management,
maintenance, performance and associated operations, at no additional fee to
Owner, so that Owner and Owner’s representatives and designees are able to
fully operate the Production Plant after such training; or (ii) manage
such Production Plant for Owner pursuant to mutually agreed upon management
services contract, which contract shall be on customary commercial terms
standard in the industry for similar project management and for the fees to be
agreed between KL and the Owner.  Unless
otherwise agreed by the parties in writing, KL shall have no additional
operational or management authority over any Production Plant, and no
involvement in the manufacture or commercialization of the Licensed Products.

 

4.             FINANCIAL TERMS

 

4.1           Technology Fee. 
During the Term, KL hereby agrees to provide the Services to the Project
Representative for a fee equal to *% (* and * percent) of the Construction
Budget for the applicable Project with respect to which KL provides Services
(the “Technology Fee”).  Such
Technology Fee shall be payable with respect to each Project on the schedule
set forth in Exhibit E.  The
Technology Fee constitutes KL’s complete compensation for the performance of
the Services and the Project Owner shall be the sole entity responsible for the
payment of such fees.  The failure of the
Production Plant to satisfy the Nameplate Capacity shall constitute a breach by
KL with respect to such Services. KL’s right to cure such breach will be
subject to the terms and conditions of the individual contract for Services 

 

7

 

executed by the Parties or as otherwise mutually agreed by the Parties
in writing.  Notwithstanding the above,
subject to the Parties complying with all applicable federal, state or other
securities laws and regulations, including KL providing appropriate
representations and warranties (including, without limitation those set forth
in Section 6.2(i)) at the time of issuance, KL have the right in its
discretion to elect to exchange all or part of the Technology Fee for common
stock in O2Diesel or O2Diesel Corporation, a Delaware corporation (“Parent”),
in a private placement transaction so long as the company issuing such stock is
traded on a recognized European, Asian or North American exchange and the price
for the common stock being issued is the closing bid price on the day the
election is made.  If KL makes this
election, the issuance of such shares shall be subject to approval by the
American Stock Exchange (“AMEX”) and issued within five (5) days
after such approval.

 

4.2           Royalties.  In
consideration of the rights and obligations set forth herein, and subject to
the terms and conditions set forth herein, after Validation of a Production
Plant, the Owner of each Production Plant  shall, unless
otherwise agreed by the Parties, pay to KL for a period of ten (10) years
(the “Royalty Period”) a royalty fee (the “Royalty Fee”) equal to
USD$* for each liter of ethanol produced for commercial sale using any part or
component of the Licensed Process in a Production Plant.  After expiration of the Royalty Period for
each Production Plant, O2Diesel and Owner shall not be required to pay any
additional Royalty Fees or other amounts for any Licensed Product produced at such
Production Plant or otherwise for use or license of the Licensed Processes at
such Production Plant.

 

4.3           Certain Requirements.  Royalties
shall commence on a Production Plant-by-Production Plant basis with the first
commercial sale of ethanol produced at such Production Plant after receipt of
all required Governmental Approvals and shall be payable thereafter on a
calendar quarterly basis throughout the Term. 
All such quarterly payments shall be due and payable within sixty (60)
days after the conclusion of the applicable calendar quarter and shall be
payable only once with respect to each liter of ethanol produced.  Royalty Fees shall only be payable with
respect to those quantities of ethanol for commercial sale that comply with all
of the Specifications and other requirements for commercial sale.  In addition, royalties shall be subject to
reduction as provided in Section 4.6.

 

4.4           Common Stock.  Subject
to the terms of this Agreement and the Parties complying with all applicable
federal, state or other securities laws and regulations, including KL providing
appropriate representations and warranties (including, without limitation those
set forth in Section 6.2(i)), Parent shall issue a one-time payment of one
million (1,000,000) shares of Parent common stock, par value $0.0001 (the “Securities”),
in a private placement transaction to KL within five (5) days of the
approval of the issuance of the Securities by AMEX.  The Securities shall be held in escrow by the
Parent until the earlier of (i) eighteen (18) months from the Effective
Date, or (ii) KL’s commencement of Services for the first Project as set
forth in Section 3.3.  In the event
the conditions set forth in the foregoing Sections 4.4(i) or (ii) do
not occur, ownership of the Securities shall revert to the Parent.

 

4.5           Currency; Payment. 
All amounts set forth herein and payments due to KL hereunder shall be
paid to KL in U.S. Dollars by wire transfer, or by such other method mutually
agreed upon by KL and the Owner, in each case at the expense of the payor, for
value no later than the due date thereof (with 24 hours advance notice of each
wire transfer) to a bank account designated in writing within a reasonable
period of time prior to such due date.

 

4.6           Taxes.  In the event
that O2Diesel is mandated under the Laws of a country or Governmental Authority
to withhold any tax to the tax or revenue authorities in such country in
connection with any payment to KL under this Agreement, such amount shall be
deducted from the payment to be made to KL, provided that, O2Diesel shall take
reasonable and lawful actions to avoid and minimize such withholding.  O2Diesel shall promptly furnish KL with
copies of any tax certificate or other documentation 

 

8

 

evidencing such withholding as necessary to satisfy the requirements of
the relevant governmental authority related to any application by KL for
foreign tax credit for such payment. 
O2Diesel agrees to cooperate with KL in claiming exemptions from such
deductions or withholdings under any agreement or treaty from time to time in
effect.

 

4.7           Books and Records. 
O2Diesel shall keep full, true and accurate books of account containing
all particulars and reasonable supporting documentation that may be necessary
for the purpose of determining the amounts payable to KL hereunder.  All such books of account and reasonable
supporting documentation, including any royalty reports received by O2Diesel
from any Owner, shall be located at the principal place of business of O2Diesel
and shall be open for inspection for such purpose by KL or any independent
certified public accountant retained by KL, at a time mutually acceptable to
the Parties during normal business hours but no more frequently than twice each
calendar year for two years following the end of the calendar year to which
they pertain and access shall not be denied thereafter if reasonably
available.  If any such inspection shall
reveal that payments required under this Agreement have been underpaid,
O2Diesel shall promptly pay to KL the shortfall.

 

5.             Intellectual Property Rights.

 

5.1           Ownership of Licensed Patents and Know-How.  Subject to the licenses and rights granted
under this Agreement, all right, title and interest in and to the Licensed
Patents and Licensed Know-How shall remain owned by KL.

 

5.2           Ownership of Process Design Documents. 
The rights of the Parties, and the Project Representatives
with respect to materials produced in connection with the Services shall be as
set forth in Exhibit D or as otherwise agreed to by the Parties.

 

5.3           New Inventions.  Each Party shall own any inventions made
solely by or on behalf of such Party in the performance of this Agreement and
the Parties shall jointly own all inventions made jointly by or on behalf of
the Parties in the performance of this Agreement.  For the purpose of determining ownership of
any inventions which are generated in conducting activities under this
Agreement, inventorship shall be determined in accordance with United States
intellectual property and patent laws. 
Nothing in this Agreement shall grant KL any rights in any know-how or
other intellectual property owned by or independently developed by O2Diesel,
its Affiliates or any Third Party.

 

5.4           Prosecution and Maintenance.  Notwithstanding the ownership rights
set forth in Section 5.1, in the Territory, KL shall have the first right
to control, at its expense, the filing, prosecution and maintenance of the
Licensed Patents (including without limitation, any reexams, reissues,
oppositions and interferences relating thereto), and to make all decisions with
respect thereto, using patent counsel reasonably acceptable to O2Diesel.  If KL decides not to file, prosecute or
maintain any Patent Rights with respect to the Licensed Patents inside the
Territory, KL will promptly notify O2Diesel of its decision and O2Diesel shall
have the right to file, prosecute or maintain such Patent Rights.  Outside the Territory, KL shall have the sole
right to control, at its expense, the filing, prosecution and maintenance of
the Licensed Patents (including without limitation, any reexams, reissues,
oppositions and interferences relating thereto) and to make all decisions with
respect thereto.  Both Parties shall
cooperate with each other in good faith to obtain issued valid claims in their
respective territories that cover the Licensed Processes and Licensed
Products.  KL shall promptly provide
O2Diesel copies of all patent office correspondence (or translations thereof)
and other information material to the prosecution of the Licensed Patents and
related patent applications outside the Territory, including copies of final
drafts of patent applications and substantive responses to patent office
correspondence.  For the purpose of
furthering the Parties’ common interest in this Agreement, and to provide that
the sharing of relevant information shall not waive or diminish the 

 

9

 

confidentiality of such information or its
continued protection under all applicable privileges and protections, the
Parties shall enter into an appropriate written community of interest
relationship.  Upon the request of
O2Diesel, KL shall sign and deliver any necessary documents and otherwise
assist O2Diesel to effectuate the provisions of this Section.

 

5.5           Infringement.  If
either Party learns of an infringement, unauthorized use, misappropriation or
ownership claim or threatened infringement or other such claim (an “Infringement”)
by a Third Party with respect to any Licensed Patents or Licensed Know-How,
such Party shall promptly notify the other Party in writing and shall promptly
provide such other Party with available evidence of such Infringement.

 

6.             REPRESENTATIONS
AND WARRANTIES

 

6.1           Mutual Representations and Warranties.  Each Party represents and warrants to the
other Party that:

 

(a)           Authority.  Such Party
has the full corporate right, power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby;

 

(b)           Authorization.  The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of such Party;

 

(c)           Enforceability.  This
Agreement has been duly executed and delivered by an authorized officer of such
Party, and is a legal, valid and binding obligation of such Party enforceable
against it in accordance with its terms, except as enforcement may be limited
by general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity) and the effect of applicable
bankruptcy, insolvency, moratorium and other similar laws of general
application relating to or affecting creditors’ rights generally, including,
without limitation, the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers;

 

(d)           No Breach.  Such Party’s
execution, delivery and performance of this Agreement shall not constitute a
breach or default under any contract or agreement to which such Party is a
Party or by which it is bound or otherwise violate the rights of any Third
Party under any such contract or agreement; and

 

(e)           No Consents.  No
consent, approval or authorization of or from any governmental entity or any
other Third Party, whether prescribed by law, regulation, contract or
agreement, is required for such Party’s execution, delivery and performance of
this Agreement or consummation of the transactions contemplated hereby.

 

6.2           Additional Representations and Warranties of KL.  KL further represents and warrants to
O2Diesel that:

 

(a)           Ownership of Licensed Patents and Licensed Know-How.  KL is the sole and exclusive owner of, and
has all right, title and interest, including all Intellectual Property Rights,
in and to the Licensed Patents and Licensed Know-How and none of the Licensed
Know-How has been misappropriated from a Third Party.

 

(b)           Authority and Absence of Conflict.  KL has the full right and authority to grant
the rights and licenses as provided herein and has not previously granted any right,
license or 

 

10

 

interest in or to the Licensed Patents or Licensed Know-How or any
portion thereof, that is in conflict with the rights or licenses granted to
O2Diesel under this Agreement.

 

(c)           Pending, Alleged or Threatened Claims.  There are no actual, pending, alleged or
threatened actions, suits, claims, interferences, oppositions or governmental
investigations involving the Licensed Patents, Licensed Know-How or the
production of the Licensed Products using the Licensed Process, either by or
against KL or any of its Affiliates or other licensees.  To the knowledge of KL, there are no
activities by any Third Party that constitute infringement or misappropriation
of any Licensed Patents or Licensed Know-How and KL has not brought any
enforcement action or otherwise sought to enforce any of the Licensed Patents
or Licensed Know-How against any Third Party. To KL’s knowledge there are no
Intellectual Property Rights owned or controlled by a Third Party that are
being or would be infringed or misappropriated by the exercise of the rights
granted herein.

 

(d)           All Necessary Rights. 
The Licensed Patents and Licensed Know-How constitute all of the
Intellectual Property Rights and know-how that are or have been owned by,
Controlled by or licensed to KL or any of its Affiliates that are necessary for
the practice of the Licensed Process and the research, manufacture, use, sale,
offering for sale, distribution, importation, exportation, development and
exploitation of the Licensed Products. 
True, complete and correct copies of all material documents and other
materials that relate to the prosecution, defense, maintenance, validity and
enforceability of the Licensed Patents and Licensed Know-How, and all licenses
and other agreements regarding the Licensed Patents and Licensed Know-How have
been provided to O2Diesel.

 

(e)           Third Party Licenses.  KL has not licensed any of the
Licensed Patents or Licensed Know-How from any Third Party.  KL has obtained from its employees and all
Third Parties involved in the development of the Licensed Patents and Licensed
Know-How all rights necessary to permit KL to grant O2Diesel the licenses and
other rights herein granted.

 

(f)            Product Specifications. 
The Licensed Product, when produced using the Licensed Process, shall
meet the Specifications.

 

(g)           Disclosure of Risks. 
Prior to the Effective Date, KL has disclosed to O2Diesel in writing all
known risks or hazards associated with the practice of the Licensed Process.

 

(h)           Services.  KL possesses sufficient skill,
qualifications, experience, expertise and capability to perform its obligations
hereunder, shall maintain and/or cause its agents, Affiliates, or Consultants
to maintain adequate personnel, manpower, capital, equipment and facilities to
perform its obligations hereunder, and holds any and all licenses,
certificates, authorizations and registrations required in the United States to
permit  it to perform its
obligations hereunder.  KL represents
that it is knowledgeable and experienced in the design, development,
engineering and construction management of Production Plants in the United
States.

 

(i)            Investment.  As of the
Effective Date and as of the date of all issuances of Securities or common
stock hereunder:

 

(i)        Accredited Investor.  KL is an institutional “accredited investor”
within the meaning of Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the United States Securities Act of 1933, as amended (“Securities
Act”), as presently in effect, and was not formed solely for the purpose of
acquiring, holding or transferring the Securities.

 

(ii)       Investment.  KL is obtaining such Securities solely for
its own 

 

11

 

account and beneficial interest for investment and not for sale or with
a view to, or for resale in connection with, the distribution thereof, has no
present intention of selling (in connection with a distribution or otherwise),
granting any participation in, or otherwise distributing the Securities, and
does not presently have any reason to anticipate a change in such intention.

 

(iii)      Information.  KL has received all information it has
requested from O2Diesel and Parent that it considers necessary or appropriate
for deciding whether to obtain the Securities. 
KL has had an opportunity to ask questions and receive answers from
O2Diesel and Parent regarding the terms of the Securities and to obtain any
additional information necessary to verify the accuracy of the information
given to it.  KL acknowledges that it has
access to and O2Diesel and Parent have otherwise made available for KL’s
review: (a) Parent’s Annual Report on Form 10-KSB for the year ended December 31,
2006, (b) Parent’s Quarterly Reports, on Form 10-QSB for the fiscal
quarters ended March 31, 2007, June 30, 2007, and September 30,
2007, (c) Parent’s Proxy Statements, Definitive Information Statements,
Current Reports on Form 8-K, as filed with the SEC between December 31,
2006 and the date of this Agreement (collectively the “SEC Documents”).

 

(iv)      Experience.  KL has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risk of an investment in the Securities and is able to bear the economic risk
of such investment.

 

(v)       Risk of Investment.  KL
recognizes that the purchase of the Securities involves a high degree of risk
in that: (i) an investment in O2Diesel or Parent is highly speculative and
only investors who can afford the loss of their entire investment should
consider investing in the Securities; (ii) transferability of the
Securities is limited; and (iii) O2Diesel and Parent may require
substantial additional funds to operate its business and there can be no
assurance that adequate funds will be available to O2Diesel and Parent, in addition
to all of the other risks set forth in the SEC Documents.  KL acknowledges the disclosure relating to
the risks affecting O2Diesel and Parent set forth in the SEC Documents.

 

(vi)      No Representations. KL hereby represents that, except as
expressly set forth in this Agreement, no representations or warranties have
been made to KL by O2Diesel or Parent or any agent, employee or affiliate of
O2Diesel or Parent, and in entering into this transaction KL is not relying on
any information other than that contained in this Agreement, the SEC Documents
and the results of independent investigation by KL.

 

(vii)     Tax Consequences. KL acknowledges that the issuance of
Securities may involve tax consequences and that the contents of this Agreement
do not contain tax advice or information. 
KL acknowledges that it must retain its own professional advisors to
evaluate the tax and other consequences of an investment in the Securities and
O2Diesel and Parent shall have no liability therefor.

 

(viii)    Restricted
Securities.  KL understands
that the Securities are characterized as “restricted securities” under the
Securities Act, inasmuch as they are being acquired from O2Diesel or Parent in
a transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may be resold without
registration under the Securities Act only in certain limited
circumstances.  In this connection, KL
represents that it is familiar with Rule 144 under the Securities Act, as
presently in effect.  KL understands that
neither O2Diesel nor Parent is obligated to register the Securities.  KL also understands that the certificates
evidencing the Securities will bear the legend set forth below:

 

12

 

THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER FOR ITS OWN ACCOUNT, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE DISTRIBUTION OF SUCH
SECURITIES.  THESE SECURITIES HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND COMPLIANCE WITH SUCH STATE SECURITIES LAWS, (II) IN
COMPLIANCE WITH RULE 144 UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR
(III) UPON THE DELIVERY TO O2DIESEL CORPORATION OF AN OPINION OF COUNSEL
OR OTHER EVIDENCE SATISFACTORY TO THE O2DIESEL CORPORATION THAT SUCH
REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED.

 

6.3           Disclaimer.  Except as
otherwise provided herein, neither Party makes any representation or warranty,
express or implied, and KL hereby expressly disclaims any representation or
warranty as to the validity or enforceability of the Licensed Patents.

 

7.             CONFIDENTIALITY

 

7.1           Confidentiality Obligation. 
Each of O2Diesel and KL (the “Receiving Party”) shall keep
strictly confidential any information disclosed by the other Party (the “Disclosing
Party”) or otherwise made available to the Receiving Party concerning the
Licensed Process or either Party’s performance of this Agreement or otherwise
concerning the business, operations, trade secrets or other proprietary
information of the Disclosing Party (collectively “Confidential Information”),
using at least the same degree of care that it uses to protect its own
confidential or proprietary information. 
Any information that is orally disclosed shall not be considered
Confidential Information unless it is reduced to writing and marked
“Confidential” within thirty (30) days of its disclosure.  “Confidential Information” shall not include
information:

 

(a)           which
is or becomes generally available to the public other than as a result of
disclosure thereof by the Receiving Party;

 

(b)           which
is lawfully received by the Receiving Party on a nonconfidential basis from a
Third Party that is not itself under any obligation of confidentially or
nondisclosure to the Disclosing Party or any other Person with respect to such
information;

 

(c)           which
by written evidence can be shown by the Receiving Party to have been
independently developed by the Receiving Party; or

 

(d)           which
the Receiving Party establishes by competent proof was in its possession at the
time of disclosure by the other Party and was not acquired, directly or
indirectly from the other Party.

 

7.2           Nondisclosure of Confidential Information.  The Receiving Party shall use Confidential
Information solely for the purposes of this Agreement and the transactions
contemplated hereby and shall not disclose or disseminate any Confidential
Information to any Person at any time, except 

 

13

 

for disclosure to those of its directors, officers, employees,
accountants, attorneys, advisers and agents whose duties reasonably require
them to have access to such Confidential Information, provided that such
directors, officers, employees, accountants, attorneys, advisers and agents are
bound to maintain the confidentiality of such Confidential Information to the
same extent as if they were Parties hereto.

 

7.3           Protection of Proprietary Information. 
In addition to the foregoing, KL recognizes that the value of
the rights granted hereunder depends in large part on the continued
preservation of the confidential and proprietary nature of the Licensed
Know-How throughout the Term. 
Accordingly, KL agrees throughout the Term hereof to maintain the
Licensed-Know in strictest confidence in the same manner and with the same
protections that it uses to protect its most valuable trade secret information,
and in no event less than a reasonable standard of care.

 

7.4           Exception.  The
foregoing confidentiality and nondisclosure obligations shall not apply to
information which is required to be publicly disclosed by law or by regulation:
provided, however, that, in such event, the Receiving Party provides the
Disclosing Party with prompt advance notice of such disclosure so that the
Disclosing Party has the opportunity if it so desires to seek a protective
order or other appropriate remedy.

 

7.5           Survival.  The
confidentiality and nondisclosure obligations of this Article 7 shall
survive the expiration or termination of this Agreement and remain in effect
for a period of seven years following the expiration or termination of this
Agreement.

 

8.             TERM
AND TERMINATION

 

8.1           Term.  This Agreement
shall commence as of the Effective Date and shall continue in full force and
effect, unless terminated sooner in accordance with Section 8.2 below,
until the ten (10) year anniversary of the Effective Date (the “Initial
Term”).  Thereafter, this Agreement
will automatically renew for an additional five-year period (the “Extension
Term” and together with the Initial Term, the “Term”).  In the event that O2Diesel has achieved the
performance milestones set forth in Exhibit F on or before the
expiration of the Initial Term, the license granted in Section 2.1 shall
remain exclusive for the Extension Term. 
In the event that O2Diesel has not achieved the performance milestones
set forth in Exhibit F on or before the expiration of the Initial
Term, the license granted in Section 2.1 shall convert to a nonexclusive
license for the Extension Term.

 

8.2           Termination Rights of Either Party.  Either Party shall have the right to
terminate this Agreement in the event (i) of the material breach by the
other Party of its material obligations hereunder and the failure to remedy
such breach or nonperformance within sixty (60) days following the receipt of
written notice of such breach or nonperformance from the nonbreaching Party or,
if such breach or nonperformance (other than a failure to pay money) is not
reasonably susceptible to remedy within such sixty (60) day period, the failure
to initiate reasonable steps to effect a remedy, to the extent feasible, within
such period; or (ii) the other Party is subject to a Bankruptcy
Event.  Such termination shall be
immediately effective upon the receipt by the breaching or nonperforming Party
of written notice of termination from the nonbreaching Party, unless within ten
(10) business days thereafter, the non-terminating party notifies the
other party that it disputes the validity of such termination, in which case
such termination shall only be effective upon the determination of such
termination by a court of competent jurisdiction in a final nonappealable
judgment.

 

8.3           Termination due to Failure to Develop Production Plants.  In addition to the rights of termination set
forth in Section 8.2, if O2Diesel fails to commence construction of an
initial Production Plant within five (5) years of the Effective Date, the
license granted to O2Diesel pursuant to 

 

14

 

Section 2.1 shall terminate, provided, however, that such five (5) year
period shall be automatically extended to the extent any delays are due to
regulatory or Governmental Approval delays, to KL and its Affiliates, or to
other events of force majeure, by an amount equal to the period of delay due to
such factors.  The foregoing shall
constitute KL’s sole and exclusive remedy hereunder in the event of O2Diesel’s
failure to construct any Production Plants on or before such date.

 

8.4           Effects of Expiration or Termination.  Upon expiration or termination of this 

 

Agreement for any reason, (i) any amounts owed
under this Agreement, up to the point of termination will be immediately due
and payable; (ii) all rights and licenses granted under this Agreement
will immediately cease to exist (except as provided below, and for any license
granted hereunder that by there terms are intend to survive expiration,
termination, including, without limitation, the license granted under Section 10.2);
and (iii) each Party will, to the extent feasible, destroy or return to
the other Party all Confidential Information of the other Party and all copies,
compilations or summaries thereof in its possession or control.  Notwithstanding anything herein to the
contrary, upon expiration or termination of this Agreement for any reason, (i) the
license granted pursuant to Section 2.1 shall convert to a perpetual,
irrevocable nonexclusive fully paid up license, and (ii) all sublicenses
granted hereunder shall convert to perpetual, irrevocable nonexclusive fully
paid up licenses; in each case solely with regard to Projects that are underway
or Production Plants that have been completed and only during times that each
Owner makes all royalty payments then-due as required by Section 4.2
hereof until the end of the then-applicable Royalty Period at which time no
additional Royalty Fees shall be then-due and the license shall continue as set
forth above.

 

8.5           Termination of Design Services.  In
addition to the rights of termination with respect to this Agreement, the
Project Representative and KL shall have the right to terminate the Design
Services with respect to a particular Project in accordance with the Design and
Engineering Services Contract due to a material breach by the other party
thereto.  Any such termination shall only
apply with respect to the particular Services covered by such Design and
Engineering Services Contract and shall not affect the rights or obligations of
the Parties hereunder.

 

8.6           Survival.  All rights
granted to and obligations undertaken by the Parties hereunder shall terminate
immediately upon the expiration or termination of this Agreement except for the
provisions of Articles 1, 7, 9 and 11 and Sections 5.1, 5.2, 5.3, 8.4, 8.6 and
10.2.  In addition, expiration or
termination of this Agreement shall not affect the remedies of the Parties
otherwise available at law or in equity in relation to any rights accrued under
this Agreement prior to expiration or termination.

 

9.             INDEMNIFICATION;
LIMITATION OF LIABILITY

 

9.1           KL Indemnification. 
KL shall indemnify, defend and hold harmless O2Diesel and its Affiliates
(including, without limitation, Parent), and its and their sublicensees, and
its and their respective directors, officers, agents, members, stockholders,
owners, employees, agents and Affiliates from and against any and all Losses
resulting from any claims, suits, actions, demands, or other proceedings
brought by or on behalf of a Third Party (collectively, “Claims”)
related to, arising out of or connected with:

 

(a)           Gross
negligence, recklessness or wrongful intentional acts or omissions of KL, and
its Affiliates, directors, officers, employees, agents or contractors;

 

(b)           Any
breach or inaccuracy of any representation, warranty or covenant made by KL
hereunder; including any claims alleging that grant or exercise of the rights
granted herein infringes, misappropriates or otherwise violates any Intellectual
Property Rights or other rights of any Third Party;

 

15

 

(c)           The
failure of KL, its Affiliates, directors, officers, employees, agents,
contractors or Consultants to comply with any applicable Laws;

 

(d)           Any
breach of any term, condition or provision of this Agreement;

 

(e)           The performance of the
Services; and

 

(f)            The
design, engineering, or any other inherent aspects of the Licensed Process
(regardless of theory).

 

9.2           O2Diesel Indemnification. 
O2Diesel shall indemnify, defend and hold harmless KL and its
Affiliates, and its and their respective directors, officers, agents, members,
stockholders, owners, employees, agents and Affiliates from and against any and
all Losses resulting from any Claims related to, arising out of or connected
with:

 

(a)           Gross
negligence, recklessness or wrongful intentional acts or omissions of O2Diesel,
and its Affiliates, directors, officers, employees, agents or contractors;

 

(b)           Any
breach or inaccuracy of any representation, warranty or covenant made by
O2Diesel hereunder;

 

(c)           The
failure of O2Diesel, its Affiliates, directors, officers, employees, agents,
contractors or Consultants to comply with any applicable Laws; and

 

(d)           Any
breach of any term, condition or provision of this Agreement.

 

9.3           Indemnification Procedures. 
Any entity entitled to indemnification under this Article 9 shall
give written notice to the indemnifying party of any Claims that may be subject
to indemnification, promptly after learning of such Claim, and the indemnifying
party shall assume the defense of such Claim with counsel reasonably
satisfactory to the indemnified party. 
The indemnified party shall reasonably cooperate with the indemnifying
party in such defense, at no cost to such the indemnified party.  The indemnified party may, at its option and
expense, be represented by counsel of its choice in any action or proceeding
with respect to such Claim.  The indemnifying
party shall not be liable for any litigation costs or expenses incurred by the
indemnified party without the indemnifying party’s written consent, such
consent not to be unreasonably withheld. 
The indemnifying party shall not settle any such Claim if such
settlement (a) does not fully and unconditionally release the indemnified
party from all liability relating thereto or (b) adversely impacts the
exercise of the rights granted to the indemnified party under this Agreement,
unless the indemnified party otherwise agree in writing.

 

9.4           Limitation of Liability.  EXCEPT
FOR INTENTIONAL MISCONDUCT OR GROSS NEGLIGENCE, THE INDEMNIFICATION OBLIGATIONS
UNDER SECTION 9, OR BREACH OF SECTION 7, IN NO EVENT SHALL EITHER
PARTY (OR A PARTY’S AFFILIATES, DIRECTORS, OFFICERS, AGENTS, MEMBERS,
STOCKHOLDERS, OWNERS, EMPLOYEES AND AGENTS) BE LIABLE FOR LOST PROFITS, COSTS
OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES OR FOR ANY OTHER SPECIAL,
CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR INDIRECT DAMAGES ARISING OUT OF THIS
AGREEMENT, WHETHER UNDER THEORY OF CONTRACT, TORT OR OTHERWISE, AND WHETHER OR
NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  EXCEPT FOR INTENTIONAL MISCONDUCT OR GROSS
NEGLIGENCE, THE INDEMNIFICATION OBLIGATIONS UNDER 

 

16

 

SECTION 9, OR BREACH OF SECTION 7, IN NO EVENT SHALL EITHER
PARTY’S (OR A PARTY’S AFFILIATES, DIRECTORS, OFFICERS, AGENTS, MEMBERS,
STOCKHOLDERS, OWNERS, EMPLOYEES AND AGENTS) LIABILITY TO THE OTHER PARTY
ARISING OUT OF THIS AGREEMENT EXCEED USD$1,000,000.

 

10.           Certain
Transactions.

 

10.1         Right of First Negotiation.

 

(a)           Notice to
O2Diesel.

 

(i)            In
the event that KL desires to Solicit a Third Party with respect to a Change of
Control or a Covered Transaction, KL shall promptly notify O2Diesel thereof in
writing and offer O2Diesel the first opportunity to enter into negotiations for
an agreement with KL for the rights to such Change in Control or Covered
Transaction (the “Right of First Negotiation”).

 

(ii)           In
the event that a Third Party first Solicits KL with respect to a Change in
Control or a Covered Transaction, KL may enter into a confidentiality and
non-disclosure agreement and negotiations with such Third Party; provided,
however, KL shall not enter into a Change of Control or Covered Transaction or
a term sheet or written proposal with respect to the commercial terms of a
Change of Control or Covered Transaction without first offering to O2Diesel the
Right of First Negotiation, which offer shall be made by KL in writing to
O2Diesel (such written offer and the notice from KL to O2Diesel pursuant to Section 10.1(a)(i) above
shall be referred to, individually and collectively, as the “KL Notice”).

 

(iii)          The KL Notice shall include sufficient
information and data available to KL on the date of the KL Notice so as to
enable O2Diesel to make an informed decision regarding the Change of Control or
Covered Transaction.  KL shall provide
O2Diesel with additional information and data as it becomes available to KL
during the ROFN Notification Period (defined below).

 

(b)           Notice by O2Diesel; Negotiation.

 

(i)            O2Diesel shall have a
period of up to twenty (20) days from receipt of the KL Notice (the “ROFN
Notification Period”) to notify KL in writing of its interest in pursuing
or declining to pursue a Change in Control or Covered Transaction.

 

(ii)           If
O2Diesel notifies KL within the ROFN Notification Period of its election to
pursue a Change in Control or Covered Transaction, the Parties shall thereafter
negotiate in good faith a definitive agreement with respect to such Change in
Control or Covered Transaction.  KL’s
obligation to negotiate with O2Diesel shall terminate one hundred twenty (120)
days (or such longer period as the Parties may mutually agree) from KL’s
receipt of O2Diesel’ notice provided pursuant to Section 10.1(b)(i) unless
discussions are earlier terminated by O2Diesel in writing (such period, the “ROFN
Negotiation Period”).

 

(iii)          Except
as permitted under Section 10.1(b)(ii), KL shall not enter into
negotiations with any Third Party with respect to a Change in Control or
Covered Transaction or enter into any Change in Control or Covered Transaction
or term sheet or written proposal with respect to the commercial terms of a
Covered Transaction until (i) the ROFN Negotiation Period has expired, (ii) O2Diesel
fails to notify KL during the ROFN Notification Period of its interest in
pursuing a Change in Control or Covered Transaction, or (iii) O2Diesel
notifies KL that O2Diesel is not interested in pursuing a Covered
Transaction.  Then, subject to Section 10.1(c) below,
KL shall be free to enter into such Change 

 

17

 

in Control or Covered Transaction with any Third Party.

 

(c)           Failure to Agree.  If, after good faith negotiations the Parties
are unable to agree upon the terms of a definitive agreement for a Change
in Control or Covered
Transaction, then KL shall be free to enter into such Change in Control
or Covered Transaction
with any Third Party; provided, however, that for the first six (6) months following the end of the ROFN Negotiation Period, KL
shall not consummate, or enter into a binding agreement to consummate, a Change
in Control or Covered
Transaction with any Third Party on financial terms and conditions that are
less favorable to KL when taken in their totality than the terms and conditions
last offered in writing by O2Diesel to KL during the ROFN Negotiation Period.

 

10.2         License Conversion.  In the event that KL undergoes a Covered
Transaction or Change in Control without complying with the provisions of Section 10.1
above, the license rights granted in Section 2.1 shall automatically
become perpetual and irrevocable without further action by either Party and
such rights shall be fully-paid up as of the end of the Initial Term.

 

11.           MISCELLANEOUS

 

11.1         Relationship of the Parties. 
Nothing in this Agreement is intended or shall be deemed to constitute a
partnership, agency, employment or joint venture relationship between the
Parties hereto.

 

11.2         Applicable Law.  This
Agreement shall be governed by the laws of the State of Delaware applicable to
contracts made and to be performed entirely within such jurisdiction and
without giving effect to the choice or conflict of laws rules or
principles of the State of Delaware or of any other jurisdiction.

 

11.3         Consent to Jurisdiction.  Any action or proceeding arising out of or
relating to this Agreement, and all claims in respect of such action or
proceeding shall be heard and determined in New York, New York.  Each Party further agrees that service of any
process, summons, notice or document by registered mail to the address of such
Party set forth in Section 11.5 below shall be effective service of
process for any action or proceeding brought against such Party in any such
court.  Each Party hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action or
proceeding arising out of or relating to this Agreement in any such court and
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action or proceeding brought in any such court
has been brought in any inconvenient forum. 
Each Party further agrees that a final, nonappealable judgment in any
such action or proceeding shall be conclusive and may be enforced in any other
jurisdictions by suit on the judgment or in any other manner provided by law.

 

11.4         Counterparts.  This
Agreement may be executed in any number of counterparts and may be executed by
facsimile.  All counterparts shall
collectively constitute one and the same Agreement.

 

11.5         Notices.  In any case
where any notice or other communication is required or permitted to be given
hereunder, such notice or communication shall be in writing and sent by
overnight express or registered or certified mail (with return receipt
requested) and shall be sent to the following address (or such other address as
any Party may designate from time to time in writing):

 

 

 

18

 

	
   

  	
  If
  to O2Diesel:

  	
   

  
	
   

  	
   

  	
  Alan R. Rae

  
	
   

  	
   

  	
  100 Commerce Drive

  
	
   

  	
   

  	
  Suite 301

  
	
   

  	
   

  	
  Newark, Delaware 19713

  
	
   

  	
   

  	
  Telephone: 302-266-6000

  
	
   

  	
   

  	
  Telefax: 302-266-7076

  
	
   

  	
   

  	
   

  
	
   

  	
  Copy to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Kevin Lavin, Esq.

  
	
   

  	
   

  	
  Arnold & Porter, LLP

  
	
   

  	
   

  	
  1600 Tysons Blvd.

  
	
   

  	
   

  	
  Suite 900

  
	
   

  	
   

  	
  McLean,
  VA 22102

  
	
   

  	
   

  	
  Telephone:
  703-720-7011

  
	
   

  	
   

  	
  Telefax:
  703-720-7399

  
	
   

  	
   

  	
   

  
	
   

  	
  If to KL:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Randy Kramer

  
	
   

  	
   

  	
  2693-C Commerce Road

  
	
   

  	
   

  	
  Rapid City, SD 57702

  
	
   

  	
   

  	
  Telephone: 605-718-0372

  
	
   

  	
   

  	
  Telefax: 605- 718-1372

  

 

11.6         Force Majeure.  If any
circumstance beyond the reasonable control of either Party occurs which delays
or renders impossible the performance of that Party’s obligations under this
Agreement on the dates herein provided, such obligation shall be postponed for
such time as such performance necessarily has had to be suspended or delayed on
account thereof, provided such Party shall notify the other Party in writing as
soon as practicable, but in no event more than 15 days after the occurrence of
such force majeure.  In such event, the
Parties shall meet promptly to determine an equitable solution to the effects
of any such event, provided that such Party who fails because of force majeure
to perform its obligations hereunder shall upon the cessation of the force
majeure take all reasonable steps within its power to resume with the least
possible delay compliance with its obligations. 
Events of force majeure shall include, without limitation, war,
revolution, invasion, insurrection, riots, mob violence, sabotage or other
civil disorders, acts of God or terrorism, limitations imposed by exchange
control regulations or foreign investment regulations or similar regulations,
laws, regulations or rules of any government or governmental agency, and
any inordinate and unanticipated delays in the regulatory review or
governmental approval process that are within the control of such government or
governmental agency.

 

11.7         Binding Effect; Assignment. 
This Agreement shall not be assigned or otherwise transferred, in whole
or in part, by either Party without the prior written consent of the other
Party, and any attempted assignment without such consent shall be null and
void; provided however, that a party may assign this agreement (i) to an
Affiliate or (ii) to a successor in interest (or its equivalent) in
connection with a sale of all or substantially all of its relevant assets or
business, whether by sale, merger, or otherwise, in each case where such
successor or permitted assign agrees to be bound by the terms of this
Agreement.  This Agreement shall inure to
the benefit of and be binding upon each of the Parties hereto and their
respective successors and permitted assigns.

 

11.8         Entire Agreement.  The
terms and conditions herein contained constitute the entire agreement between
the Parties relating to the subject matter of this Agreement and shall
supersede 

 

19

 

all previous communications between the Parties with respect to the
subject matter of this Agreement. 
Neither Party has entered into this Agreement in reliance upon any
representation, warranty, covenant or undertaking of the other Party that is
not set out or referred to in this Agreement.

 

11.9         Recitals and Schedules.  The recitals set forth at the start of this
Agreement along with the Exhibits attached to this Agreement and the terms and
conditions incorporated in such recitals and Exhibits shall be deemed integral
parts of this Agreement and all references in this Agreement to this Agreement
shall encompass such recitals and Exhibits and the terms and conditions
incorporated in such recitals and Exhibits.

 

11.10       Amendment.  This Agreement may be varied,
amended or extended only by the written agreement of the Parties through their
duly authorized officers or representatives, specifically referring to this
Agreement.

 

11.11       Severability.  If a court of law or other tribunal of
competent jurisdiction finds any provision of this Agreement invalid, illegal,
or unenforceable, the remaining portions of this Agreement shall remain in full
face and effect and construed so as to best effectuate the original intent and
purpose of this Agreement as expressed herein.

 

11.12       Headings.  The descriptive headings of the
several Articles and Sections of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.

 

11.13       No Waiver of Rights.  No failure or delay on the part of either
Party in the exercise of any power or right hereunder shall operate as a waiver
thereof.  No single or partial exercise
of any right or power hereunder shall operate as a waiver of such right or of
any other right or power.  The waiver by
either Party of a breach of any provision of this Agreement shall not operate
or be construed as a waiver of any other or subsequent breach hereunder.

 

11.14       Remedies Cumulative;
Specific Performance.  All
rights and remedies granted to either Party under this Agreement are cumulative
and in addition to, and not in lieu of, any other rights or remedies otherwise
available to such Party at law or in equity. 
The Parties agree that any breach by either Party of, or failure of
either Party to perform, any obligation under this Agreement shall constitute
immediate and irreparable damage to the other Party which cannot be fully and
adequately compensated in money damages and that, in the event of such breach
or failure, the other Party shall be entitled to injunctive relief and specific
performance in addition to any other remedies to which it may be entitled at
law or in equity.

 

11.15       Confidentiality of
Agreement.  Each Party shall
maintain the confidentiality of this Agreement and all provisions of this
Agreement and, without the prior consent of the other Party, neither Party
shall make any press release or other public announcement of or otherwise
disclose this Agreement or any of its provisions to any Third Party (a) other
than to its directors, officers and employees and attorneys, accountants,
investment bankers and other professional advisers whose duties reasonably
require familiarity with this Agreement, provided that such Persons are bound
to maintain the confidentiality of this Agreement and (b) except for such
disclosures as may be required by applicable law or by regulation, in which
case the disclosing Party shall provide the other Party with prompt advance
notice of such disclosure so that the other Party has the opportunity if it so
desires to seek a protective order or other appropriate remedy.

 

11.16       Usage.  Wherever any provision of this Agreement uses
the term “including” (or “includes”), such term shall be deemed to mean “including
without limitation” and “including but not 

 

20

 

limited to” (or “includes without limitation” and “includes but is not
limited to”) regardless of whether the words “without limitation” or “but not
limited to” actually follow the term “including” (or “includes”).

 

11.17       Survival of License in
Bankruptcy.  The Parties
expressly agree that the Licensed Patents and Licensed Know-How are deemed “intellectual
property” as same is defined in §101(35A) of the Bankruptcy Code.  The Parties further expressly agree that this
Agreement shall be governed by §365(n) of the Bankruptcy Code in the event
that KL files for or seeks protection under the Bankruptcy Code or has a case
filed against it under the Bankruptcy Code.

 

[Signature
Page Follows]

 

21

 

IN WITNESS WHEREOF, the Parties hereto have caused
this Agreement to be executed by their duly authorized officers as of the date
first above written.

 

 

	
  O2DIESEL EUROPE, PLC

  	
  KL PROCESS DESIGN GROUP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Alan Rae

  	
   

  	
  By:

  	
  /s/ Dave Litzen

  
	
   

  	
   

  
	
  Name: Alan Rae

  	
  Name: Dave Litzen

  
	
   

  	
   

  
	
  Title: Chief Executive Officer

  	
  Title: Owner/VP, Engineering

  
					

 

22

 

EXHIBIT A

 

Licensed Know-How

 

23

 

EXHIBIT B

 

Licensed Patents

 

24

 

EXHIBIT C

 

Product Specifications

 

25

 

EXHIBIT D

 

Process Design Services

 

At the option of the Owner,
KL shall provide to the Project Representative the following services in
accordance with the terms of the Agreement:

 

(i)            As soon as practicable, but in no event later than  three (3) months after
delivery of the Project Requirements by the Project Representative, prepare
Process Design Documents (as defined in the Agreement), for approval of Project
Representative.  Such Process Design
Documents shall include all information, drawings, content or data required for
a Project Engineer to develop and provide construction documents or other
schematics required for a Construction Manager (as defined below) to build a
fully functioning Production Plant operating at or above Nameplate
Capacity.  KL shall assist the Project
Representative in reviewing the construction documents and providing input to
the Project Engineer and Construction Manager. 
KL shall develop the Process Design Documents so that the final
construction cost to construct the Project in accordance with the construction
documents does not exceed the Construction Budget.

 

(ii)           Provide any assistance required by the Project
Representative or the Construction Manager in securing reviews and approvals of
Governmental Authorities having jurisdiction over the Project.

 

(iii)          Represent and participate in periodic Project review
meetings to be held, at the Project Representative’s discretion, at the Project
site or in the offices of the Project Representative.

 

(iv)          In the event that Project Representative decides to open
Production Plant construction to competitive bidding, (i) participate in a
pre-bid conference and provide related bidding preparation services; (ii) assist
Project Representative in evaluating bids; and (iii) mutually agree with
the Project Representative on the bidding party that will be an acceptable
construction manager or general contractor (“Construction Manager”) who
will be responsible for Project construction. 
In the event that the Project Representative elects not to open
Production Plant construction to competitive bidding, KL and the Project
Representative shall mutually agree to a Construction Manager.

 

(v)           Comply with the Construction Manager’s construction
schedule which shall coordinate, integrate and combine schedules for all
aspects of the Project, including the design, bidding, negotiation and
construction phases, incorporating a detailed schedule of pre-construction
activities, construction activities sequences and durations, allocations and
scheduling of labor activities, purchase order placement and deliveries of
materials and equipment, preparation and processing of shop drawings and
submittals, and KL’s and Project Representative’s review time, and including a
schedule for KL’s services.

 

(vi)          Visit the Project site at intervals appropriate to the
stage of construction to become familiar with the progress and quality of the
construction work (the “Work”) and to determine in general if the Work
is proceeding in accordance with the construction documents.  On the basis of these on-site observations,
KL will keep the Project Representative informed of the progress of the Work,
and will use its best efforts to guard the Project Representative against
defects and deficiencies in the Work of the Construction Manager.

 

26

 

(vii)         Accompany the Project Representative on a post-occupancy and
warranty review prior to the expiration of the warranty period for any separate
contract, but sufficiently after occupancy to allow the Project Representative
adequate opportunity to observe for defective conditions.  This review shall take place at a mutually
agreed-upon time and date.

 

(viii)        Provide a review and evaluation of the
Project’s production systems and processes and provide assistance in connection
with the refining and adjusting of any equipment or system.

 

(ix)          Accompany the Project Representative to visit the Project
and observe any apparent defects in the completed work, assist the Project
Representative in consultations and discussions with Construction Manager
concerning correction of such defects, and make recommendations as to
replacement or correction of defective work

 

(x)           All other reasonably requested
services related to the services set forth in this Exhibit.

 

The original
Process Design Documents, including drawings, specifications and other
documents prepared by KL for a Project are instruments of KL’s service.  Unless otherwise provided, KL shall be deemed
the author of these documents and shall retain all common law, statutory and
other reserved rights, including copyright; provided, however, KL agrees to and
does hereby grant the Project Representative a perpetual, irrevocable,
royalty-free license to all such documents in which it may claim a copyright
and to all architectural work as to which it may assert any rights or establish
any claim under the design patent or copyright laws.  The Project Representative’s perpetual,
irrevocable royalty-free license shall (i) entitle it to unlimited rights in
all architectural works arising out of KL’s performance of Services, and (ii)
include, but not be limited to, drawings, specifications, architectural designs
of buildings and structures, notes and other architectural and engineering
documents produced by or on behalf of KL in the performance of the Services, or
in contemplation thereof, archive drawings and archive specifications produced
after completion (including the right to use same for comprehensive campus-wide
mapping endeavors), and any and all other “architectural works” as that term is
defined in the Architectural Works Copyright Protection Act at 17 U.S.C. 102
(a)(8).  At any time upon demand by the
Project Representative, KL shall furnish to the Project Representative a
complete set of all work product prepared by or obtained by KL to date of such
demand arising out of or related to the Services or a Project.  In the event of KL’s failure to comply with
the Project Representative’s demand hereunder, the parties agree that any
remedy at law would be inadequate and entitle the Project Representative to
equitable relief including without limitation the remedy of specific
performance.

 

27

 

EXHIBIT E

 

Technology Fee Payment
Milestones

 

The Owner shall pay KL the Technology Fee in
accordance with the following schedule for each individual Project:

 

·      Twenty-five percent (25%) of the Technology Fee shall be due upon Owner’s
written approval of the Construction Budget for such Project.

 

·      Twenty-five percent (25%) of the Technology Fee shall be due upon
commencement of construction of a Production Plant.

 

·      Twenty-five percent (25%) of the Technology Fee shall be due upon
completion and acceptance of the Production Plant by the Owner.

 

·      Twenty-five percent (25%) of the Technology Fee shall be due upon the
Production Plant operating at Nameplate Capacity for a period of sixty (60)
days after initial commercial production of the Licensed Product in such
Production Plant.

 

28

 

EXHIBIT F

 

Extension Term
Performance Milestones

 

Engagement of KL to
provide Services to Owners for the construction of six (6) Production
Plants within the Initial Term.

 

29Exhibit 10.6

 

Flextronics Manufacturing Services Agreement

 

This Flextronics Manufacturing Services Agreement (“Agreement”) is entered into this 14th day
of April 2008 by and between MPC Corporation having its place of business
at 906 East Karcher Road, Nampa, Idaho 83687 (“Customer”) and Flextronics Computing Mauritius Limited,
having its place of business at
210 St. James Court, Rue St. Denis, Port Louis

Mauritius (“Flextronics”).

 

Customer desires to engage Flextronics to perform manufacturing
services as further set forth in this Agreement.  The parties agree as follows:

 

1.     DEFINITIONS

 

Flextronics and Customer agree that capitalized terms shall have the
meanings set forth in this Agreement and Exhibit 1 attached hereto and
incorporated herein by reference.

 

2.     MANUFACTURING SERVICES

 

2.1.          Work. 
Customer hereby engages Flextronics to perform the work (hereinafter “Work”). 
“Work” shall mean to
procure Materials and to manufacture, assemble, and test products (hereinafter “Product(s)”) pursuant to detailed written
Specifications.  The “Specifications” for each Product or
revision thereof, shall include but are not limited to bill of materials,
designs, schematics, assembly drawings, process documentation, test
specifications, current revision number, and Approved Vendor List.  The Specifications as provided by Customer
and included in Flextronics’s production document management system and
maintained in accordance with the terms of this Agreement are incorporated
herein.  This Agreement does not include
any new product introduction (NPI) or product prototype services related to the
Products.  In the event that Customer
requires any such services, the parties will enter into a separate agreement.  In case of any conflict between the
Specifications and this Agreement, this Agreement shall prevail.

 

2.2.          Move. 
Customer currently
manufactures the Products in the United States (“MPC Manufacturing Operations”).  Flextronics will initially manufacture the
Products in Juarez, Mexico (“Juarez”).  A timeline covering key events associated
with the move to Juarez (the “Timeline”)
is incorporated herein by reference as Exhibit 2.2.  The Timeline can be modified as mutually
agreed to by the parties.  The move is
expected to be completed by August 31, 2008 (The “Move Completion Date”).   Transition costs associated with moving the required equipment and/or
materials from MPC Manufacturing
Operations to Juarez will be
allocated as follows:  [*] The parties agree to use commercially reasonable efforts to adhere to the Timeline
in Exhibit 2.2.  Each party is
responsible for reviewing the actions needed and agreeing to a timeline by April 18th,
2008.  At this time the timeline in Exhibit 2.2
will be updated and will be the governing timeline for this agreement.  Each party is responsible for closing its
action items by the date committed to on the Timeline.

 

2.3.          Engineering Changes. Customer may
request that Flextronics incorporate engineering changes into the Product by
providing Flextronics with a description of the proposed engineering change
sufficient to permit Flextronics to evaluate its feasibility and cost.  Flextronics will proceed with engineering
changes when the parties have agreed upon the changes to the Specifications,
delivery schedule and Product pricing and the Customer has issued a purchase
order for the implementation costs.

 

2.4.          Tooling; Non-Recurring Expenses; Software.
Customer shall pay for or obtain and consign to Flextronics any
Product-specific tooling, equipment or software and other reasonably necessary
non-recurring expenses, to be set forth in Flextronics’s quotation.  Software is limited to products currently
used in Customer Manufacturing Operations for the specific purpose of test and
imaging processes.  Items paid for by
Customer will only be used for the performance of Customer Work and not for any
other Flextronics customer, unless otherwise approved by Customer. All software
that Customer provides to Flextronics or any test software that Customer
engages Flextronics to develop is and shall remain the property of Customer.

 

2.5.          Cost Reduction Target.  The Cost Reduction Target is expected to be
realized in the 12 month period after the Move Completion Date.  The achievement of the Cost Reduction Target
requires both parties participation and both parties agree to use commercially
reasonable efforts to jointly and actively work together to achieve the Cost
Reduction Target in the 12 month timeframe. 
The Cost Reduction Target review process will be conducted during the
quarterly business review or as otherwise agreed to by the parties.

 

* Confidential treatment has
been requested for certain portions of this document pursuant to an application
for confidential treatment sent to the Securities and Exchange Commission.  Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.

 

1

 

The Cost Reduction Target has been established based on and achievement
of the Cost Reduction Target relies on the following conditions:

 

[*]

 

3.     FORECASTS; ORDERS; FEES; PAYMENT

 

3.1.          Forecast.  Customer shall provide Flextronics, on a
weekly basis, a rolling [*] week forecast indicating Customer’s Product
requirements.

 

3.2.          Purchase Orders; Precedence.  Customer may use its standard purchase order
form for any notice provided for hereunder; provided that all purchase orders
must reference this Agreement and the applicable Specifications.  The parties agree that the terms and
conditions contained in this Agreement shall prevail over any terms and
conditions of any such purchase order, acknowledgment form or other instrument.

 

3.3.          Purchase Order Acceptance.  Purchase orders shall normally be deemed
accepted by Flextronics, provided however that Flextronics may reject any purchase
order: (a) if the fees reflected in the purchase order are inconsistent
with the parties’ agreement with respect to the fees; (b) if a purchase
order would extend Flextronics’s liability beyond Customer’s approved credit
line.  While[*], Flextronics shall notify
Customer of rejection of any purchase order within [*] of receipt of such
purchase order.

 

3.4.          Fees; Changes; Taxes.

 

(a)   The fees will be agreed by the parties and
will be indicated on the purchase orders issued by Customer and accepted by Flextronics.
The initial fees shall be as set forth on the Fee List attached hereto and
incorporated herein as Exhibit 3.4 (the “Fee
List”).  If a Fee List is not
attached or completed, then the initial fees shall be as set forth in purchase
orders issued by Customer and accepted by Flextronics in accordance with the
terms of this Agreement.

 

(b)   Customer is responsible for additional fees
and costs due to: (a) changes to the Specifications; (b) failure of
Customer or its subcontractor to timely provide sufficient quantities or a
reasonable quality level of Customer Controlled Materials where applicable to
sustain the production schedule; and (c) any pre-approved expediting
charges reasonably necessary because of a change in Customer’s requirements.

 

(c)   The fees may be reviewed periodically by the
parties.  Any changes and timing of
changes shall be agreed by the parties, such agreement not to be unreasonably
withheld or delayed.  By way of example
only, the fees may be increased or decreased if the market price of fuels,
Materials, equipment, labor and other production costs, change  beyond normal variations in pricing or
currency exchange rates as demonstrated by Flextronics.

 

(d)   All fees are exclusive of federal, state and
local excise, sales, use, VAT, and similar transfer taxes, and any duties, and
Customer shall be responsible for all such items.  Flextronics shall use commercially reasonable
efforts to provide accurate cost information for all applicable federal, state
and local excise, sales, use, VAT, and similar transfer taxes, and any duties
in the Flextronics’s quotation.  This
subsection (d) does not apply to taxes on Flextronics’s net income.

 

(e)   The Fees List will be based on the exchange
rate(s) for converting the purchase price for Inventory denominated in the
Parts Purchase Currency(ies) into the Functional Currency.  The fees will be adjusted, on a monthly basis
based on changes in the Exchange Rate(s) as reported on the last business
day of each month, for the following month to the extent that such Exchange
Rates change more than +/- .75% from the prior month (the “Currency Window”).  “Exchange Rate(s)” is defined as the closing
currency exchange rate(s) as reported on Reuters’ page FIX on the
last business day of the current month prior to the following month.  “Functional Currency” means the currency in
which all payments are to be made pursuant to Section 3.5 below.  “Parts Purchase Currency(ies)” means U.S.
Dollars, Japanese Yen and/or Euros to the extent such currencies are different
from the Functional Currency and are used to purchase Inventory needed for the
performance of the Work forecasted to be completed during the applicable
month.

 

3.5.          Payment.  Customer agrees to pay all invoices in U.S.
Dollars within thirty (30) days of the date of the invoice.  [*]

 

3.6.          Late Payment.  Customer agrees to pay one and one-half
percent (1.5%) monthly interest on all late payments.  Furthermore, if Customer is late with
payments, or Flextronics has reasonable cause to believe Customer may not be able
to pay, Flextronics may (a) stop all Work under this Agreement until
assurances of payment satisfactory to Flextronics are received or payment is
received; (b) demand prepayment for purchase orders; (c) delay
shipments; and (d) to the extent that 

 

* Confidential treatment has been requested for certain portions of
this document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission.  Such
portions are omitted from this filing and filed separately with the Securities
and Exchange Commission.

 

2

 

Flextronics’s
personnel cannot be reassigned to other billable work during such stoppage and/or
in the event restart cost are incurred, invoice Customer for additional fees
before the Work can resume.  Customer
agrees to provide all necessary financial information required by Flextronics
from time to time in order to make a proper assessment of the creditworthiness
of Customer.

 

3.7.          Credit Line.  Flextronics has provided a line of credit of
$20,000,000 and agrees to extend this line to $25,000,000 once Customer shows evidence that it has obtained
credit risk insurance or a Letter of Credit, in a form reasonably acceptable to
Flextronics, in the amount of $5,000,000 in favor of Flextronics.  Flextronics’s offer to extend the credit line
is based on data provided by Customer. 
Flextronics agrees to review the credit line terms on a monthly basis.

 

4.     MATERIALS PROCUREMENT; CUSTOMER RESPONSIBILITY FOR MATERIALS

 

4.1.          Authorization to Procure
Materials, Inventory and Special Inventory.  The
customers forecast will constitute authorization for Flextronics to procure
materials[*], without Customer’s prior approval. Customer’s accepted purchase
order will constitute authorization for Flextronics to procure and manufacture
without Customer’s prior approval. Once a purchase order, for a configured
product, has been accepted by Flextronics, the Customer cannot not make any
cancellations and/or changes other than shipping instructions without prior
agreement from Flextronics or Change/Cancellation Fees may apply.

 

4.2.          Customer Controlled Materials.  Customer may direct Flextronics to purchase
Customer Controlled Materials in accordance with the Customer Controlled
Materials Terms.  Customer acknowledges
that the Customer Controlled Materials Terms will directly impact Flextronics’s
ability to perform under this Agreement and to provide Customer with the
flexibility Customer is requiring pursuant to the terms of this Agreement.  In the event that Flextronics reasonably
believes that Customer Controlled Materials Terms will create an additional
cost that is not covered by this Agreement, then Flextronics will notify
Customer and the parties will agree to either (a) compensate Flextronics for
such additional costs, (b) amend this Agreement to conform to the Customer
Controlled Materials Terms or (c) amend the Customer Controlled Materials
Terms to conform to this Agreement, in each case at no additional charge to
Flextronics.  Customer agrees to provide
copies to Flextronics of all Customer Controlled Materials Terms upon the
execution of this Agreement and promptly upon execution of any new agreements
with suppliers.  Customer agrees not to
make any modifications or additions to the Customer Controlled Materials Terms
or enter into new Customer Controlled Materials Terms with suppliers that will
negatively impact Flextronics’s procurement activities.

 

4.3.          Preferred Supplier.  Customer
shall provide to Flextronics and maintain an Approved Vendor List (“AVL”). 
Flextronics shall purchase from vendors on a current AVL the Materials required
to manufacture the Product.  Customer shall give Flextronics the
opportunity to be included Product AVL’s for Materials that Flextronics can
supply.  If Flextronics is competitive
with other suppliers with respect to reasonable criteria for acceptance
established by Customer, Flextronics shall be included on such Product AVL’s. 
If Flextronics is on an AVL and its prices, quality and performance are
competitive with other vendors, Customer will raise no objection to Flextronics
sourcing Materials from itself.  For purposes of this Section 4.3
only, the term “Flextronics” includes any companies affiliated with
Flextronics.

 

4.4.          Customer Responsibility for Inventory and Special
Inventory.  Customer is
responsible under the conditions provided in this Agreement for all Materials,
Inventory and Special Inventory purchased by Flextronics under this Section 4.

 

4.5.          Materials Warranties.  [*] 
Flextronics will pass through to the Customer the following warranties
with regard to the Materials (other than the Production Materials): (i) conformance
of the Materials with the vendor’s specifications and/or with the
Specifications; (ii) that the Materials will be free from defects in
workmanship; (iii) that the Materials will comply with Environmental
Regulations; and (iv) that the Materials will not infringe the
intellectual property rights of third parties (v) Customer and Flextronics
to discuss and negotiate legacy warranty support.  [*]

 

4.6.  Move
Materials.  As part of the
move to Juarez, Flextronics will, on a one time basis only and pursuant to the
terms of this Section 4.6, purchase materials on hand (the “Move Materials”) from Customer at [*].  The
Move Materials will be purchased
by Flextronics as long as the current aging is [*] months or less and only if
it is within a demanded lead-time.  The
Move Materials will: a) be new and unused; b) perform in
accordance with all applicable specifications; and c) be free from defects in
workmanship.  Customer will
provide an itemized list of the Move Materials, including itemized prices.  Flextronics, 

 

* Confidential treatment has been requested
for certain portions of this document pursuant to an application for confidential
treatment sent to the Securities and Exchange Commission.  Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.

 

3

 

in its sole
discretion, will approve the list and authorize the purchase.  If Flextronics does not use the Move
Materials during the [*] following the purchase of the Move Materials, Customer
will buy back the Move Materials [*].

 

4.7.          Customer
Purchase Order Assignment.     During the timeframe indicated in the
Timeline in Exhibit 2.2 (“P.O. Assignment
Timeframe”), Customer will provide Flextronics with a list of
outstanding purchase orders with its vendors. 
Flextronics will evaluate the list and determine which purchase orders
have been placed within verified component lead times.  Flextronics will provide Customer with a list
of the open purchase orders for which it will accept assignment from
Customer.  For components with PO’s
placed beyond verified lead-time Customer and Flextronics agree to review and
assign to Flextronics following Flextronics approval.  This purchase order assignment process will
occur only during the P.O. Assignment Timeframe.  After the P.O. Assignment Timeframe,
going forward Flextronics will procure Materials, Inventory and Special
Inventory pursuant to the terms of this Section 4.

 

5.     SHIPMENTS,
SCHEDULE CHANGE, CANCELLATION, STORAGE

 

5.1.          Shipments.  All Products delivered pursuant to the terms
of this Agreement shall be suitably packed for shipment in accordance with the
Specifications and marked for shipment to Customer’s destination specified in
the applicable purchase order.  Unless
otherwise mutually agreed, shipments will be made EXW (Ex works, Incoterms
2000)  Flextronics’s facility or
Flextronics designated El Paso warehouse, at which time risk of loss and title
will pass to Customer.  All freight,
insurance and other shipping expenses, as well as any special packing expenses
not included in the original quotation
for the Products, will be paid by Customer. 
In the event Customer designates a freight carrier to be utilized by
Flextronics, Customer agrees to designate only freight carriers that are
currently in compliance with all applicable laws relating to anti-terrorism
security measures and to adhere to the C-TPAT (Customs-Trade Partnership
Against Terrorism) security recommendations and guidelines as outlined by the
United States Bureau of Customs and Border Protection and to prohibit the freight carriage to be sub-contracted to any
carrier that is not in compliance with the C-TPAT guidelines.

 

5.2.          Quantity
Increases and Shipment Schedule Changes.

 

(a)   For any accepted purchase order,
Customer may (i) increase the quantity of Products or (ii) reschedule
the quantity of Products and their shipment date as provided in the flexibility
table below (the “Flexibility Table”);
provided, however, that if the Specifications contain a flexibility table and
such Specifications specifically reference this Section 5.2(a) and
state the such flexibility table takes precedence over the Flexibility Table
set forth below, then the flexibility table in the Specifications shall be the
Flexibility Table for such Product for all purposes hereunder:

 

	
  # of days before

  Forecasted Shipment

  Date

  	
   

  	
  Allowable

  Quantity

  Increases

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
  [*]

  	
   

  	
  [*]

  
	
  [*]

  	
   

  	
  [*]

  

 

(i)            Flextronics
will use reasonable commercial efforts to meet any quantity increases outside
of the table in subsection (a) which are subject to Materials and capacity
availability.  All quantity increases
outside of the table in subsection (a) may be subject to extra costs to
meet such increase; Flextronics will inform Customer for its acceptance and
approval in advance.

 

(b)   Any delays in the normal production or
interruption in the workflow process caused by Customer’s changes to the
Specifications or failure to provide sufficient quantities or a reasonable
quality level of Customer Controlled Materials where applicable to sustain the
production schedule, will be considered a reschedule of any affected purchase
orders for purposes of this Section 5.2 for the period of such delay.

 

* Confidential
treatment has been requested for certain portions of this document pursuant to
an application for confidential treatment sent to the Securities and Exchange
Commission.  Such portions are omitted
from this filing and filed separately with the Securities and Exchange
Commission.

 

4

 

5.3.          Cancellation of Orders, Reduction in Forecast and
Customer Responsibility for Inventory.

 

(a)   Cancelation of Orders.  Customer may not cancel all or any portion of
Product quantity of an accepted purchase order without Flextronics’s prior
written approval, which, in its sole discretion, may or may not be
granted.  If Customer does not request
prior approval, or if Customer and Flextronics do not agree in writing to
specific terms with respect to any approved cancellation, then Customer will
pay Flextronics Monthly Charges for any such cancellation, calculated as of the
first day after such cancellation for any Product or Inventory or Special
Inventory procured by Flextronics to support the original delivery
schedule.  In addition, if Flextronics
notifies Customer that such Product, Inventory and/or Special Inventory has
remained in Flextronics’s possession for more than [*] days since such
cancellation, then Customer agrees to immediately purchase from Flextronics
such Product, Inventory and/or Special Inventory by paying the Affected
Inventory Costs.

 

(b)   Reduction of Forecast.  If the forecast for any period is less than
the previous forecast supplied over the same period and such change results in
an on-hand and/or on order non-cancelable Inventory in excess of the Inventory
needed to support the forecasted demand for that such period based upon Inventory
calculated at Lead Time plus two weeks, then Customer shall be responsible for
all affected Inventory and/or on order non-cancelable Inventory pursuant to Section 5.3.
If Flextronics is holding Inventory or Special Inventory that does not have any
demand then Customer shall purchase such Inventory or Special Inventory that
has been on hand more then [*] days subject to Section 5.3. If Flextronics
is holding Inventory or Special Inventory subject to a min/max agreement or
schedule then Customer shall purchase such Inventory or Special Inventory that
is in excess of the agreed maximum and/or has been on hand more then thirty [*]
subject to Section 5.3.

 

(i)    Subject
to Section 5.3, Customer shall purchase Inventory and Special Inventory
purchased in support of Customer forecast that is on hand for [*] months or
more.  Further, Flextronics shall invoice
Customer monthly and Customer agrees to pay Inventory Carry Fee of [*] per
month for any Inventory or Special Inventory in excess of [*] months demand.

 

(c)   Flextronics shall perform an Inventory
revaluation of on-hand and on-order Inventory on a monthly basis.  In the event of a reduction in Inventory
purchase price, Flextronics shall not pass such reduction on to Customer until
all on-hand and on order Inventory that is not subject to the price reduction
has been consumed.  In the alternative,
Customer may elect to buy-down the difference in the price paid by Flextronics
for the Inventory and the new price.  In
the event that Customer makes such election, Flextronics shall issue a Purchase
Order to Customer for the difference in the purchase price and the new price
and upon payment of such amount by Customer the new purchase price shall be
passed on to Customer.

 

(d)   For purposes of calculating the amount of
Inventory and Special Inventory subject to Section 5.3, the “Lead Time” shall be calculated as the Lead
Time at the time of (i) procurement of the Inventory and Special
Inventory; (ii) cancellation of the purchase order or (iii) termination
of this Agreement, whichever is longer.  
In addition, “Minimum Order Quantity”
shall be calculated as the Minimum Order Quantity at the time of (i) procurement
of the Inventory and Special Inventory; (ii) cancellation of the purchase
order or (iii) termination of this Agreement.

 

5.4.  Mitigation of Inventory and Special Inventory.  Prior to invoicing Customer for the amounts
due pursuant to Sections 5.3 Flextronics will use reasonable commercial efforts
for a period of [*] days, to return unused Inventory and Special Inventory and
to cancel pending orders for such inventory, and to otherwise mitigate the
amounts payable by Customer.  In the
event that Flextronics can not return such Inventory without incurring fees,
Customer shall pay amounts due under this Section 5, including without
limiting any restocking and return freight fees, within ten (10) days of
receipt of an invoice.  Flextronics will
ship the Inventory and Special Inventory paid for by Customer under this Section 5.4
to Customer promptly upon said payment by Customer.  In the event Customer does not pay within ten
(10) days, Flextronics will be entitled to dispose of such Inventory and
Special Inventory in a commercially reasonable manner and credit to Customer
any monies received from third parties. 
Flextronics shall then submit an invoice for the balance amount due and
Customer agrees to pay said amount within ten (10) days of its receipt of
the invoice.  In the event that it is
demonstrated that a portion of the Inventory or Special Inventory purchased by
Flextronics is not authorized pursuant to the terms of this Agreement, Customer
shall not be liable for such portion of the Inventory or Special Inventory not
purchased as authorized herein.

 

5.5.          No Waiver.  For the avoidance of doubt, Flextronics’s
failure to invoice Customer for any of the charges set forth in this Section 5
does not constitute a waiver of Flextronics’s right to charge Customer for the
same event or other similar events in the future.

 

* Confidential treatment has
been requested for certain portions of this document pursuant to an application
for confidential treatment sent to the Securities and Exchange Commission.  Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.

 

5

 

6.             EXPRESS LIMITED
WARRANTY AND PRODUCT ACCEPTANCE

 

6.1.          Express Limited Warranty.  This Section 6.3 sets forth Flextronics’s
sole and exclusive warranty and Customer’s sole and exclusive remedies with
respect to a breach by Flextronics of such warranty.

 

a)     Flextronics warrants that the Products will
have been manufactured in accordance with the applicable Specifications and
will be free from defects in workmanship for a period of [*] from the
date of shipment, [*].  In addition,
Flextronics warrants that Production Materials are in compliance with
Environmental Regulations.

 

b)    Notwithstanding anything else in this
Agreement, this express limited warranty does not apply to, and Flextronics
makes no representations or warranties whatsoever with respect to: (i) Materials
and/or Customer Controlled Materials; (ii) defects resulting from the
Specifications or the design of the Products; (iii) Product that has been
abused, damaged, altered or misused by any person or entity after title passes
to Customer; (iv) first articles, prototypes, pre-production units, test
units or other similar Products; (v) defects resulting from tooling,
designs or instructions produced or supplied by Customer, or (vi) the
compliance of Materials or Products with any Environmental Regulations.  Customer shall be liable for costs or
expenses incurred by Flextronics related to the foregoing exclusions to
Flextronics’s express limited warranty.

 

c)     Customer will provide its own warranties
directly to any of its end users or other third parties.  Customer will not pass through to end users
or other third parties the warranties made by Flextronics under this
Agreement.  Furthermore, Customer will
not make any representations to end users or other third parties on behalf of
Flextronics, and Customer will expressly indicate that the end users and third
parties must look solely to Customer in connection with any problems, warranty
claim or other matters concerning the Product, except as expressly agreed upon
by Flextronics and Customer.

 

d)    [*]

 

6.2.          Product Acceptance.  [*]

 

6.3.          No Representations or Other Warranties.
FLEXTRONICS MAKES NO REPRESENTATIONS AND NO OTHER WARRANTIES OR CONDITIONS ON
THE PERFORMANCE OF THE WORK, OR THE PRODUCTS, EXPRESS, IMPLIED, STATUTORY, OR
IN ANY OTHER PROVISION OF THIS AGREEMENT OR COMMUNICATION WITH CUSTOMER, AND
FLEXTRONICS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OR CONDITION OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.

 

7.     INTELLECTUAL
PROPERTY LICENSES

 

7.1.          Licenses.  Customer hereby grants Flextronics a
non-exclusive license during the term of this Agreement to use Customer’s
patents, trade secrets and other intellectual property as necessary to perform
Flextronics’s obligations under this Agreement.

 

7.2.          No Other Licenses.  Except as otherwise specifically provided
in this Agreement, each party acknowledges and agrees that no licenses or
rights under any of the intellectual property rights of the other party are
given or intended to be given to such other party.

 

7.3.          Flextronics shall
not use, copy, modify or distribute any Customer or Customer Third Party
Proprietary Items or any copy, adaptation or other derivative work thereof
(electronically or otherwise) any software, tools processes provided by
Customer.  Flextronics is prohibited from
causing or permitting the reverse engineering, disassembly or de-compilation of
the Customer (or Customer’s 3rd Party software/tools) Proprietary Items as the
same are modified, enhanced, corrected, improved or otherwise altered.  Third Party Proprietary Items are defined as
tools and applications used in Customer software download, imaging and
diagnostic process.  Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, (i) Flextronics shall not sell, assign,
sublicense or otherwise transfer or authorize the use of all or any part of the
Customer Proprietary Items or the license rights granted hereunder to any
person or entity, and (ii) Flextronics is prohibited from using Customer or
Customer’s 3rd Party Proprietary Items, to process its own information and to
provide service bureau services or to otherwise provide services to other
parties except with the prior written agreement of Customer. Flextronics shall
cause its employees to comply with the non-disclosure and other obligations
required hereunder and shall be responsible for the breach thereof by any
Flextronics employee.

 

8.     TERM
AND TERMINATION

 

8.1.          Term. 
The term of this Agreement shall commence on the date hereof above and
shall continue for five (5) years thereafter until terminated as provided
in Section 8.2 (Termination) or 10.10 (Force Majeure). After the
expiration of the 

 

* Confidential
treatment has been requested for certain portions of this document pursuant to
an application for confidential treatment sent to the Securities and Exchange
Commission.  Such portions are omitted
from this filing and filed separately with the Securities and Exchange
Commission.

 

6

 

initial term
hereunder (unless this Agreement has been terminated), this Agreement shall be
automatically renewed for separate but successive one-year terms unless either
party provides written notice to the other party that it does not intend to
renew this Agreement ninety (90) days or more prior to the end of any term.

 

8.2.          Termination.  This Agreement may be terminated by either
party (a) for convenience upon [*]days written notice to the other party,
or (b) if the other party defaults in any payment to the terminating party
and such default continues without a cure for a period of thirty (30) days
after the delivery of written notice thereof by the terminating party to the
other party, (c) if the other party defaults in the performance of any
other material term or condition of this Agreement and such default continues
unremedied for a period of thirty (30) days after the delivery of written
notice thereof by the terminating party to the other party,  (d) pursuant to Section 2.5 (Cost
Reduction Target) or (e) pursuant to Section 10.10 (Force Majeure).

 

8.3.          Effect of Expiration or Termination.  Expiration or termination of this Agreement
under any of the foregoing provisions: (a) shall not affect the amounts
due under this Agreement by either party that exist as of the date of
expiration or termination, and (b) as of such date the provisions of
Sections 5.2, 5.3, and 5.4 shall apply with respect to payment and shipment to
Customer of finished Products, Inventory, and Special Inventory in existence as
of such date, and (c) shall not affect Flextronics’s express limited
warranty in Section 6.2 above. 
Termination of this Agreement, settling of accounts in the manner set
forth in the foregoing sentence shall be the exclusive remedy of the parties
for breach of this Agreement, except for breaches of Section 6.2, 9.1,
9.2, or 10.1.  Sections 1, 3.5, 3.6, 3.7,
4, 5.3, 5.3, 5.4, 6.2, 6.3, 7, 8, 9, and 10 shall be the only terms that shall
survive any termination or expiration of this Agreement.

 

9.     INDEMNIFICATION;
LIABILITY LIMITATION

 

9.1.          Indemnification by
Flextronics.  Flextronics agrees to defend, indemnify and
hold harmless, Customer and all directors, officers, employees, and agents (each, a “Customer Indemnitee”)
from and against all claims, actions, losses, expenses, damages or other
liabilities, including reasonable attorneys’ fees (collectively, “Damages”) incurred
by or assessed against any of the foregoing, but solely to the extent the same
arise out of third-party claims relating to:

 

(a)   any actual or threatened
injury or damage to any person or property caused, or alleged to be caused, by
a Product sold by Flextronics to Customer hereunder, but solely to the extent
such injury or damage has been caused by the breach by Flextronics of its
obligations under this Agreement, including but not limited to the express
limited warranties related to Flextronics’s workmanship and manufacture in
accordance with the Specifications only as further set forth in Section 6.2;

 

(b)   any infringement of the intellectual property
rights of any third party but solely to the extent that such infringement is
caused by a process that Flextronics uses to manufacture, assemble and/or test
the Products; provided that, Flextronics shall not have any obligation to
indemnify Customer if such claim would not have arisen but for Flextronics’s
manufacture, assembly or test of the Product in accordance with the
Specifications; or

 

(c)   noncompliance with any Environmental
Regulations but solely to the extent that such non-compliance is caused
by a process or Production Materials that Flextronics uses to manufacture the
Products; provided that, Flextronics shall not have any obligation to indemnify
Customer if such claim would not have arisen but for Flextronics’s manufacture
of the Product in accordance with the Specifications.

 

9.2.          Indemnification by
Customer. Customer
agrees to defend, indemnify and hold harmless, Flextronics and its affiliates,
and all directors, officers, employees and agents (each, a “Flextronics Indemnitee”) from and against all Damages incurred by or assessed against any of the foregoing to the extent the
same arise out of, are in connection with, are caused by or are related to
third-party claims relating to:

 

(a)   any failure of any Product
(and Materials contained therein) sold by Flextronics hereunder to comply with
any safety standards and/or Environmental Regulations
to the extent that such failure
has not  been caused by Flextronics’s
breach of its express limited warranties set forth in Section 6.2 hereof;
any actual or threatened injury or damage to any person or property caused, or
alleged to be caused, by a Product, but only to the extent such injury or
damage has not been caused
Flextronics’s breach of its express limited warranties related to Flextronics’s
workmanship and manufacture in accordance with the Specifications only as
further set forth in Section 6.2 hereof ; or

 

(b)   any infringement of the
intellectual property rights of any third party by any Product except to the
extent such infringement is the responsibility of Flextronics pursuant to Section 9.1(b) above.

 

* Confidential
treatment has been requested for certain portions of this document pursuant to
an application for confidential treatment sent to the Securities and Exchange
Commission.  Such portions are omitted
from this filing and filed separately with the Securities and Exchange
Commission.

 

7

 

9.3.          Procedures for Indemnification.  With
respect to any third-party claims, either party shall give the other party
prompt notice of any third-party claim and cooperate with the indemnifying
party at its expense.  The indemnifying
party shall have the right to assume the defense (at its own expense) of any
such claim through counsel of its own choosing by so notifying the party
seeking indemnification within thirty (30) calendar days of the first receipt
of such notice.  The party seeking
indemnification shall have the right to participate in the defense thereof and
to employ counsel, at its own expense, separate from the counsel employed by
the indemnifying party.  The indemnifying
party shall not, without the prior written consent of the indemnified party,
agree to the settlement, compromise or discharge of such third-party claim.

 

9.4.          Sale of Products Enjoined. Should the use of any Products be enjoined
for a cause stated in Section 9.1(b) or 9.2(c) above, or in the
event the indemnifying party desires to minimize its liabilities under this Section 9,
in addition to its indemnification obligations set forth in this Section 9,
the indemnifying party’s sole responsibility is to either substitute a fully
equivalent Product or process (as applicable) not subject to such injunction,
modify such Product or process (as applicable) so that it no longer is subject
to such injunction, or obtain the right to continue using the enjoined process
or Product (as applicable).  In the event
that any of the foregoing remedies cannot be effected on commercially
reasonable terms, then, all accepted purchase orders and the current forecast
will be considered cancelled and Customer shall purchase all Products,
Inventory and Special Inventory as provided in Sections 5.3 and 5.4
hereof.  Any changes to any Products or
process must be made in accordance with Section 2.3 above.  Notwithstanding the foregoing, in the event
that a third party makes an infringement claim, but does not obtain an
injunction, the indemnifying party shall not be required to substitute a fully
equivalent Product or process (as applicable) or modify the Product or process
(as applicable) if the indemnifying party obtains an opinion from competent
patent counsel reasonably acceptable to the other party that such Product or
process is not infringing or that the patents alleged to have been infringed
are invalid.

 

9.5.          No Other Liability. EXCEPT WITH REGARD TO A BREACH OF SECTIONS 9.1 AND 9.2
ABOVE OR SECTION 10.1 BELOW, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER FOR ANY “COVER” DAMAGES (INCLUDING INTERNAL COVER DAMAGES WHICH THE
PARTIES AGREE MAY NOT BE CONSIDERED “DIRECT” DAMAGES), OR ANY INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND OR NATURE ARISING OUT OF
THIS AGREEMENT OR THE SALE OF PRODUCTS, WHETHER SUCH LIABILITY IS ASSERTED ON
THE BASIS OF CONTRACT, TORT (INCLUDING THE POSSIBILITY OF NEGLIGENCE OR STRICT
LIABILITY), OR OTHERWISE, EVEN IF THE PARTY HAS BEEN WARNED OF THE POSSIBILITY
OF ANY SUCH LOSS OR DAMAGE, AND EVEN IF ANY OF THE LIMITED REMEDIES IN THIS
AGREEMENT FAIL OF THEIR ESSENTIAL PURPOSE.

 

THE FOREGOING SECTION 9 STATES THE
ENTIRE LIABILITY OF THE PARTIES TO EACH OTHER CONCERNING INFRINGEMENT OF
PATENT, COPYRIGHT, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHTS.

 

10.  MISCELLANEOUS

 

10.1.                Confidentiality.  Each party shall refrain from using any and
all Confidential Information of the disclosing party for any purposes or
activities other than those specifically authorized in this Agreement.  Except as otherwise specifically permitted
herein or pursuant to written permission of the party to this Agreement owning
the Confidential Information, no party shall disclose or facilitate disclosure
of Confidential Information of the disclosing party to anyone without the prior
written consent of the disclosing party, except to its employees, consultants,
parent company, and subsidiaries of its parent company who need to know such
information for carrying out the activities contemplated by this Agreement and
who have agreed in writing to confidentiality terms that are no less
restrictive than the requirements of this Section.  Notwithstanding
the foregoing, the receiving party may disclose Confidential Information of the
disclosing party pursuant to a subpoena or other court process only (i) is required to be disclosed by law or a valid
order by a court or other governmental body, provided that the receiving party
provides the disclosing party with prior written notice of such disclosure in
order to permit the disclosing party to seek confidential treatment of such
information  and (ii) after the receiving party has given
the disclosing party a reasonable opportunity to oppose such subpoena or other
process or to obtain a protective order. 
Confidential Information of the disclosing party in the custody
or control of the receiving party shall be promptly returned or destroyed upon
the earlier of (i) the disclosing party’s written request or (ii) termination
of this Agreement.  Confidential
Information disclosed pursuant to this Agreement shall be maintained
confidential for a period of three (3) years after the disclosure thereof.  The existence and terms of this Agreement
shall be confidential in perpetuity.

 

10.2.                RFQ Participation.  Customer agrees to allow Flextronics a right
of first refusal in all original design manufacture product RFQs, provided that
Flextronics’s products meet Customer’s customer requirements, meet required
product specifications, timeline, price and quality.  Customer will source these products from
Flextronics for 5 years. Customer agrees to allow Flextronics the opportunity
to participate in additional opportunities within Customer’s business,
including the following: notebook depot work, vertical integration
opportunities, National Service Provider work (outsourced customization), and
Product engineering/development work.

 

8

 

10.3.                Use of Flextronics Name is
Prohibited.  The
existence and terms of this Agreement are Confidential Information and
protected pursuant to Section 10.1 above. 
Accordingly, neither Customer nor Flextronics may not use the other’s
name or identity or any other Confidential Information in any advertising,
promotion or other public announcement without the prior express written
consent of such party.  Notwithstanding the foregoing, in the event
that Flextronics or Customer is
required to disclose such information by law or a valid order by a court or
other governmental body, Flextronics or Customer may disclose such information
provided that the party provides the other party with prior written notice of
such requirement and permits the such party the good faith opportunity to seek
confidential treatment of such information.

 

10.4.        Entire Agreement;
Severability.  This Agreement constitutes the
entire agreement between the Parties with respect to the transactions
contemplated hereby and supersedes all prior agreements and understandings
between the parties relating to such transactions.  If the scope of any of the provisions of this
Agreement is too broad in any respect whatsoever to permit enforcement
to its full extent, then such provisions shall be enforced to the maximum
extent permitted by law, and the parties hereto consent and agree that such
scope may be judicially modified accordingly and that the whole of such
provisions of this Agreement shall not
thereby fail, but that the scope of such provisions shall be curtailed only to
the extent necessary to conform to law.

 

10.5.        Amendments; Waiver.  This
Agreement may be amended only by written consent of both parties.  The failure by either party to enforce any
provision of this Agreement will not constitute a waiver of future enforcement
of that or any other provision.  Neither
party will be deemed to have waived any rights or remedies hereunder
unless such waiver is in writing and signed by a duly authorized representative
of the party against which such waiver is asserted.

 

10.6.        Independent Contractor.  Neither party shall, for any purpose, be
deemed to be an agent of the other party and the relationship between the
parties shall only be that of independent contractors.  Neither party shall have any right or
authority to assume or create any obligations or to make any representations or
warranties on behalf of any other party, whether express or implied, or to bind
the other party in any respect whatsoever.

 

10.7.        Expenses.  Each party shall pay their own expenses in
connection with the negotiation of this Agreement.  All fees and expenses incurred in connection
with the resolution of Disputes shall be allocated as further provided in Section 10.13
below.

 

10.8.        Insurance.  Flextronics and Customer agree to maintain
appropriate insurance to cover their respective risks under this Agreement with
coverage amounts commensurate with levels in their respective markets.  Customer specifically agrees to maintain
insurance coverage for any finished Products or Materials the title and risk of
loss of which passes to Customer pursuant to this Agreement and which is stored
on the premises of Flextronics.    Each
party shall furnish certificates of insurance and such other appropriate
documentation (including evidence of renewal of insurance) evidencing all
insurance coverage’s set forth in this Section 10.9.  Such certificates of insurance and other
documentation shall name the other party and its officers, directors and
employees as additional insured and will provide at least thirty (30) days
prior written notice of any cancellation or material alteration of the
insurance coverage set forth in this Section 10.9.

 

10.9.        Force Majeure.  In the event that either party is prevented
from performing or is unable to perform any of its obligations under this
Agreement (other than a payment obligation) due to any act of God, acts or
decrees of governmental or military bodies, fire, casualty, flood, earthquake,
war, strike, lockout, epidemic, destruction of production facilities, riot,
insurrection, Materials unavailability, or any other cause beyond the
reasonable control of the party invoking this section (collectively, a “Force Majeure”), and if such party shall
have used its commercially reasonable efforts to mitigate its effects, such
party shall give prompt written notice to the other party, its performance
shall be excused, and the time for the performance shall be extended for the
period of delay or inability to perform due to such occurrences.  Regardless of the excuse of Force Majeure, if
such party is not able to perform within ninety (90) days after such event, the
other party may terminate the Agreement.

 

10.10.      Successors, Assignment.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives. 
Neither party shall have the right to assign or otherwise transfer its
rights or obligations under this Agreement except with the prior written
consent of the other party, not to be unreasonably withheld.  Notwithstanding the foregoing, Flextronics
may assign some or all of its rights and obligations under this Agreement to an
affiliated Flextronics entity.

 

10.11.      Notices.  All notices required or permitted under this
Agreement will be in writing and will be deemed received (a) when
delivered personally; (b) when sent by confirmed facsimile; (c) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (d) one (1) day after deposit with a
commercial overnight carrier.  All
communications will be sent to the addresses set forth above or to such other
address as may be designated by a party by giving written notice to the other party
pursuant to this section.

 

9

 

10.12.      Disputes Resolution; Waiver of Jury Trial.

 

(a)   Except as otherwise provided in this
Agreement, the following binding dispute resolution procedures shall be the
exclusive means used by the parties to resolve all disputes, differences,
controversies and claims arising out of or relating to the Agreement or any
other aspect of the relationship between Flextronics and Customer or their
respective affiliates and subsidiaries (collectively, “Disputes”).  Either party may, by written notice to the
other party, refer any Disputes for resolution in the manner set forth below.

 

(b)   Any and all Disputes shall be referred to
arbitration under the rules and procedures of Judicial Arbiter Group, Inc.
(“JAG”), who shall act as the arbitration
administrator (the “Arbitration Administrator”).

 

(c)   The parties shall agree on a single
arbitrator (the “Arbitrator”).  The Arbitrator shall be a retired judge
selected by the parties from a roster of arbitrators provided by the
Arbitration Administrator. If the parties cannot agree on an Arbitrator within
seven (7) days of delivery of the demand for arbitration (“Demand”) (or such other time period as the parties may
agree), the Arbitration Administrator will select an independent Arbitrator.

 

(d)   Unless otherwise mutually agreed to by the
parties, the place of arbitration shall be Denver, Colorado , although the
arbitrators may be selected from rosters outside Denver.

 

(e)   The Federal Arbitration Act shall govern the
arbitrability of all Disputes.  The
Federal Rules of Civil Procedure and the Federal Rules of Evidence
(the “Federal Rules”), to the extent not
inconsistent with this Agreement, govern the conduct of the arbitration.  To the extent that the Federal Arbitration
Act and Federal Rules do not provide an applicable procedure, Colorado law
shall govern the procedures for arbitration and enforcement of an award, and
then only to the extent not inconsistent with the terms of this Section.  Disputes between the parties shall be subject
to arbitration notwithstanding that a party to this Agreement is also a party
to a pending court action or special proceeding with a third party, arising out
of the same transaction or series of related transactions and there is a
possibility of conflicting rulings on a common issue of law or fact.

 

(f)    Unless otherwise mutually agreed to by the
parties, each party shall allow and participate in discovery as follows:

 

(i)            Non-Expert
Discovery.  Each party may (1) conduct
three (3) non-expert depositions of no more than five (5) hours of
testimony each, with any deponents employed by any party to appear for
deposition in Denver, Colorado; (2) propound a single set of requests for
production of documents containing no more than twenty (20) individual
requests; (3) propound up to twenty written interrogatories; and (4) propound
up to ten (10) requests for admission.

 

(ii)           Expert
Discovery. Each party may select a witness who is retained or specially
employed to provide  expert testimony and
an additional expert witness to testify with respect to damages issues, if any.
The parties shall exchange expert reports and documents under the same
requirements as Federal Rules of Civil Procedure 26(a)(2) &(4).

 

(iii)          Additional
Discovery.  The Arbitrator may, on
application by either party, authorize additional discovery only if deemed
essential to avoid injustice.  In the
event that remote witnesses might otherwise be unable to attend the
arbitration, arrangements shall be made to allow their live testimony by video
conference during the arbitration hearing.

 

(g)   The Arbitrator shall render an award within
six (6) months after the date of appointment, unless the parties agree to
extend such time. The award shall be accompanied by a written opinion setting
forth the findings of fact and conclusions of law.  The Arbitrator shall have authority to award
compensatory damages only, and shall not award any punitive, exemplary, or
multiple damages.  The award (subject to
clarification or correction by the arbitrator as allowed by statute and/or the
Federal Rules) shall be final and binding upon the parties, subject solely to
the review procedures provided in this Section.

 

(h)   Either party may seek arbitral review of the
award.  Arbitral review may be had as to
any element of the award.

 

(i)    This Agreement’s arbitration provisions are
to be performed in Denver, Colorado.  Any
judicial proceeding arising out of or relating to this Agreement or the
relationship of the parties, including without limitation any proceeding to enforce
this Section, to review or confirm the award in arbitration, or for preliminary
injunctive relief, shall be brought exclusively in a court of competent
jurisdiction in the county of Denver, Colorado (the “Enforcing
Court”).  By execution and
delivery of this Agreement, each party accepts the jurisdiction of the
Enforcing Court.

 

(j)    Each party shall pay their own expenses in
connection with the resolution of Disputes pursuant to this Section, including
attorneys’ fees.

 

(k)   Notwithstanding anything contained in this Section to
the contrary, in the event of any Dispute, prior to referring such Dispute to
arbitration pursuant to Subsection (b) of this Section, Customer and
Flextronics shall attempt in

 

10

 

good faith to resolve any and all controversies or claims relating to
such Disputes promptly by negotiation commencing within ten (10) calendar
days of the written notice of such Disputes by either party, including
referring such matter to Customer’s then-current President and Flextronics’s
then current executive in charge of manufacturing operations in the region in
which the primary activities of this Agreement are performed by
Flextronics.  The representatives of the
parties shall meet at a mutually acceptable time and place and thereafter as
often as they reasonably deem necessary to exchange relevant information and to
attempt to resolve the Dispute for a period of four (4) weeks.  In the event that the parties are unable to
resolve such Dispute pursuant to this Subsection (k), the provisions of
Subsections (a) through (j) of this Section, inclusive, as well as
Subsections (l), (m) and (n) of this Section shall apply.

 

(l)     The parties agree that the existence, conduct and content of any
arbitration pursuant to this Section shall be kept confidential and no
party shall disclose to any person any information about such arbitration,
except as may be required by law or by any governmental authority or for
financial reporting purposes in each party’s financial statements.

 

(m)   IN THE EVENT OF ANY DISPUTE BETWEEN THE PARTIES, WHETHER IT
RESULTS IN PROCEEDINGS IN ANY COURT IN ANY JURISDICTION OR IN ARBITRATION, THE
PARTIES HEREBY KNOWINGLY AND VOLUNTARILY, AND HAVING HAD AN OPPORTUNITY TO
CONSULT WITH COUNSEL, WAIVE ALL RIGHTS TO TRIAL BY JURY, AND AGREE THAT ANY AND
ALL MATTERS SHALL BE DECIDED BY A JUDGE OR ARBITRATOR WITHOUT A JURY TO THE
FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW.

 

(n)   In the event of any lawsuit between the parties arising out of or
related to this Agreement, the parties agree to prepare and to timely file in
the applicable court a mutual consent to waive any statutory or other
requirements for a trial by jury.

 

10.12.      Even-Handed Construction.  The terms and conditions as set forth in this
Agreement have been arrived at after mutual negotiation, and it is the
intention of the parties that its terms and conditions not be construed against
any party merely because it was prepared by one of the parties.

 

10.13.      Controlling Language.  This Agreement is in English only, which
language shall be controlling in all respects. All documents exchanged under
this Agreement shall be in English.

 

10.14.      Controlling Law.  This Agreement shall be governed and
construed in all respects in accordance with the domestic laws and regulations
of the State of Colorado, without regard to its conflicts of laws provisions;
except to the extent there may be any conflict between the law of the State of
Colorado and the Incoterms of the International Chamber of Commerce, 2000
edition, in which case the Incoterms shall be controlling.  The parties specifically agree that the 1980
United Nations Convention on Contracts for the International Sale of Goods, as
may be amended from time to time, shall not apply to this Agreement.  The
parties acknowledge and confirm that they have selected the laws of the State
of Colorado as the governing law for this Agreement in part because jury trial
waivers are enforceable under Colorado law. 
The parties further acknowledge and confirm that the selection of the
governing law is a material term of this Agreement.

 

10.15.      Counterparts.  This Agreement may be executed in
counterparts.

 

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

 

	
  MPC CORPORATION:

  	
   

  	
  FLEXTRONICS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
        /s/             
  Jeffrey E. Fillmore

  	
   

  	
  By:
  

  	
        /s/             
  Manny Marimuthu

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   COO

  	
   

  	
  Title:

  	
   

  
							

 

11

 

Exhibit 1

 

Definitions

 

	
  “Affected Inventory Costs”

  	
   

  	
  shall
  mean: (i) [*] of the Cost of all affected Inventory and Special
  Inventory in Flextronics’s possession and not returnable to the vendor or
  reasonably usable for other customers, whether in raw form or work in
  process, less the salvage value thereof, (ii) [*] of the Cost of all
  affected Inventory and Special Inventory on order and not cancelable,
  (iii) any vendor cancellation charges incurred with respect to the
  affected Inventory and Special Inventory accepted for cancellation or return
  by the vendor, (iv) the then current fees for any affected Product, and
  (v) expenses incurred by Flextronics related to labor and equipment
  specifically put in place to support the purchase orders and forecasts that are
  affected by such reschedule or cancellation (as applicable).

  
	
   

  	
   

  	
   

  
	
  “Approved Vendor List” or “AVL”

  	
   

  	
  shall
  mean the list of suppliers currently approved to provide the Materials
  specified in the bill of materials for a Product.

  
	
   

  	
   

  	
   

  
	
  “Confidential Information”

  	
   

  	
  shall
  mean (a) the existence and terms of this Agreement and all information
  concerning the unit number and fees for Products and Inventory/Special
  Inventory and (b) any other information that is marked “Confidential” or
  the like or, if delivered verbally, confirmed in writing to be “Confidential”
  within 30 days of the initial disclosure. Confidential
  Information does not include information that (i) the receiving party
  can prove it already knew at the time of receipt from the disclosing party;
  or (ii) has come into the public domain without breach of confidence by
  the receiving party; (iii) was received from a third party without
  restrictions on its use; (iv) the receiving party can prove it
  independently developed without use of or reference to the disclosing party’s
  data or information; or (v) the disclosing party agrees in writing is
  free of such restrictions.

  
	
   

  	
   

  	
   

  
	
  “Cost”

  	
   

  	
  shall
  mean the cost represented on the bill of materials supporting the most
  current fees for Products at the time of cancellation, expiration or
  termination, as applicable.

  
	
   

  	
   

  	
   

  
	
  “Customer
  Controlled Materials”

  	
   

  	
  shall
  mean those Materials provided by Customer or by suppliers with whom Customer
  has a commercial contractual or non-contractual relationship.

  
	
   

  	
   

  	
   

  
	
  “Customer
  Controlled Materials  Terms”

  	
   

  	
  shall
  mean the terms and conditions that Customer has negotiated with its suppliers
  for the purchase of Customer Controlled Materials.

  
	
   

  	
   

  	
   

  
	
  “Customer Indemnitees”

  	
   

  	
  shall
  have the meaning set forth in Section 9.1.

  
	
   

  	
   

  	
   

  
	
  “Damages”

  	
   

  	
  shall
  have the meaning set forth in Section 9.1.

  
	
   

  	
   

  	
   

  
	
  “Disputes”

  	
   

  	
  shall
  have the meaning set forth in Section 10.13(a)

  
	
   

  	
   

  	
   

  
	
  “Economic Order Inventory”

  	
   

  	
  shall
  mean Materials purchased in quantities, above the required amount for
  purchase orders, in order to achieve price targets for such Materials.

  
	
   

  	
   

  	
   

  
	
  “Environmental Regulations”

  	
   

  	
  Shall
  mean any hazardous
  substance content laws and regulations including, without limitation, those
  related to the EU Directive 2002/95/EC about the Restriction of Use of
  Hazardous Substances (RoHS).

  

 

* Confidential treatment has been requested for certain portions of
this document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission.  Such
portions are omitted from this filing and filed separately with the Securities
and Exchange Commission.

 

12

 

	
  “Fee List”

  	
   

  	
  shall
  have the meaning set forth in Section 3.4.

  
	
   

  	
   

  	
   

  
	
  “Flextronicsibility Table”

  	
   

  	
  shall
  have the meaning set forth in Section 5.2.

  
	
   

  	
   

  	
   

  
	
  “Flextronics Indemnitee”

  	
   

  	
  shall
  have the meaning set forth in Section 9.2.

  
	
   

  	
   

  	
   

  
	
  “Force Majeure”

  	
   

  	
  shall
  have the meaning set forth in Section 10.10.

  
	
   

  	
   

  	
   

  
	
  “Inventory”

  	
   

  	
  shall
  mean any Materials that are used to manufacture Products that are ordered
  pursuant to a purchase order from Customer.

  
	
   

  	
   

  	
   

  
	
  “Lead Time(s)”

  	
   

  	
  shall
  mean the Materials Procurement Lead Time plus the manufacturing cycle time
  required from the delivery of the Materials at Flextronics’s facility to the
  completion of the manufacture, assembly and test processes.

  
	
   

  	
   

  	
   

  
	
  “Long Lead Time Materials”

  	
   

  	
  shall
  mean Materials with Lead Times exceeding the period covered by the accepted
  purchase orders for the Products.

  
	
   

  	
   

  	
   

  
	
  “Materials”

  	
   

  	
  shall
  mean components, parts and subassemblies that comprise the Product and that
  appear on the bill of materials for the Product.

  
	
   

  	
   

  	
   

  
	
  “Materials Procurement Lead Time”

  	
   

  	
  shall
  mean with respect to any particular item of Materials, the longer of
  (a) lead time to obtain such Materials as recorded on Flextronics’s MRP
  system or (b) the actual lead time, if a supplier has increased the lead
  time but Flextronics has not yet updated its MRP system.

  
	
   

  	
   

  	
   

  
	
  “Minimum Order Inventory”

  	
   

  	
  shall
  mean Materials purchased in excess of requirements for purchase orders
  because of minimum lot sizes available from the supplier.

  
	
   

  	
   

  	
   

  
	
  “Monthly Charges”

  	
   

  	
  shall
  mean a finance carrying charge of [*]and a storage and handling charge of
  [*], in each case of the Cost of the Inventory and/or Special Inventory
  and/or of the fees for the Product affected by the reschedule or cancellation
  (as applicable) per month until such Inventory and/or Special Inventory
  and/or Product is returned to the vendor, used to manufacture Product or is
  otherwise purchased by Customer.

  
	
   

  	
   

  	
   

  
	
  “Move Completion Date”

  	
   

  	
  shall
  have the meaning set forth in Section 2.2.

  
	
   

  	
   

  	
   

  
	
  “Product”

  	
   

  	
  shall
  have the meaning set forth in Section 2.1.

  
	
   

  	
   

  	
   

  
	
  “Production Materials”

  	
   

  	
  shall
  mean Materials that are consumed in the production processes to manufacture
  Products including without limitation, solder, epoxy, cleaner solvent,
  labels, flux, and glue. Production Materials do not include any such
  production materials that have been specified by the Customer or any Customer
  Controlled Materials.

  
	
   

  	
   

  	
   

  
	
  “Special Inventory”

  	
   

  	
  shall
  mean any Long Lead Time Materials and/or Minimum Order Inventory and/or
  Economic Order Inventory.

  
	
   

  	
   

  	
   

  
	
  “Specifications”

  	
   

  	
  shall
  have the meaning set forth in Section 2.1.

  
	
   

  	
   

  	
   

  
	
  “Work”

  	
   

  	
  shall
  have the meaning set forth in Section 2.1.

  

 

* Confidential treatment has been requested for certain portions of
this document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission.  Such
portions are omitted from this filing and filed separately with the Securities and
Exchange Commission.

 

13

 

EXHIBIT 2.2

 

TIMELINE

 

14

 

EXHIBIT 3.4

 

FEES LIST

 

The
following transformation fees apply to a standard configuration. Any special
configurations which significantly increase the manufacturing used to calculate
these fees will be quoted separately prior to acceptance of the purchase order.

 

Transformation
Costs Landed El Paso

 

	
  Platform

  	
   

  	
  Product

  	
   

  	
  Family

  	
   

  	
  Trans/Cost

  
	
  Notebook

  	
   

  	
  M285
  / S7225

  	
   

  	
  Viper
  C

  	
   

  	
  [*]

  
	
  Notebook

  	
   

  	
  E295
  / S7235

  	
   

  	
  Viper
  SR

  	
   

  	
  [*]

  
	
  Notebook

  	
   

  	
  E100
  / S7110

  	
   

  	
  Cyclops
  C

  	
   

  	
  [*]

  
	
  Notebook

  	
   

  	
  E155
  / S7125

  	
   

  	
  Phoenix

  	
   

  	
  [*]

  
	
  Notebook

  	
   

  	
  M465
  / S7310

  	
   

  	
  Mystique
  C

  	
   

  	
  [*]

  
	
  Notebook

  	
   

  	
  E265
  / S7220

  	
   

  	
  Phantom

  	
   

  	
  [*]

  
	
  Notebook

  	
   

  	
  E475
  / S7320

  	
   

  	
  Orion

  	
   

  	
  [*]

  
	
  Notebook

  	
   

  	
  M685
  / S7410

  	
   

  	
  Sonic
  C

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Desktop

  	
   

  	
  E-1500
  / S-5105

  	
   

  	
  E-1500

  	
   

  	
  [*]

  
	
  Desktop

  	
   

  	
  E-2600
  / S-5205

  	
   

  	
  E-2600

  	
   

  	
  [*]

  
	
  Desktop

  	
   

  	
  E-2610
  / S-5215

  	
   

  	
  E-2610

  	
   

  	
  [*]

  
	
  Desktop

  	
   

  	
  E-4610
  / S-5405

  	
   

  	
  E-4610

  	
   

  	
  [*]

  
	
  Desktop

  	
   

  	
  E-4620

  	
   

  	
  E-4620

  	
   

  	
  [*]

  
	
  Desktop

  	
   

  	
  E-6610
  / S-5615

  	
   

  	
  E-6610

  	
   

  	
  [*]

  
	
  Desktop

  	
   

  	
  E-6620
  / S-6625

  	
   

  	
  E-6620

  	
   

  	
  [*]

  
	
  Desktop

  	
   

  	
  Profile
  6.0 / S

  	
   

  	
  Profile
  6.0

  	
   

  	
  [*]

  
	
  Desktop

  	
   

  	
  Profile
  6.5 / S

  	
   

  	
  Profile
  6.5

  	
   

  	
  [*]

  

 

Change/Cancellation
Costs

 

	
  Level

  	
   

  	
  Description

  	
   

  	
  Applies to

  	
   

  	
  Cost

  
	
  Stage
  1

  	
   

  	
  Post
  Kit/Pre Assembly

  	
   

  	
  All
  Products

  	
   

  	
  [*]

  
	
  Stage
  2

  	
   

  	
  Post
  Assembly/Pre Test

  	
   

  	
  All
  Products

  	
   

  	
  [*]

  
	
  Stage
  3

  	
   

  	
  Post
  Test/Pre Packaging

  	
   

  	
  All
  Products

  	
   

  	
  [*]

  
	
  Stage
  4

  	
   

  	
  Post
  Packaging

  	
   

  	
  All
  Products

  	
   

  	
  [*]

  

 

Any
changes/cancellations which may require more time to disposition and resolve
will be billed at a factory rate of [*] Customer will be notified in advance of
any special circumstance which requires an hourly charge.

 

*
Confidential treatment has been requested for certain portions of this document
pursuant to an application for confidential treatment sent to the Securities
and Exchange Commission.  Such portions
are omitted from this filing and filed separately with the Securities and
Exchange Commission.

 

15

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