Document:

EXHIBIT
10.1

STOCK
PURCHASE AGREEMENT

By
and Between

MILLENNIUM
CELL INC.

and

THE
DOW CHEMICAL COMPANY 

Dated
February 27, 2005

 

 

 

TABLE
OF CONTENTS

 

	
      1.
	
      Transactions
      and Closings.
	
      1

 

	
      1.1.
	
      First
      Closing.
	
      1

	
      1.2.
	
      Second
      Closing.
	
      3

	
      1.3.
	
      Third
      Closing.
	
      4

	
      1.4.
	
      Fourth
      Closing.
	
      5

	
      1.5.
	
      Fifth
      Closing.
	
      7

	
      1.6.
	
      Closing.
	
      8

	
      1.7.
	
      Carry
      Forward of Series B Investments.
	
      8

	
      1.8.
	
      Deferred
      Shares.
	
      8

	
      1.9.
	
      Excess
      Shares.
	
      9

	
      1.10.
	
      Defined
      Terms Used in this Agreement.
	
      9

 

	
      2.
	
      Representations
      and Warranties of the Company.
	
      12

 

	
      2.1.
	
      Organization,
      Good Standing, Corporate Power and Qualification.
	
      12

	
      2.2.
	
      Corporate
      Power and Authorization.
	
      12

	
      2.3.
	
      Capitalization.
	
      12

	
      2.4.
	
      Subsidiaries.
	
      12

	
      2.5.
	
      Valid
      Issuance of Shares.
	
      13

	
      2.6.
	
      Filings,
      Consents and Approvals; Non-Contravention.
	
      13

	
      2.7.
	
      Litigation.
	
      13

	
      2.8.
	
      Patents
      and Trademarks.
	
      13

	
      2.9.
	
      Compliance.
	
      14

	
      2.10.
	
      Conflicts
      of Interest.
	
      14

	
      2.11.
	
      Registration
      and Voting Rights.
	
      14

	
      2.12.
	
      SEC
      Reports; Financial Statements.
	
      14

	
      2.13.
	
      Material
      Changes.
	
      15

	
      2.14.
	
      Tax
      Returns and Payments.
	
      15

	
      2.15.
	
      Insurance.
	
      15

	
      2.16.
	
      Listing
      and Maintenance Requirements.
	
      15

	
      2.17.
	
      Internal
      Accounting Controls.
	
      16

	
      2.18.
	
      Private
      Placement.
	
      16

	
      2.19.
	
      Investment
      Company.
	
      16

	
      2.20.
	
      Application
      of Takeover Protections.
	
      16

	
      2.21.
	
      Disclosure.
	
      16

 

	
      3.
	
      Representations
      and Warranties of the Purchaser.
	
      16

 

	
      3.1.
	
      Organization;
      Good Standing.
	
      16

	
      3.2.
	
      Corporate
      Power and Authorization.
	
      16

	
      3.3.
	
      Purchase
      Entirely for Own Account.
	
      17

	
      3.4.
	
      Restricted
      Securities.
	
      17

	
      3.5.
	
      No
      Public Market.
	
      17

	
      3.6.
	
      Legends.
	
      17

	
      3.7.
	
      Accredited
      Investor.
	
      17

	
      3.8.
	
      Access
      to Information.
	
      18

 

 

i

 

	
      4.
	
      Certain
      Covenants and Agreements.
	
      18

 

	
      4.1.
	
      Reservation
      of Shares.
	
      18

	
      4.2.
	
      Continued
      Access to Information.
	
      18

	
      4.3.
	
      Meeting
      of Company Stockholders.
	
      18

	
      4.4.
	
      Proxy
      Statement.
	
      18

	
      4.5.
	
      Further
      Assurances.
	
      19

	
      4.6.
	
      Use
      of the Purchaser s Name.
	
      19

	
      4.7.
	
      Use
      of Intellectual Property.
	
      19

	
      4.8.
	
      Listing
      of Stock.
	
      20

	
      4.9.
	
      Securities
      Law Disclosure; Publicity.
	
      20

	
      4.10.
	
      Satisfaction
      of Conditions to the Purchaser s Right to Purchase Series B
      Preferred.
	
      20

 

	
      5.
	
      Conditions
      to the Purchaser s Rights at Closing.
	
      20

 

	
      5.1.
	
      First
      Closing.
	
      20

	
      5.2.
	
      Subsequent
      Closings.
	
      22

 

	
      6.
	
      Conditions
      of the Company s Obligations at Closing.
	
      23

 

	
      6.1.
	
      First
      Closing.
	
      23

	
      6.2.
	
      Subsequent
      Closings.
	
      24

 

	
      7.
	
      Term
      and Termination.
	
      24

 

	
      7.1.
	
      Term.
	
      24

	
      7.2.
	
      Termination.
	
      24

	
      7.3.
	
      Effect
      of Termination.
	
      25

 

	
      8.
	
      Indemnification.
	
      26

 

	
      8.1.
	
      Indemnification
      of the Purchaser.
	
      26

	
      8.2.
	
      Indemnification
      of the Company.
	
      26

	
      8.3.
	
      Limitations.
	
      26

	
      8.4.
	
      Procedures.
	
      27

 

	
      9.
	
      Miscellaneous.
	
      28

 

	
      9.1.
	
      Survival.
	
      28

	
      9.2.
	
      Transfer;
      Successors and Assigns.
	
      28

	
      9.3.
	
      Governing
      Law.
	
      28

	
      9.4.
	
      Counterparts.
	
      28

	
      9.5.
	
      Construction
      of Certain Terms.
	
      28

	
      9.6.
	
      Notices.
	
      28

	
      9.7.
	
      No
      Finder s Fees.
	
      29

	
      9.8.
	
      Fees
      and Expenses.
	
      29

	
      9.9.
	
      Amendments
      and Waivers.
	
      29

	
      9.10.
	
      Severability.
	
      29

	
      9.11.
	
      Delays
      or Omissions.
	
      29

	
      9.12.
	
      Entire
      Agreement.
	
      30

	
      9.13.
	
      Dispute
      Resolution.
	
      30

ii

 

Attachment
I Series A
Certificate of Designation

Attachment
II Series B
Certificate of Designation

Exhibit
A Form of
Joint Development Agreement

Exhibit
B Form of
Cross Licensing and Intellectual Property Agreement

Exhibit
C Form of
Investor Rights Agreement

Exhibit
D Form of
Registration Rights Agreement

Exhibit
E Form of
Standstill Agreement

Exhibit
F Form of
Opinion of Counsel

Exhibit
G Form of
Warrant

Exhibit
H Form of
Patent Assignment Agreement

Exhibit
I Communications
Plan

 

iii

STOCK
PURCHASE AGREEMENT

 

THIS
STOCK PURCHASE AGREEMENT (this
Agreement ) is
made as of the 27th day of
February, 2005 by and among Millennium Cell Inc., a Delaware corporation (the
Company ), and
The Dow Chemical Company, a Delaware corporation (the Purchaser ). The
Company and the Purchaser also may be referred to herein individually as a
Party or
collectively as the Parties.

 

Recitals

 

WHEREAS,
the Company is engaged in the business of developing fuel systems for the safe
storage, transportation and generation of hydrogen for use as an energy source
and, in connection therewith, has developed and patented the propriety system
called Hydrogen
on Demand, whereby
the energy potential of hydrogen is carried in the chemical bonds of sodium
borohydride, which in the presence of a catalyst, releases
hydrogen;

 

WHEREAS,
among other things, the Purchaser is engaged directly and indirectly in
developing technologies addressing the increasing need for energy for portable
electronics devices;

 

WHEREAS,
the Parties wish to jointly develop portable energy solutions through the
production of hydrogen gas for use by fuel cells in the Field of Use (as defined
in the Joint Development Agreement) and the Application (as defined in the Joint
Development Agreement), using certain processes currently being developed by the
Company; and

 

WHEREAS,
in connection with the joint development arrangement described above, and
subject to the terms and conditions of this Agreement, the Company and the
Purchaser have agreed that (i) at the First Closing, the Company will issue
certain shares of Series A Preferred to the Purchaser in consideration for the
Purchaser entering the Joint Development Agreement, (ii) upon the achievement of
Milestones 1, 2, 3 and 4 (each as defined in the Joint Development Agreement),
(a) the Company will issue certain shares of Series A Preferred in consideration
for the Purchaser providing its commercial and technical services pursuant to
the Joint Development Agreement and (b) the Purchaser will have the right to
purchase certain shares of Series B Preferred Stock and receive certain
Warrants, all as further described in this Agreement.

 

NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements contained herein, the Parties agree as follows:

 

1.    Transactions
and Closings.

 

1.1.  First
Closing. Upon the
terms and subject to the conditions set forth in this Agreement, the initial
closing (the First
Closing ) shall
take place as soon as practicable, but in no event later than ten (10) Business
Days after the satisfaction of the conditions set forth in Section
5.1 and
Section
6.1 (or such
other time as the Parties may agree) (the First
Closing Date ). At
the First Closing, the following shall occur:

 

(a)  the
Company shall file a Certificate of Designation with the Secretary of State for
the State of Delaware substantially in the form of Attachment
I hereto
that establishes the powers, preferences and special rights of the Series A
Convertible Preferred Stock (the Series
A Certificate of Designation
);

 

 

(b)  the
Company shall file a Certificate of Designation with the Secretary of State for
the State of Delaware in the form of Attachment
II hereto
that establishes the powers, preferences and special rights of the Series B
Convertible Preferred Stock (the Series
B Certificate of Designation , and
together with the Series A Certificate of Designation, the Certificates
of Designation
);

 

(c)  the
Company and the Purchaser shall enter into a Joint Development Agreement, in the
form attached hereto as Exhibit
A (the
Joint
Development Agreement
);

 

(d)  in
exchange for entering into the Joint Development Agreement, the Company shall
issue to the Purchaser, and the Purchaser shall accept, such number of shares of
Series A-0 Preferred equal to a 3% Ownership Interest;

 

(e)  the
Company and the Purchaser shall execute and deliver the Cross Licensing and
Intellectual Property Agreement, in the form attached hereto as Exhibit
B (the
Cross
Licensing Agreement
);

 

(f)  the
Company and the Purchaser shall execute and deliver the Investor Rights
Agreement, in the form attached hereto as Exhibit
C (the
Investor
Rights Agreement
);

 

(g)  the
Company and the Purchaser shall execute and deliver the Registration Rights
Agreement, in the form attached hereto as Exhibit
D (the
Registration
Rights Agreement
);

 

(h)  the
Company and the Purchaser shall execute and deliver the Standstill Agreement, in
the form attached hereto as Exhibit
E (the
Standstill
Agreement
);

 

(i)  the
Company shall deliver an opinion of counsel to the Company substantially in the
form of Exhibit
F hereto
(the Opinion
of Counsel )
applicable to the First Closing;

 

(j)  the
Company and the Purchaser shall execute and deliver the Patent Assignment
Agreement, in the form attached hereto as Exhibit
H (
Patent
Assignment Agreement
);

 

(k)  the
President of the Company shall deliver to the Purchaser at the First Closing a
certificate certifying that the conditions specified in Section
5.1(a) and
Section
5.1(b) have
been fulfilled;

 

(l)  the
Company shall reserve a sufficient number of shares of Common Stock to account
for the conversion of all of the outstanding Series A Preferred (taking into
account the First Closing); and

 

(m)  the
Company and the Purchaser shall execute and deliver any other documents,
certificates and agreements necessary or desirable to accomplish the
foregoing.

 

 

2

 

1.2.  Second
Closing. Upon the
terms and subject to the conditions set forth in this Agreement, the second
closing (the Second
Closing ) shall
take place within five (5) days following the Milestone Target Payment Date
applicable to Milestone 1 (as defined in the Joint Development Agreement) upon
the satisfaction of the conditions set forth in Section
5.2 and
Section
6.2
applicable to the Second Closing (or such other time and place as the Parties
may agree) (the Second
Closing Date ). At
the Second Closing, the following shall occur:

 

(a)  in the
event the Purchaser elects to purchase Series B Preferred at the Second Closing,
the Purchaser shall deliver to the Company an amount in United States dollars (
U.S.
Dollars ) in
immediately available funds that is not greater than the Maximum Total Series B
Investment (such actual amount being the Second
Closing Payment ), and,
in exchange therefor, the Company shall issue and sell to the Purchaser, and the
Purchaser shall accept (subject to Section
1.9), a
number of shares of Series B-1 Preferred equal to (x) the Second Closing
Payment divided by (y) the Series B-1 Purchase Price (as defined in the
Series B Certificate of Designations);

 

(b)  in the
event the Purchaser elects to pay to the Company the Second Closing Payment
specified above, the Company shall execute and deliver a warrant substantially
in the form of Exhibit
G hereto
(the Warrant ) in
favor of the Purchaser, convertible into such number of shares of Common Stock
equal to 25% of the number of shares of Common Stock into which the Series B-1
Preferred purchased pursuant to Section
1.2(a) above
are convertible on the date of issuance of the Series B-1
Preferred;

 

(c)  provided
that the Purchaser makes the Minimum Series B Investment at the Second Closing,
the Company shall issue to the Purchaser, and the Purchaser may choose to accept
(at its sole discretion, subject to Section
1.8 and
Section
1.9), such
number of shares of Series A-1 Preferred that equal, when combined with such
number of the Series B-1 Preferred and Warrants, if any, purchased by the
Purchaser at the Second Closing up to the Minimum Series B Investment, a 4%
Ownership Interest. For purposes of clarity, in the event that the Purchaser
elects to invest more than the Minimum Series B Investment at the Second
Closing, only such number of Series B-1 Preferred and Warrants as would have
been purchased with the Minimum Series B Investment shall be counted in
determining the 4% Ownership Interest. Notwithstanding the foregoing, the
Company shall issue to the Purchaser a number of shares of Series A-1 Preferred
with a Series A Liquidation Value equal to at least $1,250,000, regardless of
whether such number of shares results in the Purchaser acquiring greater than a
4% Ownership Interest at the Second Closing (but in no event shall Purchaser
acquire greater than a 10% Ownership Interest at the Second Closing, without
regard to the Ownership Interest acquired by Purchaser at any prior Closing),
provided,
however, that,
in the event the Purchaser does not elect to pay the Company at least the
Minimum Series B Investment at the Second Closing, the Company shall issue to
the Purchaser, and the Purchaser shall be entitled to receive, only the greater
of (i) a number of shares of Series A-1 Preferred equal to a 2% Ownership
Interest, and (ii) a number of shares of Series A-1 Preferred with a Series A
Liquidation Value equal to $625,000, but not in any event to exceed a maximum 2%
Ownership Interest;

 

(d)  the
Company shall deliver an Opinion of Counsel applicable to the Second
Closing;

 

3

 

(e)  updated
Schedules to this Agreement (which update of the representations and warranties
shall reflect that a Material Adverse Effect has not occurred since the prior
Closing);

 

(f)  the
President of the Company shall deliver to the Purchaser a certificate certifying
that the conditions specified in Section
5.2(a) and
Section
5.2(b)
applicable to the Second Closing have been fulfilled;

 

(g)  the
Company shall reserve a sufficient number of shares of Common Stock to account
for the conversion of all of the outstanding Preferred Shares plus the exercise
of all of the outstanding Warrants (taking into account the Second Closing and
including any Deferred Securities under Section
1.8 and
Excess Shares under Section
1.9);
and

 

(h)  the
Company and the Purchaser shall execute and deliver any other documents and
agreements necessary or desirable to accomplish the foregoing.

 

1.3.  Third
Closing. Upon the
terms and subject to the conditions set forth in this Agreement, the third
closing (the Third
Closing ) shall
take place within five (5) days following the Milestone Target Payment Date
applicable to Milestone 2 upon the satisfaction of the conditions set forth in
Section
5.2 and
Section
6.2
applicable to the Third Closing (or such other time and place as the Parties may
agree) (the Third
Closing Date ). At
the Third Closing, the following shall occur:

 

(a)  in the
event the Purchaser elects to purchase Series B Preferred at the Third Closing,
the Purchaser shall deliver to the Company an amount in U.S. Dollars in
immediately available funds that is not greater than the Maximum Total Series B
Investment (such actual amount being the Third
Closing Payment ), and,
in exchange therefor, the Company shall issue and sell to the Purchaser, and the
Purchaser shall accept (subject to Section
1.9), a
number of shares of Series B-2 Preferred equal to (x) the Third Closing
Payment divided by (y) the Series B-2 Purchase Price (as defined in the
Series B Certificate of Designations);

 

(b)  in the
event the Purchaser elects to pay to the Company the Third Closing Payment
specified above, the Company shall execute and deliver a Warrant in favor of the
Purchaser, convertible into such number of shares of Common Stock equal to 25%
of the number of shares of Common Stock into which the Series B-2 Preferred
purchased pursuant to Section
1.3(a) above
are convertible on the date of issuance of the Series B-2
Preferred;

 

(c)  provided
that the Purchaser makes the Minimum Series B Investment (as determined after
crediting the Purchaser, in accordance with Section
1.7 below,
for any Excess Series B Investment (as defined below) paid by the Purchaser at
the prior Closings) at the Third Closing, the Company shall issue to the
Purchaser, and the Purchaser may choose to accept (at its sole discretion,
subject to Section
1.8 and
Section
1.9), such
number of shares of Series A-2 Preferred that equal, when combined with such
number of the Series B-2 Preferred and Warrants, if any, purchased by the
Purchaser at the Third Closing with the Minimum Series B Investment, a 3%
Ownership Interest. For purposes of clarity, in the event that the Purchaser
elects to invest more than the Minimum Series B Investment at the Third Closing,
only such number of Series B-2 Preferred and Warrants as would have been
purchased with the Minimum Series B Investment shall be counted in determining
the 3% Ownership Interest. Notwithstanding the foregoing, the Company shall
issue to the Purchaser a number of shares of Series A-2 Preferred with a Series
A Liquidation Value equal to at least $1,250,000, regardless of whether such
number of shares results in the Purchaser acquiring greater than a 3% Ownership
Interest at the Third Closing (but in no event shall Purchaser acquire greater
than a 10% Ownership Interest at the Third Closing, without regard to the
Ownership Interest acquired by Purchaser at any prior Closing), provided,
however, that,
in the event the Purchaser does not elect to pay the Company at least the
Minimum Series B Investment (as determined after crediting the Purchaser, in
accordance with Section
1.7 below,
for any Excess Series B Investment paid by the Purchaser at the prior Closings)
at the Third Closing, the Company shall issue to the Purchaser, and the
Purchaser shall be entitled to receive, only the greater of (i) a number of
shares of Series A-2 Preferred equal to a 1.5% Ownership Interest, and (ii) a
number of shares of Series A-2 Preferred with a Series A Liquidation Value equal
to $625,000, but in no event to exceed a maximum 2% Ownership
Interest;

 

4

 

(d)  the
Company shall deliver an Opinion of Counsel applicable to the Third
Closing;

 

(e)  updated
Schedules to this Agreement (which update of the representations and warranties
shall reflect that a Material Adverse Effect has not occurred since the prior
Closing; 

 

(f)  the
President of the Company shall deliver to the Purchaser a certificate certifying
that the conditions specified in Section
5.2(a) and
Section
5.2(b)
applicable to the Third Closing have been fulfilled;

 

(g)  the
Company shall reserve a sufficient number of shares of Common Stock to account
for the conversion of all of the outstanding Preferred Shares plus the exercise
of all of the outstanding Warrants (taking into account the Third Closing and
including any Deferred Securities under Section
1.8 and
Excess Shares under Section
1.9);
and

 

(h)  the
Company and the Purchaser shall execute and deliver any other documents and
agreements necessary or desirable to accomplish the foregoing.

 

1.4.  Fourth
Closing. Upon the
terms and subject to the conditions set forth in this Agreement, the fourth
closing (the Fourth
Closing ) shall
take place within five (5) days following the Milestone Target Payment Date
applicable to Milestone 3 upon the satisfaction of the conditions set forth in
Section
5.2 and
Section
6.2
applicable to the Fourth Closing (or such other time and place as the Parties
may agree) (the Fourth
Closing Date ). At
the Fourth Closing, the following shall occur:

 

(a)  in the
event the Purchaser elects to purchase Series B Preferred at the Fourth Closing,
the Purchaser shall deliver to the Company an amount in U.S. Dollars in
immediately available funds that is not greater than the Maximum Total Series B
Investment (such actual amount being the Fourth
Closing Payment ), and,
in exchange therefor, the Company shall issue and sell to the Purchaser, and the
Purchaser shall accept (subject to Section
1.9), a
number of shares of Series B-3 Preferred equal to (x) the Fourth Closing
Payment divided by (y) the Series B-3 Purchase Price (as defined in the
Series B Certificate of Designations);

 

5

 

(b)  in the
event the Purchaser elects to pay to the Company the Fourth Closing Payment
specified above, the Company shall execute and deliver a Warrant in favor of the
Purchaser, convertible into such number of shares of Common Stock equal to 25%
of the number of shares of Common Stock into which the Series B-3 Preferred
purchased pursuant to Section
1.4(a) above
are convertible on the date of issuance of the Series B-3 Preferred;

 

(c)  provided
that the Purchaser makes the Minimum Series B Investment (as determined after
crediting the Purchaser, in accordance with Section
1.7 below,
for any Excess Series B Investment (as defined below) paid by the Purchaser at
the prior Closings) at the Fourth Closing, the Company shall issue to the
Purchaser, and the Purchaser may choose to accept (at its sole discretion,
subject to Section
1.8 and
Section
1.9), such
number of shares of Series A-3 Preferred that equal, when combined with such
number of the Series B-3 Preferred and Warrants, if any, purchased by the
Purchaser at the Fourth Closing with the Minimum Series B Investment, a 5%
Ownership Interest. For purposes of clarity, in the event that the Purchaser
elects to invest more than the Minimum Series B Investment at the Fourth
Closing, only such number of Series B-3 Preferred and Warrants as would have
been purchased with the Minimum Series B Investment shall be counted in
determining the 5% Ownership Interest. Notwithstanding the foregoing, the
Company shall issue to the Purchaser a number of shares of Series A-3 Preferred
with a Series A Liquidation Value equal to at least $1,250,000, regardless of
whether such number of shares results in the Purchaser acquiring greater than a
5% Ownership Interest at the Fourth Closing (but in no event shall Purchaser
acquire greater than a 10% Ownership Interest at the Fourth Closing, without
regard to the Ownership Interest acquired by Purchaser at any prior Closing),
provided,
however, that,
in the event the Purchaser does not elect to pay the Company at least the
Minimum Series B Investment (as determined after crediting the Purchaser, in
accordance with Section
1.7 below,
for any previously unapplied Excess Series B Investment (as defined below) paid
by the Purchaser at the prior Closings) at the Fourth Closing, the Company shall
issue to the Purchaser, and the Purchaser shall be entitled to receive, only the
greater of (i) a number of shares of Series A-3 Preferred equal to a 2.5%
Ownership Interest, and (ii) a number of shares of Series A-3 Preferred with a
Series A Liquidation Value equal to $625,000, but not in any event to exceed a
maximum 2% Ownership Interest; 

 

(d)  the
Company shall deliver an Opinion of Counsel applicable to the Fourth
Closing;

 

(e)  updated
Schedules to this Agreement (which update of the representations and warranties
shall reflect that a Material Adverse Effect has not occurred since the prior
Closing);

 

(f)  the
President of the Company shall deliver to the Purchaser a certificate certifying
that the conditions specified in Section
5.2(a) and
Section
5.2(b)
applicable to the Fourth Closing have been fulfilled; 

 

(g)  the
Company shall reserve a sufficient number of shares of Common Stock to account
for the conversion of all of the outstanding Preferred Shares plus the exercise
of all of the outstanding Warrants (taking into account the Fourth Closing and
including any Deferred Securities under Section
1.8 and
Excess Shares under Section
1.9);
and

 

(h)  the
Company and the Purchaser shall execute and deliver any other documents and
agreements necessary to accomplish the foregoing.

 

6

 

1.5.  Fifth
Closing. 

 

Upon the
terms and subject to the conditions set forth in this Agreement, the fifth
closing (the Fifth
Closing ) shall
take place within five (5) days following the Milestone Target Payment Date
applicable to Milestone 4 upon the satisfaction of the conditions set forth in
Section
5.2 and
Section
6.2
applicable to the Fifth Closing (or such other time and place as the Parties may
agree) (the Fifth
Closing Date ). At
the Fifth Closing, the following shall occur:

 

(a)  in the
event the Purchaser elects to purchase Series B Preferred at the Fifth Closing,
the Purchaser shall deliver to the Company an amount in U.S. Dollars in
immediately available funds that is not greater than the Maximum Total Series B
Investment (such actual amount being the Fifth
Closing Payment ), and,
in exchange therefor, the Company shall issue and sell to the Purchaser, and the
Purchaser shall accept (subject to Section
1.9), a
number of shares of Series B-4 Preferred equal to (x) the Fifth Closing
Payment divided by (y) the Series B-4 Purchase Price (as defined in the
Series B Certificate of Designations);

 

(b)  in the
event the Purchaser elects to pay to the Company the Fifth Closing Payment
specified above, the Company shall execute and deliver a Warrant in favor of the
Purchaser, convertible into such number of shares of Common Stock equal to 25%
of the number of shares of Common Stock into which the Series B-4 Preferred
purchased pursuant to Section
1.5(a) above
are convertible on the date of issuance of the Series B-4 Preferred;

 

(c)  provided
that the Purchaser makes the Minimum Series B Investment (as determined after
crediting the Purchaser, in accordance with Section
1.7 below,
for any Excess Series B Investment (as defined below) paid by the Purchaser at
the prior Closings) at the Fifth Closing, the Company shall issue to the
Purchaser, and the Purchaser may choose to accept (at its sole discretion, but
subject to Section
1.8 and
Section
1.9), such
number of shares of Series A-4 Preferred that equal, when combined with such
number of the Series B-4 Preferred and Warrants, if any, purchased by the
Purchaser at the Fifth Closing with the Minimum Series B Investment, a 4.9%
Ownership Interest. For purposes of clarity, in the event that the Purchaser
elects to invest more than the Minimum Series B Investment at the Fifth Closing,
only such number of Series B-4 Preferred and Warrants as would have been
purchased with the Minimum Series B Investment shall be counted in determining
the 4.9% Ownership Interest. Notwithstanding the foregoing, the Company shall
issue to the Purchaser a number of shares of Series A-4 Preferred with a Series
A Liquidation Value equal to at least $1,250,000, regardless of whether such
number of shares results in the Purchaser acquiring greater than a 4.9%
Ownership Interest at the Fifth Closing (but in no event shall Purchaser acquire
greater than a 10% Ownership Interest at the Fifth Closing, without regard to
the Ownership Interest acquired by Purchaser at any prior Closing), provided,
however, that,
in the event the Purchaser does not elect to pay the Company at least the
Minimum Series B Investment (as determined after crediting the Purchaser, in
accordance with Section
1.7 below,
for any previously unapplied Excess Series B Investment (as defined below) paid
by the Purchaser at the prior Closings) at the Fifth Closing, the Company shall
issue to the Purchaser, and the Purchaser shall be entitled to receive, only the
greater of (i) a number of shares of Series A-4 Preferred equal to a 2.45%
Ownership Interest, and (ii) a number of shares of Series A-4 Preferred with a
Series A Liquidation Value equal to $625,000, but not in any event to exceed a
maximum 2% Ownership Interest; 

 

7

 

(d)  the
Company shall deliver an Opinion of Counsel applicable to the Fifth
Closing;

 

(e)  updated
Schedules to this Agreement (which update of the representations and warranties
shall reflect that a Material Adverse Effect has not occurred since the prior
Closing); 

 

(f)  the
President of the Company shall deliver to the Purchaser at the Closing a
certificate certifying that the conditions specified in Section
5.2(a) and
Section
5.2(b)
applicable to the Fifth Closing have been fulfilled; 

 

(g)  the
Company shall reserve a sufficient number of shares of Common Stock to account
for the conversion of all of the outstanding Preferred Shares plus the exercise
of all of the outstanding Warrants (taking into account the Fifth Closing and
including any Deferred Securities under Section
1.8 and
Excess Shares under Section
1.9);
and

 

(h)  the
Company and the Purchaser shall execute and deliver any other documents and
agreements necessary or desirable to accomplish the foregoing.

 

1.6.  Closing. The First
Closing, the Second Closing, the Third Closing, the Fourth Closing and the Fifth
Closing (each, a Closing ) shall
each take place at the offices of King & Spalding LLP, 1700 Pennsylvania
Avenue, N.W., Washington, D.C. 20006 on the First Closing Date, the Second
Closing Date, the Third Closing Date, the Fourth Closing Date and the Fifth
Closing Date (each a Closing
Date ),
respectively, or at such other location or time as the Parties may agree. A
Closing will be deemed to occur at 11:59 p.m., New York City time, on the
applicable Closing Date. 

 

1.7.  Carry
Forward of Series B Investments. In the
event the Purchaser elects to pay to the Company an amount greater than the
Minimum Series B Investment (subject to the Maximum Total Series B Investment)
at any of the Second Closing, the Third Closing, the Fourth Closing or the Fifth
Closing (each a Subsequent
Closing ), then
such amount of Series B Investment in excess of the Minimum Series B Investment
at any particular Subsequent Closing (each an Excess
Series B Investment ) shall
be credited towards payment of the Minimum Series B Investment in respect of the
next successive Closing(s) to occur following such Closing at which the
Purchaser made the Excess Series B Investment until all such Excess Series B
Investment has been credited. 

 

1.8.  Deferred
Shares. In the
event that, at any Closing, the Purchaser elects (in its sole discretion) not to
accept, in whole or in part, Series A Preferred that the Purchaser is entitled
to receive at such Closing (the Deferred
Securities ), the
Company shall hold such Deferred Securities in reserve for a period of up to
twelve (12) months from the date of non-acceptance by the Purchaser (the
Deferral
Period ). The
Purchaser shall have the right, at any time and from time to time, during the
Deferral Period to receive all or a portion of the Deferred Securities (subject
to Section
1.9) upon
the same terms and conditions that the Purchaser would have received the
Deferred Securities at the time of original issuance.

 

8

 

1.9.  Excess
Shares. If, at
any time during the term of this Agreement, an issuance of Preferred Shares (or
shares of Common Stock issuable upon conversion thereof or upon the exercise of
Warrants) in accordance with this Section
1 would
result in the Purchaser owning greater than a 19.9% Ownership Interest in
respect of Series A Preferred, Series B Preferred and Warrants acquired pursuant
to the terms of this Agreement, then the amount of Preferred Shares in excess of
the Purchaser s 19.9% Ownership Interest (the Excess
Shares ) shall
be held in reserve by the Company. The Purchaser shall have the right, at any
time and from time to time, when the Purchaser s Ownership Interest is less than
19.9%, to receive or purchase such Excess Shares, in whole or in part, upon the
same terms and conditions that the Purchaser would have received or purchased
such Excess Shares at the time of the initial offering of such Excess Shares;
provided,
however, that in
no event shall the Purchaser be entitled to receive or purchase Excess Shares
pursuant to this Section
1.9 in an
amount that, by virtue of such receipt or purchase, would result in the
Purchaser owning greater than a 19.9% Ownership Interest in respect of Series A
Preferred, Series B Preferred and Warrants acquired pursuant to the terms of
this Agreement.

 

1.10.  Defined
Terms Used in this Agreement. In
addition to the terms specifically defined throughout this Agreement, the
following terms used in this Agreement shall be construed to have the meanings
set forth or referenced below.

 

Affiliate means,
with respect to any person or entity (a Person ), any Person which,
directly or indirectly, controls, is controlled by, or is under common control
with such Person, including, without limitation, any partner, officer, director,
or member of such Person; provided,
however, that
the Purchaser is not an Affiliate of the Company.

 

Applicable
Law means,
with respect to any Person, any domestic or foreign, federal, state or local
statute, law, ordinance, rule, administrative interpretation, regulation, order,
writ, injunction, decree or other requirement of any Governmental Authority
applicable to such Person or any of their respective properties, assets,
officers, directors, employees, consultants or agents (in connection with such
officer s, director s, employee s, consultant s or agent s activities on behalf
of such Person).

 

Business
Day means
any day except Saturday, Sunday or any day on which banks are generally not open
for business in the New York City. 

 

Code means
the Internal Revenue Code of 1986, as amended.

 

Common
Stock means
the Company s common stock, par value $0.001 per share.

 

Fully
Diluted Basis means,
as of any date, on a fully diluted basis, as if (i) all shares of Preferred
Stock, evidences of indebtedness, shares or other securities convertible into or
exchangeable for Common Stock had been fully converted into or exchanged for
shares of Common Stock and (ii) any outstanding warrants, options or other
rights to acquire shares of capital stock or convertible securities (
Common
Stock Equivalents ) had
been fully exercised (and the resulting securities fully converted into shares
of Common Stock), but excluding any Common Stock Equivalents having an exercise,
strike or conversion price in excess of the VWAP for the thirty (30) trading day
period immediately preceding the date of such determination.

 

Governmental
Authority means
any federal, state, local or foreign court or governmental agency, authority,
instrumentality or regulatory body.

 

Initial
Series A Liquidation Value means,
for any issuance of Series A Preferred, the number of shares of Series A
Preferred issued at such time multiplied by the initial Series A Liquidation
Value applicable to such shares.

 

Initial
Series B Liquidation Value means,
for any issuance of Series B Preferred, the number of shares of Series B
Preferred issued at such time multiplied by the Purchase Price applicable to
such shares.

 

Material
Adverse Effect means a
material adverse effect on the business, assets (including intangible assets),
liabilities, financial condition or results of operations of the
Company.

 

Maximum
Total Series B Investment means,
at any time, the cumulative cap of $5,000,000 on all Series B Investments, less
all prior Series B Investments, if any.

 

9

 

Milestone
Target Payment Date means
the target payment date applicable to each Milestone set forth in the following
table (the actual payment to occur on the applicable Closing Date (as defined
below)):

 

	
      Milestone

       
	
      Milestone
      Target Payment Date

       

	
      Milestone
      1

       
	
      Either
      (x) on the date 30 days following the achievement of Milestone 1 or (y) if
      Milestone 1 is achieved prior to September 15, 2005, on October 15,
      2005

       

	
      Milestone
      2

       
	
      Either
      (x) on the date 30 days following the achievement of Milestone 2 or (y) if
      Milestone 2 is achieved prior to February 15, 2006, on March 15,
      2006

       

	
      Milestone
      3

       
	
      Either
      (x) on the date 30 days following the achievement of Milestone 3 or (y) if
      Milestone 3 is achieved prior to May 15, 2006, on June 15,
      2006

       

	
      Milestone
      4

       
	
      Either
      (x) on the date 30 days following the achievement of Milestone 4 or (y) if
      Milestone 4 is achieved prior to November 15, 2006, on December 15,
      2006

       

 

;
provided,
however, if any
Milestone Target Payment Date occurs on a day that is not a Business Day, then
such Milestone Target Payment Date shall automatically be deemed the next
Business Day.

 

Minimum
Series B Investment means,
with respect to any Subsequent Closing, a Series B Investment of
$1,250,000.

 

Ownership
Interest means
the aggregate percentage ownership by any Person of Common Stock or voting power
of the Company, determined on a Fully Diluted Basis, as of any
date.

 

Preferred
Shares means
the Series A Preferred and Series B Preferred.

 

Purchase
Price means,
with respect to the definitions of Series
B Liquidation Preference and
Initial
Series B Liquidation Value only,
the product of (A) the VWAP for the thirty (30)-trading day period immediately
preceding the issuance date of the specified Series B Preferred multiplied by
(B) ten (10).

 

SEC means
the Securities and Exchange Commission. 

 

Securities
Act means
the Securities Act of 1933, as amended.

 

Series
A Liquidation Value means,
for any subseries of Series A Preferred, the product of (A) the value equal to
the VWAP for the thirty (30)-trading day period immediately preceding a Series A
Preferred date of issuance multiplied by (B) ten (10).

 

Series
A Preferred means
the Company s Series A Convertible Preferred Stock, par value $0.001 per share,
specifically including Series A-0 Preferred, Series A-1 Preferred, Series A-2
Preferred, Series A-3 Preferred and Series A-4 Preferred, with the powers,
preferences and special rights set forth in the Series A Certificate of
Designation.

 

Series
A-0 Preferred means
the Company s Series A-0 Convertible Preferred Stock with the powers,
preferences and special rights set forth in the Series A Certificate of
Designation.

 

10

 

Series
A-1 Preferred means
the Company s Series A-1 Convertible Preferred Stock with the powers,
preferences and special rights set forth in the Series A Certificate of
Designation.

 

Series
A-2 Preferred means
the Company s Series A-2 Convertible Preferred Stock with the powers,
preferences and special rights set forth in the Series A Certificate of
Designation.

 

Series
A-3 Preferred means
the Company s Series A-3 Convertible Preferred Stock with the powers,
preferences and special rights set forth in the Series A Certificate of
Designation.

 

Series
A-4 Preferred means
the Company s Series A-4 Convertible Preferred Stock with the powers,
preferences and special rights set forth in the Series A Certificate of
Designation.

 

Series
B Investment means
each of, individually, the Second Closing Payment, the Third Closing Payment,
the Fourth Closing Payment and the Fifth Closing Payment, payable by the
Purchaser in accordance herewith, at its sole discretion, to the Company in
exchange for Series B Preferred.

 

Series
B Liquidation Preference means an
amount equal to, for any sub-series of Series B Preferred, (i) the number of
outstanding shares of Series B Preferred, if any, multiplied by the Purchase
Price, plus (ii) all accrued and unpaid dividends on the Series B
Preferred.

 

Series
B Preferred means
the Company s Series B Convertible Preferred Stock, par value $0.001 per share,
specifically including Series B-1 Preferred, Series B-2 Preferred, Series B-3
Preferred and Series B-4 Preferred, with the powers, preferences and special
rights set forth in the Series B Certificate of Designation.

 

Series
B-1 Preferred means
the Company s Series B-1 Convertible Preferred Stock with the powers,
preferences and special rights set forth in the Series B Certificate of
Designation.

 

Series
B-2 Preferred means
the Company s Series B-2 Convertible Preferred Stock with the powers,
preferences and special rights set forth in the Series B Certificate of
Designation.

 

Series
B-3 Preferred means
the Company s Series B-3 Convertible Preferred Stock with the powers,
preferences and special rights set forth in the Series B Certificate of
Designation.

 

Series
B-4 Preferred means
the Company s Series B-4 Convertible Preferred Stock with the powers,
preferences and special rights set forth in the Series B Certificate of
Designation.

 

Trading
Market means
any of the New York Stock Exchange, the American Stock Exchange, the Nasdaq
National Market or the Nasdaq Smallcap Market. 

 

11

 

Transaction
Agreements means
this Agreement, the Joint Development Agreement, the Cross Licensing Agreement,
the Investor Rights Agreement, the Registration Rights Agreement, the Standstill
Agreement, all MFN Licenses (as defined in the Cross Licensing Agreement), if
any, the Patent Assignment Agreement, and the Note (as defined in the Investor
Rights Agreement), if any.

 

VWAP means,
with respect to any date on which a determination is required, (i) if the Common
Stock is listed for trading on any Trading Market, a price, rounded to the
nearest cent, equal to (A) the sum of the following product determined for each
trading day in the specified number of consecutive trading days: (1) the last
sale price of the Common Stock during normal business hours on a specific
trading day as finally reported by the Trading Market, multiplied by (2) the
number of shares of the Common Stock that were traded on such trading day on the
Trading Market, divided by (B) the aggregate number of shares of the Common
Stock that were traded on such trading days, and (ii) if the Common Stock is not
listed for trading on any Trading Market on the date of such calculation (or on
any trading day during the relevant number of trading days immediately preceding
the date of such determination), the fair market value of the Common Stock
determined pursuant to an appraisal process mutually satisfactory to the Company
and the Purchaser. 

 

2.    Representations
and Warranties of the Company. The
Company hereby represents and warrants to the Purchaser that:

 

2.1.  Organization,
Good Standing, Corporate Power and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as presently conducted and as proposed to
be conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect. The Company has the requisite corporate power and
authority to own and operate its properties and assets. The Certificate of
Incorporation and Bylaws of the Company are included in the SEC Reports (as
hereinafter defined) as Exhibits 3.1 and 3.2, respectively, of the Form S-1
filed May 25, 2000.

 

2.2.  Corporate
Power and
Authorization. The
Company has all requisite legal and corporate power and authority to enter into
this Agreement and, upon the First Closing, the other Transaction Agreements and
to issue and sell the Preferred Shares, Warrants and any Common Stock into which
the Preferred Shares or Warrants are convertible or exercisable and to carry out
and perform its obligations in accordance with the terms of this Agreement.
Except for the approval in accordance with Section
5.1(g) of a
majority of the Company s Stockholders, the execution and delivery of each of
the Transaction Agreements by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company. The approval in accordance with Section
5.1(g) of a
majority of the Company s Stockholders is the only approval required by the
Stockholders with respect to this Agreement, the other Transaction Agreements
and the transactions contemplated hereby and thereby. This Agreement, and, at
each Closing, each other Transaction Agreement has been (or will have been) duly
executed and delivered by the Company and constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with
their respective terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of
general application relating to or affecting the enforcement of creditors rights
generally and (b) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies. 

 

2.3.  Capitalization. The
number of shares and type of all authorized, issued and outstanding capital
stock of the Company (including any treasury shares) is set forth in Schedule
2.3. No securities of the Company are entitled to preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Agreements. Except as a result of the purchase
and sale of the Preferred Shares and Warrants, and except as disclosed in
Schedule 2.3, there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. Except as disclosed in Schedule 2.3, the issuance and sale of the
Preferred Shares and Warrants will not obligate any Person (other than the
Purchaser) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under such securities.
At all times the Company will have a sufficient number of shares of Common Stock
reserved to satisfy the Company s obligations upon the conversion of all
outstanding Preferred Shares and other outstanding convertible securities and
the exercise of all outstanding Warrants and other commitments of any character
involving the right to acquire Common Stock.

 

2.4.  Subsidiaries. Except as
disclosed on Schedule 2.4, the Company does not currently own or control, and
has never owned or controlled, directly or indirectly, any interest in any other
corporation, partnership, trust, joint venture, limited liability company,
association, or other business entity. Except as set forth on Schedule 2.4, the
Company is not a participant in any joint venture, teaming, partnership or
similar arrangement.

 

12

 

2.5.  Valid
Issuance of Shares. The
Preferred Shares and Warrants, when issued, sold and delivered in accordance
with the terms and for the consideration set forth in this Agreement, will be
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under the Transaction Agreements,
applicable state and federal securities laws and liens or encumbrances created
by or imposed by the Purchaser. Assuming the accuracy of the representations of
the Purchaser in Section
3 of this
Agreement, the Preferred Shares will be issued in compliance with all applicable
federal and state securities laws. The Common Stock issuable upon conversion of
the Preferred Shares and the exercise of the Warrants has been duly reserved for
issuance, and upon issuance in accordance with the terms of the Certificates of
Designation, will be validly issued, fully paid and nonassessable and free of
restrictions on transfer other than restrictions on transfer under the
Transaction Agreements, applicable federal and state securities laws and liens
or encumbrances created by or imposed by the Purchaser. Assuming the accuracy of
the representations of the Purchaser in Section
3 of this
Agreement and subject to Section
2.6 below,
the Common Stock issuable upon conversion of the Preferred Shares will be issued
in compliance with all applicable federal and state securities
laws.

 

2.6.  Filings,
Consents and Approvals;
Non-Contravention. The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Agreements in accordance with their terms, other than: (i) the
filing with the SEC of the Registration Statements as provided in the
Registration Rights Agreement, (ii) the filings required by Section
4.4, (iii)
the application with the Trading Market on which the Common Stock is listed for
the listing of the shares of Common Stock issuable upon the conversion of the
Preferred Shares or exercise of the Warrants for trading thereon in the time and
manner required thereby, (iv) the approval of the Stockholders pursuant to
Section
5.1(g) hereof,
and (v) as required by blue sky filings. The execution, delivery and performance
of this Agreement and, upon the First Closing, the other Transaction Agreements
and the consummation of the transactions contemplated in connection therewith by
the Company does not and will not (i) contravene or conflict with the
Certificate of Incorporation and Bylaws (and other equivalent organizational
documents) of the Company, (ii) contravene or conflict with or constitute a
violation of any Applicable Law, (iii) constitute a breach of or default
under or give rise to any right of termination, cancellation or acceleration of
any right or obligation of any Person or to a loss of any benefit to which the
Company is entitled under any provision of any contract binding upon the Company
or by which any of the assets of the Company or the Preferred Shares, Warrants
or Common Stock convertible or exercisable therefor are or may be bound, or
(iv) result in the creation or imposition of any liens, claims or
encumbrances on any asset of the Company or any of the Preferred Shares,
Warrants or Common Stock convertible or exercisable therefor.

 

2.7.  Litigation. Except as
disclosed on Schedule 2.7, there is no claim, action, suit, proceeding,
arbitration, complaint, charge or investigation pending or to the Company s
knowledge, any threat thereof (a) against the Company or any officer or
director of the Company; or (b) that questions the validity of the
Transaction Agreements or the right of the Company to enter into them, or to
consummate the transactions contemplated by the Transaction Agreements in
accordance with their terms. Neither the Company nor, to the Company s
knowledge, any of its officers or directors, is a party or is named as subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality which, in the case of the officers
and directors of the Company, arise out of their services for and capacities as
directors and officers of the Company. There is no action, suit, proceeding or
investigation by the Company pending or which the Company intends to initiate.
The foregoing includes, without limitation, actions, suits, proceedings or
investigations pending or threatened in writing involving the prior employment
of any of the Company s employees, their services provided in connection with
the Company s business, or any information or techniques allegedly proprietary
to any of their former employers, or their obligations under any agreements with
prior employers.

 

2.8.  Patents
and Trademarks. The
Company has, or has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights that are necessary or material for use in connection with
its business as described in the SEC Reports and which the failure to do so
have, could have, or reasonably be expected to result in, a Material Adverse
Effect (collectively, the Intellectual
Property ). The
Company has not received a written notice that the Intellectual Property used by
the Company violates or infringes upon the rights of any Person which if
determined adversely to the Company would, individually or in the aggregate,
have a Material Adverse Effect. All such Intellectual Property is enforceable
and, to the Company s knowledge, there is no existing infringement by another
Person of any of the Intellectual Property.

 

13

 

2.9.  Compliance. The
Company (i) is not in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company under), nor has the Company received
written notice of a claim that it is in default under or that it is in violation
of, in any material respect, any indenture, instrument, loan or credit agreement
or any other agreement to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is not in violation of any order of any court, arbitrator or governmental
body applicable to the Company, or (iii) is not or has not been in violation of
any statute, rule or regulation of any governmental authority applicable to the
Company, including without limitation all foreign, federal, state and local laws
relating to taxes, environmental protection, occupational health and safety,
product quality and safety and employment and labor matters, except in each case
for the matters described in clauses (i), (ii) or (iii) that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect. The Company is in compliance with the requirements of
the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations
thereunder promulgated by the SEC, in each case as applicable to the Company,
except where such noncompliance could not have or reasonably be expected to
result in a Material Adverse Effect.

 

2.10.  Conflicts
of Interest. Except as
disclosed in SEC Reports and in Schedule 2.10, and other than (i) standard
employee benefits generally made available to all employees, (ii) standard
director and officer indemnification agreements approved by the Board of
Directors, and (iii) the purchase of shares of the Company s capital stock and
the issuance of options to purchase shares of Common Stock, in each instance,
approved by the Board of Directors, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors, or
employees, or any Affiliate thereof.

 

2.11.  Registration
and
Voting Rights. Except
for the Registration Rights Agreement and as described in Schedule 2.11, the
Company has not granted or agreed to grant to any Person any rights (including
piggy back registration rights) to have any securities of the Company registered
with the SEC or any other governmental authority that have not been satisfied.
To the Company s knowledge, except for the Investor Rights Agreement, no
Stockholder of the Company has entered into any agreements with respect to the
voting of capital shares of the Company.

 

2.12.  SEC
Reports; Financial Statements. Except as
set forth on Schedule 2.12, the Company has filed all reports required to be
filed by it under the Securities Act and the Exchange Act, including pursuant to
Section
13(a) or
15(d) thereof,
for the three (3) years preceding the date hereof (or such shorter period as the
Company was required by law to file such reports) (the foregoing materials being
collectively referred to herein as the SEC
Reports and,
together with the Schedules to this Agreement, the Disclosure
Materials ) on a
timely basis. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the SEC promulgated thereunder, and none of
the SEC Reports, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting policies, rules and regulations applicable thereto as in effect at
the time of filing. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved ( GAAP ),
except as may be otherwise specified in such financial statements or the notes
thereto, and fairly present the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements filed by the Company with the SEC since November 14, 2004,
to normal, immaterial, year-end audit adjustments and the absence of
footnotes.

 

14

 

2.13.  Material
Changes. Since the
date of the last audited financial statements included within the SEC Reports,
except as specifically disclosed in Schedule 2.13 and the SEC Reports: (i) there
has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than: (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice, (B) liabilities not required to be reflected in
the Company s financial statements pursuant to GAAP or required to be disclosed
in filings made with the SEC and (C) expenses in connection with the negotiation
and consummation of the transactions contemplated by the Transaction Agreements,
(iii) the Company has not altered its method of accounting or the identity of
its auditors, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its Stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans or
deferred compensation plan. Except as disclosed on Schedule 2.13, the Company
does not have pending before the SEC any request for confidential treatment of
information.

 

2.14.  Tax
Returns and Payments.  Except as
disclosed on Schedule 2.14, there are no federal, state, county, local or
foreign taxes dues and payable by the Company which have not been timely paid.
There are no accrued and unpaid federal, state, county, local or foreign taxes
of the Company which are due, whether or not assessed or disputed. There have
been no examinations or audits of any tax returns or reports by any applicable
Governmental Authority. The Company has duly and timely filed all federal,
state, county, local and foreign tax returns required to have been filed by it
and there are in effect no waivers of applicable statutes of limitations with
respect to taxes for any year.

 

2.15.  Insurance. Schedule
2.15 provides a complete list of all of the Company s insurance policies
currently in effect, specifying the insurer, amount of and nature of coverage,
the risk insured against and the date through which coverage will continue by
virtue of premiums already paid. The Company maintains insurance for the
business and assets of the Company against all risks normally insured against,
and in amounts normally carried, by corporations of similar size engaged in
similar lines of business and, to the Company s knowledge, such coverage is
sufficient. All such insurance policies are in full force and effect and such
policies, or policies providing substantially similar coverage (but in any event
not less than the amount of coverage currently provided) will be maintained by
the Company in full force and effect.

 

2.16.  Listing
and Maintenance Requirements. Except as
set forth on Schedule 2.16, the Company has not, in the three (3) years
preceding the date hereof, received notice (written or oral) from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market, which non-compliance has not been fully
remedied. Except as set forth in Schedule 2.16 the Company is in compliance with
all such listing and maintenance requirements. The issuance and sale of the
Preferred Shares and Warrants hereunder (and the shares of Common Stock issuable
upon conversion or exercise thereof) does not contravene the rules and
regulations of the Trading Market on which the Common Stock is listed except to
the extent such sale and issuance is subject to the Company receiving approval
of its Stockholders (as defined below) as contemplated by Section
5.1(g).

 

15

 

2.17.  Internal
Accounting Controls. The
Company maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management s general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

 

2.18.  Private
Placement. Assuming
the accuracy of the Purchaser s representations and warranties set forth in
Section
3, no
registration under the Securities Act is required for the offer, issuance and
sale of the Preferred Shares and Warrants by the Company to the Purchaser as
contemplated hereby.

 

2.19.  Investment
Company. The
Company is not, and is not an Affiliate of, an investment company within the
meaning of the Investment Company Act of 1940, as amended.

 

2.20.  Application
of Takeover Protections. The
Company and its Board of Directors have taken all necessary action, if any, to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar anti
takeover provision under the Company s Certificate of Incorporation (or similar
charter documents) or the laws of its state of incorporation that is or could
become applicable to the Purchaser and its Affiliates as a result of the
Purchaser and the Company fulfilling their obligations or exercising their
rights under the Transaction Agreements, including without limitation the
Company s issuance of the Preferred Shares and Warrants (and the shares of
Common Stock issuable upon conversion or exercise thereof) and the Purchaser s
and its Affiliates ownership of such securities or any other securities of the
Company acquired by the Purchaser or its Affiliates.

 

2.21.  Disclosure. The
Company understands and confirms that the Purchaser will rely on the foregoing
representations in effecting transactions in securities of the Company. All
Disclosure Materials regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, are true and
correct in all material respects and do not contain any untrue statement of
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, in all material respects not misleading.

 

3.    Representations
and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company that:

 

3.1.  Organization;
Good Standing. The
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to enter into and consummate the transactions contemplated by this
Agreement and otherwise to carry out its obligations hereunder.

 

3.2.  Corporate
Power and
Authorization. The
Purchaser has all requisite legal and corporate power and authority to enter
into this Agreement and, upon the First Closing, the other Transaction
Agreements, and to purchase and accept the Preferred Shares and Warrants issued
or issuable to it pursuant to the terms hereof. The execution and delivery of
each of the Transaction Agreements by the Purchaser and the consummation by it
of the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Purchaser (subject to internal approvals of
Purchaser that are required prior to purchasing and/or receiving Preferred
Shares and Warrants under this Agreement pursuant to the Second Closing, the
Third Closing, the Fourth Closing and the Fifth Closing). Each Transaction
Agreement has been duly executed and delivered by the Purchaser and constitutes
the valid and binding obligation of the Purchaser enforceable against it in
accordance with their respective terms except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
other laws of general application relating to or affecting the enforcement of
creditors rights generally and (b) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.

 

16

 

3.3.  Purchase
Entirely for Own Account. This
Agreement is made with the Purchaser in reliance upon the Purchaser s
representation to the Company, which by the Purchaser s execution of this
Agreement, the Purchaser hereby confirms, that the Preferred Shares to be
acquired by the Purchaser will be acquired for investment for the Purchaser s
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Purchaser has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, the Purchaser further represents that the
Purchaser does not presently have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Preferred Shares. The
Purchaser has not been formed for the specific purpose of acquiring the
Preferred Shares.

 

3.4.  Restricted
Securities. The
Purchaser understands that the Preferred Shares have not been, and will not be,
registered under the Securities Act, by reason of a specific exemption from the
registration provisions of the Securities Act which depends upon, among other
things, the bona fide nature of the investment intent and the accuracy of the
Purchaser s representations as expressed herein. The Purchaser understands that
the Preferred Shares are restricted securities under applicable United States
federal and state securities laws and that, pursuant to these laws, the
Purchaser must hold the Shares
indefinitely unless they are registered with the SEC and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. The Purchaser acknowledges that the Company has no
obligation to register or qualify the Preferred Shares, or the Common Stock into
which the Preferred Shares may be converted, for resale except as set forth in
this Agreement, the Registration Rights Agreement or the Investor Rights
Agreement. The Purchaser further acknowledges that if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Preferred Shares, and on requirements relating to the
Company which are outside of the Purchaser s control, and which the Company is
under no obligation and may
not be able to satisfy.

 

3.5.  No
Public Market. The
Purchaser understands that no public market now exists for the Shares, and that
the Company has made no assurances that a public market will ever exist for the
Shares.

 

3.6.  Legends. The
Purchaser understands that the Preferred Shares and any securities issued in
respect of or exchange for the Preferred Shares, may bear one or all of the
following legends:

 

(a)   THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. 

 

(b)  Any
legend set forth in, or required by, the other Transaction
Agreements.

 

(c)  Any
legend required by the securities laws of any state to the extent such laws are
applicable to the Preferred Shares represented by the certificate so
legended.

 

3.7.  Accredited
Investor. The
Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.

 

17

 

3.8.  Access
to Information. Without
in any way limiting the effect of the representations and warranties of the
Company set forth in Section 2 hereof, as of the date of this Agreement the
Purchaser has had an opportunity to discuss the Company s business, management
and financial affairs with the Company s officers and management employees and
review all documents and records of the Company to the extent that Purchaser has
requested such discussions, documentation and records. 

 

4.    Certain
Covenants and Agreements.

 

4.1.  Reservation
of Shares. The Board
of Directors of the Company shall reserve at all times a sufficient number of
shares of authorized Common Stock and Preferred Shares to satisfy the Company s
obligations to issue Preferred Shares, or Common Stock issuable upon the
conversion of such Preferred Shares and exercise of Warrants, as set forth in
this Agreement.

 

4.2.  Continued
Access to Information. Following
the execution of confidentiality agreements which, among other things, allow the
Company to satisfy its obligations under applicable securities laws and
regulations, upon reasonable prior notice from the Purchaser, the Company will
(i) give the Purchaser, its counsel, financial advisors, auditors and other
authorized representatives full access to the offices, employees, properties,
and books and records of the Company and provide the Purchaser access to the
Company's employees during normal business hours, (ii) furnish to the
Purchaser, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information relating
to the business of the Company and each of its Subsidiaries (including, without
limitation, all tax returns and tax workpapers, audit work papers, and financial
and operational budgets and forecasts) as such Persons may reasonably request,
provided that the
Company s independent accounting firm shall have no obligation to furnish work
papers or related materials in contravention of such firm s reasonable internal
policies, and (iii) instruct the employees, counsel and financial advisors
of the Company to cooperate with the Purchaser with respect to the
foregoing.

 

4.3.  Meeting
of Company Stockholders. The
Company will take all action necessary in accordance with Applicable Law and its
Certificate of Incorporation and Bylaws to convene as promptly as reasonably
practicable after the date hereof a meeting (the Stockholders
Meeting ) of the
holders of Common Stock (the Stockholders ) and
shall submit the transactions contemplated by the Transaction Agreements for
approval by the Stockholders at such meeting or any adjournment thereof to the
extent such transactions and the Transaction Agreements are required to be
approved by the Stockholders under the rules and regulations of the National
Association of Securities Dealers, Inc.

 

4.4.  Proxy
Statement. The
Company shall, as promptly as practicable, prepare and, to the extent required
by Applicable Law, file with the SEC, the appropriate form and documentation for
the purpose of soliciting proxies for Stockholder approval of the transactions
contemplated by the Transaction Agreements to the extent such transactions and
the Transactions Agreements are required to be approved by the Stockholders
under the rules and regulations of the National Association of Securities
Dealers, Inc., which shall include the proxy statement prepared by the Company
pursuant to Regulation 14A under the Exchange Act with respect to the
Stockholders Meeting (the Proxy
Statement ). As
soon as practicable, but in no event less than five (5) Business Days prior to
filing the Proxy Statement with the SEC, the Company shall provide a copy of the
Proxy Statement to the Purchaser so that the Purchaser has the opportunity to
review and comment on the Proxy Statement prior to such filing. In the event
that the Purchaser provides any comments to the Proxy Statement, the Company
agrees to consider in good faith such comments of Purchaser, which comments (if
any) shall be provided by the Purchaser no later than one (1) Business Day prior
to such filing, but the Company shall be under no obligation to make any change
or modification to the Proxy Statement based upon such comments of Purchaser.
The Company shall, as promptly as practicable after receipt thereof, provide the
Purchaser copies of any written comments, and advise the Purchaser of any oral
comments or communications regarding the Proxy Statement received from the SEC.
The Company shall provide the Purchaser with a reasonable opportunity to review
and comment on any amendment or supplement to the Proxy Statement prior to
filing the same with the SEC or mailing to Stockholders, and the Company will
provide promptly the Purchaser with a copy of all such filings made with the SEC
or sent to Stockholders.

 

18

 

(a)  The
Company will use its reasonable best efforts to cause the Proxy Statement to be
mailed to the Stockholders as promptly as practicable after the Proxy Statement
is cleared by the SEC. The Company shall furnish all information concerning it
and the holders of its capital stock as may be reasonably requested in
connection with any such action. The Company will advise the Purchaser, promptly
after it receives notice thereof, of the time when the Proxy Statement has been
cleared by the SEC, the issuance of any stop order, the suspension of the
qualification of the Company s Common Stock or any request by the SEC for
amendment of the Proxy Statement.

 

(b)  The
Company agrees that the information provided by it for inclusion in the Proxy
Statement and each amendment or supplement thereto, at the time of mailing
thereof and at the time of the Stockholders Meeting, will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. If at any time during
the proxy solicitation process, there shall occur any event with respect to the
Company or any of its Subsidiaries, or with respect to any information in the
Proxy Statement, which event is required to be described in an amendment of or
supplement to the Proxy Statement, such amendment or supplement shall be
promptly filed with the SEC, as required by Applicable Law, and disseminated to
the Stockholders.

 

4.5.  Further
Assurances. Subject
to the terms and conditions of this Agreement and Applicable Law, upon the
reasonable request of the other Party, each Party shall execute and deliver such
further documents, instruments or conveyances and take, or cause to be taken,
all actions and to do, or cause to be done, all things reasonably necessary or
advisable to consummate the transactions contemplated by this Agreement
(including, with respect to the Company, causing each of the Milestones (as
defined in the Joint Development Agreement) to be achieved to the extent of the
efforts set forth in the Joint Development Agreement), and to refrain from
taking any action that would prevent or delay the consummation of transactions
contemplated by this Agreement. The Company shall promptly notify the Purchaser
upon achievement of any Milestone (as defined in the Joint Development
Agreement).

 

4.6.  Use of
the Purchaser s Name. 

 

(a)  From the
date hereof and thereafter for so long as Purchaser owns at least such number of
shares of Preferred Stock as Purchaser received pursuant to the First Closing
(on an as-converted-to-Common Stock basis) or Common Stock issued upon
conversion of such Preferred Stock (in either case, as adjusted for stock
dividends, stock splits, subdivisions and combinations of shares), in the event
that the Company, in an effort to obtain equity financing, intends to distribute
any documents or literature to potential investors, the Company shall provide
the Purchaser copies of any such documents or literature a reasonable period of
time prior to distribution to permit the Purchaser an opportunity to review such
documents and literature and shall afford the Purchaser an opportunity to
comment on such documents or literature prior to distribution; provided, that if
the Purchaser does not furnish written comments on such documents or literature
within ten (10) Business Days after receipt thereof, then the Company may
distribute such documents or literature. 

 

(b)  The
Parties agree to be bound by the terms of the Communication Plan set forth on
Exhibit I hereto ( Communication
Plan ).
Except as required by Applicable Law, in no event shall the Company distribute
any materials or provide any information in writing or orally, to potential
investors which, directly or indirectly, refers to or uses the name of The Dow
Chemical Company or Dow or any translation or transliteration thereof except as
otherwise set forth in the Joint Development Agreement and except as previously
approved in accordance with the Communication Plan. The Parties may update the
Communication Plan in writing at any time. The Company may distribute any
written materials prepared by an authorized representative of the Purchaser
which indicates in writing that such materials were prepared specifically for
use in connection with a potential financing. The Company shall not represent to
any third party that the Purchaser endorses or recommends any investment in the
capital stock or other debt or equity securities of the Company. In furtherance
of the foregoing, for so long as Purchaser owns at least such number of shares
of Preferred Stock as Purchaser received pursuant to the First Closing (on an
as-converted-to-Common Stock basis) or Common Stock issued upon conversion of
such Preferred Stock (in either case, as adjusted for stock dividends, stock
splits, subdivisions and combinations of shares), the Company agrees to include
in any materials or information provided to potential investors, including any
confidentiality agreements to be entered into in connection with a potential
financing, a statement to the effect that (i) the Purchaser has not approved,
endorsed or passed upon the adequacy or accuracy of such information or
materials and (ii) no person to whom the information or materials are delivered
may make any claim against the Purchaser in respect of the financing
contemplated thereby. The provisions of this Section
4.6 shall
survive the Closing indefinitely.

 

4.7.  Use of
Intellectual Property. The
Company acknowledges and agrees that except as specifically contemplated by the
Transaction Agreements, the Company is not obtaining any rights in or to use any
the intellectual property of the Purchaser (other than any the Dow-Licensed
Intellectual Property contributed as partial consideration for the Preferred
Shares pursuant to the Joint Development Agreement and Cross Licensing
Agreement).

 

19

 

4.8.  Listing
of Stock. The
Company shall: (i) in the time and manner required by each Trading Market on
which the Common Stock is listed, prepare and file with such Trading Market an
additional shares listing application covering the underlying shares of Common
Stock issuable upon the conversion of such Preferred Shares and exercise of the
Warrants, (ii) take all steps necessary to cause such securities to be approved
for listing on each Trading Market on which the Common Stock is listed as soon
as possible thereafter, (iii) provide to the Purchaser evidence of such listing,
and (iv) use best efforts to maintain the listing of such securities on each
such Trading Market or another eligible securities market.

 

4.9.    Securities
Law Disclosure; Publicity. The
Company shall, within one Business Day after each of the date hereof and each of
the Closing Dates, issue a press release and file a current report on Form 8-K
reasonably acceptable to the Purchaser disclosing all material terms of the
transactions contemplated hereby. The Company and the Purchaser shall consult
with each other in issuing any press releases with respect to the transactions
contemplated hereby. Notwithstanding the foregoing, other than in any
Registration Statement filed pursuant to the Registration Rights Agreement and
filings related thereto, the Company shall not publicly disclose the name of the
Purchaser, or include the name of the Purchaser in any filing with the SEC or
any regulatory agency or Trading Market, without the prior written consent of
the Purchaser, except to the extent such disclosure is required by law or
Trading Market regulations, in which case the Company shall provide the
Purchaser with prior notice of such disclosure.

 

4.10.    
Satisfaction
of Conditions to the
Purchaser s Right to Purchase Series B Preferred.

 

(a)  From and
after the First Closing, the Company shall take all actions necessary or
appropriate in accordance with the terms of the Joint Development Agreement to
achieve each of Milestone 1, Milestone 2, Milestone 3 and Milestone 4. Promptly
following achievement of any Milestone, and in any event within five (5)
Business Days thereof, the Company shall notify the Purchaser that the relevant
Milestone has been achieved.

 

(b)  Promptly
following achievement of a Milestone, the Company shall exercise its best
efforts to satisfy each of the conditions to Closing in respect of such
Subsequent Closing set forth in Section
5.2.

 

(c)  In the
event the Parties are unable to agree as to whether a Milestone has been
achieved, the Parties shall resolve such dispute in accordance with the dispute
resolution mechanism set forth in the Joint Development Agreement. 

 

5.    Conditions
to the Purchaser s Rights at Closing.

 

5.1.  First
Closing. The
rights of the Purchaser to receive Series A Preferred at the First Closing are
subject to the fulfillment, on or before the First Closing Date, of each of the
following conditions, unless otherwise waived in a writing signed by the
Purchaser:

 

20

 

(a)  Representations
and Warranties. The
representations and warranties of the Company contained in Section 2 shall be
true and correct in all material respects as of the First Closing
Date.

 

(b)  Performance. The
Company shall have performed and complied with all covenants, agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the First Closing
Date.

 

(c)  Compliance
Certificate. The
President of the Company shall deliver to the Purchaser at the First Closing a
certificate certifying that the conditions specified in Section
5.1(a) and
Section
5.1(b) have
been fulfilled.

 

(d)  Capitalization. The
Company shall deliver an updated capitalization table in the form of
Schedule
2.3 with
respect to the ownership of the Company s capital stock at such time.

 

(e)  Qualifications. All
authorizations, approvals or permits, if any, of any Governmental Authority that
are required in connection with the lawful issuance and sale of the Preferred
Shares, and the underlying shares of Common Stock issuable upon conversion
thereof, pursuant to this Agreement shall be obtained and effective as of the
First Closing Date.

 

(f)  Opinion
of Counsel. The
Purchaser shall have received from counsel for the Company, an opinion, dated as
of the First Closing Date, substantially in the form attached hereto
as Exhibit F.

 

(g)  Stockholder
Approval. The
Company shall have received approval of its Stockholders, to the extent
necessary under Applicable Law or the Trading Market Rules, for the consummation
of the transactions contemplated by the Transaction Agreements.

 

(h)  Joint
Development Agreement. The
Company shall have executed and delivered the Joint Development
Agreement.

 

(i)  Cross
Licensing Agreement. The
Company shall have executed and delivered the Cross Licensing
Agreement.

 

(j)  Investor
Rights Agreement. The
Company shall have executed and delivered the Investor Rights
Agreement.

 

(k)  Registration
Rights Agreement. The
Company shall have executed and delivered the Registration Rights
Agreement.

 

(l)  Patent
Assignment Agreement. The
Company shall have executed and delivered the Patent Assignment Agreement.

 

(m)  Certificates
of Designation. The
Company shall have filed the Certificates of Designation with the Secretary of
State of Delaware on or prior to the First Closing Date.

 

21

 

(n)  Proceedings
and Documents. All
corporate and other proceedings in connection with the transactions contemplated
at the First Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Purchaser, and the Purchaser shall
have received all such counterpart original and certified or other copies of
such documents as reasonably requested. Such documents may include good standing
certificates.

 

(o)  Governmental
Consents. All
necessary and appropriate governmental approvals shall have been received and
all other waiting periods shall have been complied with.

 

(p)  Third
Party Consents. The
Company shall have obtained any consents from third parties necessary for the
consummation of the transactions contemplated by this Agreement. 

 

5.2.  Subsequent
Closings. 

 

As a
condition of any purchase of Preferred Shares and Warrants at each Subsequent
Closing, the Company shall fulfill, on or before each Subsequent Closing Date,
each of the following conditions, unless otherwise waived in a writing signed by
the Purchaser:

 

(a)  Representations
and Warranties. The
representations and warranties of the Company contained in Section 2,
together with any updates to the Schedules which shall reflect that a Material
Adverse Effect has not occurred since the prior Closing, shall be true and
correct in all material respects as of each Subsequent Closing
Date.

 

(b)  Performance. The
Company shall have performed and complied with all covenants, agreements,
obligations and conditions contained in this Agreement and the Transaction
Agreements that are required to be performed or complied with by it on or before
each Subsequent Closing Date.

 

(c)  Compliance
Certificate. The
President of the Company shall deliver to the Purchaser at each Subsequent
Closing a certificate certifying that the conditions specified in Section
5.2(a) and
Section
5.2(b) have
been fulfilled.

 

(d)  Achievement
of Milestones. The
applicable Milestone shall have been achieved as provided in the Joint
Development Agreement.

 

(e)  Capitalization. The
Company shall deliver an updated capitalization table in the form of
Schedule
2.3 with
respect to the ownership of the Company s capital stock at such time certified
by the President and the Secretary of the Company.

 

(f)  Qualifications. All
authorizations, approvals or permits, if any, of any Governmental Authority that
are required in connection with the lawful issuance and sale of the Preferred
Shares and Warrants pursuant to this Agreement shall be effective as of each
Subsequent Closing.

 

(g)  Opinion
of Counsel. The
Purchaser shall have received from counsel for the Company, an opinion, dated as
of each Subsequent Closing Date, substantially in the form attached hereto
as Exhibit F.

 

22

 

6.  Conditions
of the Company s Obligations at Closing.

 

6.1.    First
Closing. The
obligations of the Company to sell Preferred Shares to the Purchaser at the
First Closing are subject to the fulfillment, on or before the First Closing
Date, of each of the following conditions, unless otherwise waived in a writing
signed by the Company:

 

(a)  Representations
and Warranties The
representations and warranties of the Purchaser contained in Section 3 shall be
true and correct in all material respects as of the First Closing
Date.

 

(b)  Performance. The
Purchaser shall have performed and complied with all covenants, agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the First Closing
Date.

 

(c)  Qualifications. All
authorizations, approvals or permits, if any, of any Governmental Authority that
are required in connection with the lawful issuance and sale of the Preferred
Shares pursuant to this Agreement shall be obtained and effective as of the
First Closing Date.

 

(d)  Stockholder
Approval. The
Company shall have received approval of its Stockholders, to the extent
necessary under Applicable Law or the Trading Market Rules, for the consummation
of the transactions contemplated by the Transaction Agreements.

 

(e)  Joint
Development Agreement. The
Purchaser shall have executed and delivered the Joint Development
Agreement.

 

(f)  Cross
Licensing Agreement. The
Purchaser shall have executed and delivered the Cross Licensing
Agreement.

 

(g)  Investor
Rights Agreement.
 The
Purchaser shall have executed and delivered the Investor Rights
Agreement.

 

(h)  Registration
Rights Agreement. The
Purchaser shall have executed and delivered the Registration Rights Agreement.

 

(i)  Standstill
Agreement. The
Purchaser shall have executed and delivered the Standstill
Agreement.

 

(j)  Patent
Assignment Agreement. The
Purchaser shall have executed and delivered the Patent Assignment Agreement.

 

(k)  Third
Party Consents. The
Purchaser shall have used reasonable efforts to obtain any consents from third
parties necessary for the Purchaser to be able to deliver the consideration
contemplated in Section
1.1.

 

23

 

6.2.    Subsequent
Closings. The
obligations of the Company to issue and sell Preferred Shares and Warrants at
each Subsequent Closing are subject to the fulfillment, on or before each
Subsequent Closing Date, of each of the following conditions, unless otherwise
waived in a writing signed by the Company:

 

(a)  Representations
and Warranties The
representations and warranties of the Purchaser contained in Section 3 shall be
true and correct in all material respects as of each Subsequent Closing
Date.

 

(b)  Performance. The
Purchaser shall have performed and complied with all covenants, agreements,
obligations and conditions contained in this Agreement and the Transaction
Agreements that are required to be performed or complied with by it on or before
each Subsequent Closing Date. 

 

(c)  Achievement
of Milestones. The
applicable Milestone shall have been achieved as provided in the Joint
Development Agreement.

 

7.    Term
and
Termination.

 

7.1.    Term. The term
of this Agreement shall run concurrently with the term of the Joint Development
Agreement.

 

7.2.    Termination. This
Agreement shall terminate as follows: 

 

(a)  the
Company and the Purchaser may terminate this Agreement by mutual written consent
at any time prior to the Fifth Closing;

 

(b)  by either
party if the First Closing shall not have been consummated by June 30, 2005,
provided,
however, that
neither party may terminate this Agreement pursuant to this Section
7.2(b) if the
First Closing shall not have been consummated by such date by reason of the
failure of such party or any of its Affiliates to perform in all material
respects any of its or their respective covenants or agreements contained
herein;

 

(c)  by either
party if there shall be any Applicable Law or regulation that makes consummation
of the transactions contemplated by the Transaction Agreements illegal or
otherwise prohibited or if consummation of such transactions would violate any
nonappealable final order, decree or judgment of any Governmental Authority
having competent jurisdiction;

 

(d)  by either
party if the Company does not receive the approval of its Stockholders at the
Stockholder Meeting as contemplated by Section
4.3;

 

(e)  upon
termination of the Joint Development Agreement, but subject to Sections
7.3(b) and
7.3(c), as
applicable;

 

(f)  the
Purchaser may terminate this Agreement by giving written notice to the Company
at any time prior to the Fifth Closing in the event the Company has materially
breached any representation, warranty or covenant contained in this Agreement
and the breach has continued without cure for a period of thirty (30) days after
written notice of such breach;

 

24

 

(g)  the
Company may terminate this Agreement by giving written notice to the Purchaser
at any time prior to the Fifth Closing in the event the Purchaser has materially
breached any representation, warranty or covenant contained in this Agreement
and the breach has continued without cure for a period of thirty (30) days after
written notice of such breach; and

 

(h)  the
Company may terminate this Agreement by providing written notice to the
Purchaser within thirty (30) days following the Purchaser s non-payment of a
Minimum Series B Investment with respect to any Subsequent Closing pursuant to
this Agreement (taking into account any previous Excess Series B Investments),
provided that, if
the Company does not deliver notice of termination to the Purchaser within
thirty (30) days after the applicable Closing Date, the Company s termination
right pursuant to this Section
7.2(g) with
respect to that particular non-payment by Purchaser shall expire.

 

Any party
desiring to terminate this Agreement pursuant to this Section
7.2 shall
give written notice of such termination (including the basis thereof) to the
other party. 

 

7.3.    Effect
of Termination.

 

(a)  Upon
termination of this Agreement under Section
7.2, but
subject this Section
7.3, the
Purchaser shall retain all of the Preferred Shares and Warrants (and any Common
Stock acquired by the Purchaser upon the conversion thereof) acquired by the
Purchaser as of such termination date and all rights and obligations of the
Parties hereunder shall terminate without any liability of either Party (except
for any liability of any Party then in breach), except the provisions of this
Section
7.3 and
Section
9 hereof
shall survive such termination.

 

(b)  If the
Purchaser terminates the Joint Development Agreement for Cause (as defined in
the Joint Development Agreement), in addition to any ownership interest that the
Purchaser has retained in the Company, (i) the Purchaser shall be entitled, at
the time of such termination, to additionally (a) purchase the Series B
Preferred and receive the Warrants and (b) receive the Series A
Preferred that the Purchaser would have had the right to acquire upon
achievement of the next Milestone (as if such next Milestone had occurred upon
the termination of the Joint Development Agreement and otherwise pursuant to the
terms of this Agreement, the Joint Development Agreement and the other
Transaction Agreements) and the next successive Closing applicable thereto and
(ii) this Agreement shall remain in full force and effect until the Purchaser
acquires the Preferred Shares and Warrants specified in clause (i)
above.

 

(c)  If the
Purchaser terminates the Joint Development Agreement without Cause (as defined
in the Joint Development Agreement) prior to July 1, 2005, the Purchaser shall
forfeit all of the Preferred Shares and Warrants (and any Common Stock acquired
by the Purchaser upon the conversion thereof) acquired by the Purchaser as of
such termination date (and the
Company shall purchase such securities from the Purchaser at a price identical
to that paid by the Purchaser for such securities hereunder).

 

25

 

8.    Indemnification.

 

8.1.    Indemnification of
the Purchaser. The
Company hereby indemnifies the Purchaser and its Affiliates, directors,
officers, employees and agents against, and agrees to hold each of them harmless
from, any and all claims, demands, costs, expenses, obligations, liabilities,
damages, recoveries and deficiencies, including, without limitation, interest,
penalties, court costs, costs and expenses (including reasonable fees of
external counsel) (the Damages )
incurred or suffered by any of them (i) arising out of or related in any way to
any misrepresentation or breach of any representation or warranty made by the
Company in any of the Transaction Agreements, (ii) arising out of or related in
any way to any breach of any covenant or agreement to be performed by the
Company pursuant to any of the Transaction Agreements, (iii) arising out of or
based upon (A) any untrue statement or alleged untrue statement of a material
fact contained in any disclosure document or other information provided to any
potential investor in connection with a financing by the Company, (B) any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements in any disclosure document or other information
provided to any potential investor in connection with any financing by the
Company not misleading, or (C) any violation or alleged violation of any
federal, state or foreign securities law, rule or regulation in connection with
a financing by the Company or otherwise, or (iv) arising out of violations by
the Company of Applicable Law.

 

8.2.    Indemnification
of the Company. The
Purchaser hereby indemnifies the Company and its Affiliates, directors,
officers, employees and agents against, and agrees to hold each of them harmless
from, any and all Damages incurred or suffered by any of them arising out of or
related in any way to any misrepresentation or breach of any representation,
warranty or covenant made or to be performed by the Purchaser pursuant to this
Agreement.

 

8.3.    Limitations.

 

(a)  The
Company shall not be liable under Section
8.1(i) for any
Damages arising out of or related to any misrepresentation or breach of any
representation or warranty made by the Company under this Agreement until the
aggregate amount of all Damages for such misrepresentations and breaches of
representation or warranty exceeds $100,000, at which time the Company shall be
liable for the entirety of Damages incurred by the Purchaser.

 

(b)  The
Company shall not be liable under Section
8.1(i) for any
Damages (measured by a decrease in the value of any securities acquired by the
Purchaser pursuant to this Agreement) incurred by the Purchaser arising out of
or related to any misrepresentation or breach of any representation or warranty
contained in Section
2 (other
than those contained in Sections
2.1 through
2.5) to the
extent that the aggregate amount of all such Damages exceeds (i) the aggregate
Initial Series A Liquidation Value plus (ii) the aggregate Initial Series B
Liquidation Value, in the case of both (i) and (ii) in respect of the Preferred
Shares issued at any Closing in respect of which the applicable
misrepresentation or breach of representation or warranty occurred, provided,
however, that
any Damages arising out of or related to Third Party Claims (as defined below),
shall not be subject to the limitation set forth in this Section
8.3(b).

 

26

 

8.4.    Procedures.

 

(a)  If any of
the Purchaser or any of their Affiliates or any of their directors, officers,
employees and agents, seek indemnification pursuant to Section
8.1, or the
Company or any of their Affiliates or any of their directors, officers,
employees and agents, seek indemnification pursuant to Section
8.2, the
Person seeking indemnification (the Indemnified
Party ) shall
give written notice to the party from whom such indemnification is sought (the
Indemnifying
Party )
promptly (and in any event within 30 days) after the Indemnified Party becomes
aware of the facts giving rise to such claim for indemnification (an
Indemnified
Claim )
specifying in reasonable detail the factual basis of the Indemnified Claim,
stating the amount of the Damages, if known, the method of computation thereof,
containing a reference to the provision of this Agreement in respect of which
such Indemnified Claim arises and demanding indemnification therefor. The
failure of an Indemnified Party to provide notice in accordance with this
Section
8.4 shall
not constitute a waiver of that party s claims to indemnification pursuant to
Section
8.1 or
Section
8.2, as
applicable, except to the extent that any such failure or delay in giving notice
causes the amounts paid by the Indemnifying Party to be greater than they
otherwise would have been or otherwise results in prejudice to the Indemnifying
Party. If the Indemnified Claim arises from the assertion of any claim, or the
commencement of any suit, action or proceeding brought by a Person that is not a
party hereto (a Third
Party Claim ), any
such notice to the Indemnifying Party shall be accompanied by a copy of any
papers theretofore served on or delivered to the Indemnified Party in connection
with such Third Party Claim.

 

(b)  Upon
receipt of notice of a Third Party Claim from an Indemnified Party pursuant to
Section
8.4(a), the
Indemnifying Party will be entitled to assume the defense and control of such
Third Party Claim subject to the provisions of this Section
8.4. After
written notice by the Indemnifying Party to the Indemnified Party of its
election to assume the defense and control of a Third Party Claim, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
fees or expenses subsequently incurred by such Indemnified Party in connection
therewith. Notwithstanding anything in this Section
8.4 to the
contrary, if the Indemnifying Party does not assume defense and control of a
Third Party Claim as provided in this Section
8.4, the
Indemnified Party shall have the right to defend such Third Party Claim, subject
to the limitations set forth in this Section
8.4, in such
manner as it may deem appropriate. Whether the Indemnifying Party or the
Indemnified Party is defending and controlling any such Third Party Claim, they
shall select counsel, contractors, experts and consultants of recognized
standing and competence, shall take all steps necessary in the investigation,
defense or settlement thereof, and shall at all times diligently and promptly
pursue the resolution thereof. The party conducting the defense thereof shall at
all times act as if all Damages relating to the Third Party Claim were for its
own account and shall act in good faith and with reasonable prudence to minimize
Damages therefrom. The Indemnified Party shall, and shall cause each of its
Affiliates, directors, officers, employees, and agents to, cooperate fully with
the Indemnifying Party in connection with any Third Party Claim.

 

(c)  The
Indemnifying Party shall be authorized to consent to a settlement of, or the
entry of any judgment arising from, any Third Party Claims, and the Indemnified
Party shall consent to a settlement of, or the entry of any judgment arising
from, such Third Party Claims; provided, that the Indemnifying Party shall (1)
pay or cause to be paid all amounts arising out of such settlement or judgment
concurrently with the effectiveness thereof; (2) shall not encumber any of the
assets of any Indemnified Party or agree to any restriction or condition that
would apply to such Indemnified Party or to the conduct of that party s
business; and (3) shall obtain, as a condition of any settlement or other
resolution, a complete and irrevocable release of each Indemnified Party and
such settlement or judgment (x) shall not require any admission of liability,
fault or wrongdoing by any Indemnified Party or impose any non-monetary
obligation on an Indemnified Party (such as, by way of example, and not in
limitation, injunctive relief) and (y) shall not require any admission or
statement that could reasonably be expected to materially impair, disparage or
otherwise adversely affect, the business reputation of the Indemnified Party.
Except to the extent of the foregoing, no settlement or entry of judgment in
respect of any Third Party Claim shall be consented to by any Indemnifying Party
or Indemnified Party without the express written consent of the other
party.

 

27

 

(d)  If an
Indemnifying Party makes any payment on an Indemnified Claim, the Indemnifying
Party shall be subrogated, to the extent of such payment, to all rights and
remedies of the Indemnified Party to any insurance benefits or other claims or
benefits of the Indemnified Party with respect to such claim.

 

9.    Miscellaneous.

 

9.1.    Survival. The
representations and warranties of the Company and the Purchaser contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement and shall continue in full force and effect until the earlier of the
first anniversary of (i) the Fifth Closing or (ii) the termination of the Joint
Development Agreement, except that:

 

(a)  the
representations and warranties in Sections
2.1,
2.2,
2.3,
2.4,
2.5,
3.1 and
3.2 shall
survive indefinitely; and

 

(b)  those
covenants and agreements set forth in this Agreement that, by their terms, are
to have effect after the Closings shall survive for the period contemplated by
such covenants and agreements, or, if no period is expressly set forth, until
the expiration of the statute of limitations applicable to any claim relating
therefor. 

 

9.2.    Transfer;
Successors and Assigns. No party
shall assign any rights or obligations under this Agreement without the prior
written consent of the other party, provided,
however, that
the Purchaser may assign any and all rights and obligations under this Agreement
to any of its Affiliates. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective successors and assigns of
the Parties. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the Parties or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by
reason of this Agreement, except as expressly provided in this
Agreement.

 

9.3.    Governing
Law. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware without regard to its principles of conflicts of
laws.

 

9.4.    Counterparts. This
Agreement may be executed in two (2) or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument. This Agreement may also be executed and delivered by facsimile
signature and in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

 

9.5.    Construction
of Certain Terms. The
titles of the articles, sections, and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement. Wherever the words including, include or includes are used in this
Agreement, they shall be deemed followed by the words without limitation.
References to any gender shall be deemed to mean any gender. The Parties hereto
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.

 

9.6.    Notices. 
All
notices and other communications given or made pursuant to this Agreement shall
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party to be notified, (b) when sent by confirmed electronic mail or
facsimile if sent during normal business hours of the recipient, and if not so
confirmed, then on the next business day, (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 nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
communications shall be sent to the address or facsimile number set forth below
or to such other address or facsimile number as delivered by notice to the other
in accordance with this Section
9.6:

 

If to the
Company: 

 

Millennium
Cell Inc. 

One
Industrial Way West

Eatontown,
NJ 07724

Attention:
President

Facsimile:
732.542.4010

With a
copy to: 

Dickstein,
Shapiro, Morin & Oshinsky LLP

2101 L
Street, N.W.

Washington,
D.C. 20031-1526

Attention:
Neil Lefkowitz

Facsimile:
202.887.0689

28

 

If to the
Purchaser:

The Dow
Chemical Company

2030 Dow
Center

Midland,
Michigan 48674

Attention:
Director, Natural Resources Platform, Dow Ventures

Facsimile:
989.638.7133

With a
copy to:

The Dow
Chemical Company

2030 Dow
Center

Midland,
Michigan 48674

Attention:
Business Counsel, Dow Ventures

Facsimile:
989.636.7594

With a
copy to: 

King
& Spalding LLP

1700
Pennsylvania Avenue, N.W.

Washington,
D.C. 20006

Attention:
David Gibbons

Facsimile:
202.626.3737

 

9.7.    No
Finder's Fees. Each
party represents that it neither is nor will be obligated for any finder s fee
or commission in connection with the transactions contemplated by this
Agreement. The Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a finder
s fee arising out of the transactions contemplated by this Agreement
(and the costs and expenses of defending against such liability or asserted
liability) for which the Purchaser or any of its officers, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless each the Purchaser from any liability for any commission or
compensation in the nature of a finder s or broker s fee arising out of
this transaction (and the costs and expenses of defending against such liability
or asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.

 

9.8.  Fees
and Expenses. The
Company and the Purchaser shall each pay their own costs and expenses in
connection with the negotiation and documentation of this Agreement,
provided,
however, that
the Company shall pay all legal fees and expenses reasonably incurred by the
Purchaser after October 26, 2004 in connection with the transactions
contemplated by the Transaction Agreements up to an aggregate amount of
$180,000.

 

9.9.    Amendments
and Waivers. Neither
this Agreement nor any term of this Agreement may be amended, terminated or
waived without the written consent of the Company and the holders of at least a
majority of the then-outstanding Shares. Any amendment or waiver effected in
accordance with this Section 9.9 shall be
binding upon the Purchaser and each transferee of the Preferred Shares or
Warrants (or the Common Stock issuable upon conversion thereof), each future
holder of all such securities, and the Company.

 

9.10.    Severability. The
invalidity of unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.

 

9.11.    Delays
or Omissions. No delay
or omission to exercise any right, power or remedy accruing to any party under
this Agreement, upon any breach or default of any other party under this
Agreement, shall impair any such right, power or remedy of such non-breaching or
non-defaulting party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.

 

29

 

9.12.    Entire
Agreement. This
Agreement (including the Attachments and Exhibits hereto) and the other
Transaction Agreements constitute the full and entire understanding and
agreement between the Parties with respect to the subject matter hereof, and any
other written or oral agreement relating to the subject matter hereof existing
between the Parties are expressly canceled.

 

9.13.    Dispute
Resolution. Any
unresolved controversy or claim arising out of or relating to this Agreement,
except as (a) otherwise provided in this Agreement, or (b) any such
controversies or claims arising out of either party s intellectual property
rights for which a provisional remedy or equitable relief is sought, shall be
submitted to arbitration by one arbitrator mutually agreed upon by the Parties,
and if no agreement can be reached within 30 days after names of potential
arbitrators have been proposed by the American Arbitration Association (the
AAA ), then
by one arbitrator having reasonable experience in corporate finance transactions
of the type provided for in this Agreement and who is chosen by the AAA. The
arbitration shall take place in the District of Columbia, in accordance with the
AAA rules then in effect, and judgment upon any award rendered in such
arbitration will be binding and may be entered in any court having jurisdiction
thereof. There shall be limited discovery prior to the arbitration hearing as
follows: (a) exchange of witness lists and copies of documentary evidence and
documents relating to or arising out of the issues to be arbitrated,
(b) depositions of all party witnesses and (c) such other depositions as
may be allowed by the arbitrators upon a showing of good cause. Depositions
shall be conducted in accordance with the Federal Rules of Civil Procedure, the
arbitrator shall be required to provide in writing to the Parties the basis for
the award or order of such arbitrator, and a court reporter shall record all
hearings, with such record constituting the official transcript of such
proceedings. The arbitrator shall award reasonable attorney s fees, costs, and
necessary disbursements in addition to any other relief to which the arbitrator
determines a party to be entitled. Each of the Parties to this Agreement
consents to personal jurisdiction for any equitable action sought in the U.S.
District Court for the District of Columbia or any court of the District of
Columbia having subject matter jurisdiction.

 

[Remainder
of Page Intentionally Left Blank]

 

30

The
parties have executed this Stock Purchase Agreement as of the date first written
above.

 

	 	 	 
	 	MILLENNIUM CELL
      INC.:
	 
 	 
 	 
 
		By:  	/s/ Adam P.
  Briggs
	 	
      

    
	 	Name: Adam P. Briggs
Title:
      Vice President, Product Development

	 	 	 
	 	THE DOW CHEMICAL
      COMPANY:
	 
 	 
 	 
 
		By:  	/s/ George J.
  Blitz
	 	
      

    
	 	Name: George J.
      Blitz
Title:   Vice President
Ventures

	 	 	 	 
	 	 	 	 
	
      
      31Unassociated Document

EXHIBIT 10.2

 

 

[Form
of]

JOINT
DEVELOPMENT AGREEMENT

By
and Between

MILLENNIUM
CELL INC.

and

THE
DOW CHEMICAL COMPANY

 

TABLE
OF CONTENTS

 

	
      1.
	
      Definitions
	
      2

	 	 	 
	
      2.
	
      Milestones.
	
      2

	
      2.1.
	
      Purpose
	
      2

	
      2.2.
	
      Milestones
      1, 2, 3 and 4
	
      2

	
      2.3.
	
      Steering
      Committee
	
      2

	
      2.4.
	
      No
      Restrictions
	
      3

	
      3.
	
      Intellectual
      Property.
	
      3

	
      3.1.
	
      MCEL-Contributed
      IP
	
      3

	
      3.2.
	
      Cross
      Licensing Agreement
	
      3

	
      4.
	
      Development
      Obligations of MCEL.
	
      4

	
      4.1.
	
      MCEL
      Obligations Generally
	
      4

	
      4.2.
	
      MCEL
      Obligations Per Milestone
	
      4

	
      5.
	
      Development
      Obligations of Dow.
	
      7

	
      5.1.
	
      Dow
      Obligations Generally.
	
      7

	
      5.2.
	
      Dow
      Obligations Per Milestone
	
      8

	
      6.
	
      Compensation
      to Dow Upon Achievement of Milestones
	
      9

	
      6.1.
	
      Compensation
      Per Milestone
	
      9

	
      6.2.
	
      Limitations
      on Compensation.
	
      10

	
      7.
	
      Representations
      and Warranties By MCEL
	
      11

	
      7.1.
	
      General
      Representations and Warranties.
	
      11

	
      7.2.
	
      MCEL’s
      Commitment
	
      12

	
      7.3.
	
      MCEL-Contributed
      Intellectual Property
	
      12

	
      7.4.
	
      Disclaimer.
	
      13

	
      7.5.
	
      JDA
      Intellectual Property
	
      13

	
      7.6.
	
      Disclaimer.
	
      15

	
      8.
	
      Representations
      and Warranties By Dow
	
      15

	
      8.1.
	
      General
      Representations and Warranties.
	
      15

	
      8.2.
	
      Disclaimer
	
      16

	
      9.
	
      Other
      Agreements Relating to the Joint Development Activities.
	
      16

	
      9.1.
	
      Confidential
      Information
	
      16

	
      9.2.
	
      License
      and Supplier Arrangements with Third Parties.
	
      18

	
      9.3.
	
      Non-Solicitation
      of Employees
	
      19

	
      9.4.
	
      Costs
      and Expenses Related to Joint Development
	
      19

	
      9.5.
	
      Determination
      of Milestone and Objectives under the Milestone Table.
	
      19

	
      9.6.
	
      Publicity/Press
      Releases
	
      20

	
      9.7.
	
      Records
	
      20

	
      9.8.
	
      Insurance
	
      20

	
      10.
	
      Indemnification.
	
      21

	
      10.1.
	
      Survival
	
      21

	
      10.2.
	
      Indemnification
      by MCEL
	
      21

	
      10.3.
	
      Indemnification
      by Dow
	
      22

	
      10.4.
	
      Limitation
	
      22

	
      10.5.
	
      Procedures.
	
      22

	
      10.6.
	
      Additional
      Obligations with respect to Intellectual Property
	
      24

	
      10.7.
	
      Exclusivity
      of Remedies
	
      24

 

	
      11.
	
      Term
      and Termination.
	
      24

	
      11.1.
	
      Term
	
      24

	
      11.2.
	
      Termination
      by Either Party
	
      25

	
      11.3.
	
      Termination
      By Dow
	
      25

	
      11.4.
	
      Termination
      by MCEL
	
      25

	
      11.5.
	
      Effect
      of Termination.
	
      26

	
      11.6.
	
      Survival
      of Certain Provisions
	
      26

	
      12.
	
      Disputes.
	
      26

	
      12.1.
	
      Alternative
      Dispute Resolution
	
      26

	
      13.
	
      General
      Provisions.
	
      27

	
      13.1.
	
      Relationship
      of the Parties
	
      27

	
      13.2.
	
      Transfer;
      Successors and Assigns
	
      27

	
      13.3.
	
      Governing
      Law
	
      27

	
      13.4.
	
      Counterparts
	
      27

	
      13.5.
	
      Construction
      of Certain Terms
	
      27

	
      13.6.
	
      Notices
	
      28

	
      13.7.
	
      Amendments
      and Waivers
	
      29

	
      13.8.
	
      Severability
	
      29

	
      13.9.
	
      Delays
      or Omissions
	
      29

	
      13.10.
	
      Entire
      Agreement
	
      29

Exhibit
A Definitions

Exhibit
B Milestones

 

Schedule
1  MCEL-Contributed
Intellectual Property

Schedule
2   Excluded
Intellectual Property

 

JOINT
DEVELOPMENT AGREEMENT

 

THIS
JOINT DEVELOPMENT AGREEMENT (this
“Agreement”) is
made and entered into on this __ day of __________, 2005 (the “Effective
Date”) by and
between THE DOW CHEMICAL COMPANY, a Delaware corporation (“Dow”) and
MILLENNIUM CELL INC., a Delaware corporation (“MCEL”). Dow
and MCEL also may be referred to herein individually as a “Party” or
collectively as the “Parties.”

 

Recitals

 

WHEREAS,
the Parties entered into that certain Stock Purchase Agreement, dated as of
February 27, 2005 (the “Stock
Purchase Agreement”),
pursuant to which, among other things, at the First Closing (as defined in the
Stock Purchase Agreement), the Parties are to enter into this
Agreement;

 

WHEREAS,
the First Closing has occurred and, simultaneously therewith, the Parties are
entering into this Agreement pursuant of the Stock Purchase
Agreement;

 

WHEREAS,
simultaneously with the entering into of this Agreement, Dow and MCEL have also
entered into that certain Cross Licensing and Intellectual Property Agreement,
dated as of the Effective Date (the “Cross
Licensing Agreement”);

 

WHEREAS,
MCEL is engaged in the business of developing fuel systems for the safe storage,
transportation and generation of hydrogen for use as an energy source and, in
connection therewith, has developed and patented the proprietary system called
Hydrogen
on Demand®,
whereby the energy potential of hydrogen is carried in the chemical bonds of
sodium borohydride, which in the presence of a catalyst, releases
hydrogen;

 

WHEREAS,
among other things, Dow is engaged directly and indirectly in developing
technologies addressing the increasing need for energy for portable electronics
devices;

 

WHEREAS,
the Parties wish to jointly develop portable energy solutions through the
production of hydrogen gas for use by fuel cells within the Field of Use (as
defined below) and within the Application (as defined below), using certain
processes currently being developed by MCEL, as further described in this
Agreement;

 

WHEREAS,
in connection with the joint development arrangement described above, and
pursuant to the terms and conditions of the Stock Purchase Agreement and this
Agreement, MCEL and Dow have agreed that MCEL will (i) upon the execution
of this Agreement, issue certain shares of Series A Preferred Stock (as defined
below) and (ii) upon the achievement of Milestones 1, 2, 3 and 4 (each as
defined below), issue certain shares of Series A Preferred Stock in
consideration for Dow providing its commercial and technical services pursuant
to this Agreement, as further described in this Agreement and the Stock Purchase
Agreement; and

 

WHEREAS,
pursuant to the terms and conditions of the Stock Purchase Agreement, MCEL and
Dow have agreed that, upon the achievement of Milestones 1, 2, 3 and 4, MCEL
will offer to sell, and Dow may purchase, certain shares of Series B Preferred
Stock in consideration for Dow’s equity investments into MCEL, as further
described in this Agreement and the Stock Purchase Agreement.

 

1

 

NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements contained herein, the Parties agree as follows:

 

1.    Definitions.
Capitalized terms used in this Agreement shall have the meanings set forth in
Exhibit
A
(Definitions). Capitalized terms that do not appear in Exhibit
A shall
have the meanings given such terms as provided for in this
Agreement.

 

2.    Milestones.

 

2.1.  Purpose. 
The Parties have entered into this Agreement for the purpose of jointly
developing portable energy solutions through the production of hydrogen gas for
use by fuel cells using certain processes currently being developed by MCEL. In
connection therewith, MCEL shall use reasonable best efforts to, among other
things, perform the MCEL Military Tasks and the MCEL Consumer Tasks and Dow
shall use commercially reasonable efforts when requested by MCEL to perform the
Dow Military Tasks and the Dow Consumer Tasks in accordance with this Agreement.
By performing these obligations, MCEL will seek to cause the occurrence of the
Military Objectives and the Consumer Objectives (if any) contained in the four
(4) milestones described in this Article
2 (each, a
“Milestone” and,
collectively, the “Milestones”) and,
as a result of the occurrence of all the Military Objectives or the Consumer
Objectives in any such Milestone, will achieve such Milestone as set forth in
the Milestone Table. Upon the achievement of each Milestone, Dow will be
entitled to receive Series A Preferred Stock and to purchase Series B Preferred
Stock and receive Warrants, subject to the terms and conditions of this
Agreement and the other Transaction Agreements.

 

2.2.  Milestones
1, 2, 3 and 4. 
Each of the four (4) Milestones (“Milestone
1,”
“Milestone
2”,
“Milestone
3” and
“Milestone
4”,
respectively) shall be achieved upon the occurrence of either (i) all of the
Military Objectives or (ii) all of the Consumer Objectives, in either case,
corresponding to such Milestone in the Milestone Table set forth on Exhibit
B of this
Agreement (the “Milestone
Table”).
Notwithstanding anything to the contrary set forth in the Milestone Table, (i)
if Milestone 2 is achieved prior to the achievement of Milestone 1, then
Milestone 1 will be deemed to have been achieved upon the achievement of
Milestone 2, (ii) if Milestone 3 is achieved prior to the achievement of
Milestone 1 and/or Milestone 2, then any prior Milestone that has not been
achieved at such time (Milestone 1 and/or Milestone 2, as the case may be) will
be deemed to have been achieved upon the achievement of Milestone 3, (iii) if
Milestone 4 is achieved prior to the achievement of Milestone 1, Milestone 2
and/or Milestone 3, then any prior Milestone that has not been achieved at such
time (Milestone 1, Milestone 2 and/or Milestone 3, as the case may be) will be
deemed to have been achieved upon the achievement of Milestone 4. In any such
event, all of the Closings (as defined in the Stock Purchase Agreement)
preceding the applicable Milestone shall occur simultaneously.

 

2.3.  Steering
Committee. 
The Parties shall establish and maintain a steering committee (the “Steering
Committee”) that
will oversee the development activities under, and all other aspects of the
relationship contemplated by, this Agreement and facilitate the relationship
between Dow and MCEL as explicitly set forth this Agreement. The Steering
Committee shall consist of four (4) individuals (each, a “Committee
Member”), two
(2) of which shall be appointed by Dow at its sole discretion and two (2) of
which shall be appointed by MCEL at its sole discretion. The initial Committee
Members shall be as follows (a) two MCEL-appointed Committee Members shall be:
(i) Adam Briggs and (ii) John Battaglini and the two-Dow appointed Committee
Members shall be: (i) Director Emerging Energy Platform and (ii) another
representative to be appointed in the future; provided,
however, either
Party may replace such Party’s Committee Members at any time by providing
written notice to the other Party. During the Term, the Steering Committee will
meet from time to time and in the manner as the Committee Members shall agree.
Any action made by the Steering Committee under this Agreement shall only be
enforceable if at least seventy-five percent (75%) of the Committee Members
agree to such action in writing. Notwithstanding anything to the contrary set
forth herein, in no event shall the Steering Committee have the right to modify,
amend, supplement, change or waive any provision or term of this
Agreement.

 

2

 

2.4.  No
Restrictions. 
In no event shall the obligations of the Parties contained in this Agreement,
the Stock Purchase Agreement, the other Transaction Agreements or transactions
contemplated hereby or thereby prevent or in any way prohibit or restrain the
either Party from engaging in any activities (including without limitation,
development activities, joint development activities, investment activities or
otherwise) which may be deemed to be directly or indirectly competitive with the
other Party, the current operations of the other Party or the future business
plans of the other Party, it being understood that each Party may by itself or
in combination with other third parties, develop, manufacture, produce or sell
hydrogen fuel cell products; provided,
however, each
Party’s rights under this Section
2.4 shall be
subject to all agreements and restrictions of the Parties with respect to (i)
Dow Intellectual Property, MCEL-Contributed Intellectual Property (as defined
below) and Joint Development Intellectual Property under this Agreement, the
Cross Licensing Agreement and all other Transaction Agreements, (ii) the
specific representations, warranties, covenants and agreements contained in the
Transaction Agreements and (iii) confidentiality and non-solicitation
obligations of the Parties under this Agreement.

 

		3.	Intellectual
      Property.

 

3.1.  MCEL-Contributed
IP. 
MCEL hereby acknowledges and agrees that all patents, copyrights, trade secrets,
technical data, designs, concepts, processes, formulae, know-how and information
of MCEL as of the date of this Agreement to be used by MCEL in furtherance of
the purpose of this Agreement, including without limitation the patents,
copyrights and other intellectual property set forth on Schedule
1, and all
know-how and trade secrets embodied therein shall collectively be, “MCEL-Contributed
Intellectual Property”;
provided,
however, neither
(i) the intellectual property set forth on Schedule
2 of this
Agreement nor (ii) the JDA Intellectual Property shall be deemed
MCEL-Contributed Intellectual Property. MCEL shall use the MCEL-Contributed
Intellectual Property to the extent necessary to meet its obligations under this
Agreement.

 

3.2.  Cross
Licensing Agreement. 
Simultaneously herewith, the Parties acknowledge and agree that the Parties have
entered into the Cross Licensing Agreement with respect to the intellectual
property matters related to the transactions contemplated by this
Agreement.

 

3

 

		4.	Development
      Obligations of MCEL. 

 

4.1.  MCEL
Obligations Generally. 
During the Term, MCEL shall use its reasonable best efforts to achieve each of
the Military Objectives and each of the Consumer Objectives as expeditiously as
possible; provided,
however, that in
the event the Board of Directors of MCEL determines in good faith that it is in
the best interests of MCEL to primarily pursue only the Military Objectives or
the Consumer Objectives in respect of MCEL’s efforts to achieve the unachieved
Milestones (such determination being a “One-Track
Determination”), then
MCEL shall (i) promptly inform Dow that MCEL has made such One-Track
Determination and (ii) for the remainder of the Term MCEL shall use its
reasonable best efforts to achieve only the Military Objectives or the Consumer
Objectives, as the case may be, applicable to such unachieved
Milestones.

 

4.2.  MCEL
Obligations Per Milestone. 
Without limiting the generality of Section
4.1, MCEL
shall perform, at a minimum, each of the incomplete MCEL Military Tasks and the
incomplete MCEL Consumer Tasks on the terms set forth in this Section
4.2
regardless of the Milestone that has been achieved for purposes of the Milestone
Table; provided,
however, if a
Milestone has been achieved under the Milestone Table due to the occurrence of
all Military Objectives, on the one hand, or Consumer Objectives, on the other
hand, contained in such Milestone, then for the purposes of this Section
4.2, the
Military Objectives or the Consumer Objectives, as applicable, contained in all
preceding Milestones shall be deemed to have occurred; provided,
further, if MCEL
has made a One-Track Determination, then MCEL will only be required to perform
such incomplete MCEL Consumer Tasks or such incomplete MCEL Military Tasks, as
applicable.

 

(a)  MCEL
Military Tasks - Throughout Term 
 For
the time period commencing on the date hereof and ending upon the earlier of the
achievement of the Military Objectives contained in Milestone 4 or the
expiration of the Term, MCEL shall (i) identify potential opportunities with
military and/or government entities to become Military Customers party to a
Military Contract, Production-Ready Military Contract and/or Military P.O. and
exercise reasonable best efforts through marketing and business development
activities to enhance such potential opportunities; (ii) exercise best efforts
to comply with any then-effective Military Contract, Production-Ready Military
Contract or Military P.O.; and (iii) prepare the filings for all
government/regulatory approvals necessary and appropriate for the use of
NaBH4 for the
military applications contemplated by the Military Objectives, make such filings
if and when applicable, and follow up with specific government/regulatory bodies
and exercise reasonable best efforts to respond to further application issues as
appropriate (the obligations described in this clause (iii) being the
“Military
NaBH4
Approval Process”).

 

(b)  MCEL
Military Tasks - Milestone 1. 
From the date hereof until the achievement of the Military Objectives contained
in Milestone 1, MCEL shall (i) develop proposed Military Prototype
specifications to meet military needs for a fuel cell power source and develop
proposed terms for a future Military Contract; (ii) develop and test the
proposed Military Prototype and exercise reasonable best efforts to make the
appropriate improvements thereto prior to the execution of the Military
Contract; (iii) exercise reasonable best efforts to negotiate and execute a bona
fide proposed Military Contract; and (iv) exercise reasonable best efforts to
test, develop, manufacture and deliver a Military Prototype meeting the
specifications of the executed Military Contract.

 

4

 

(c)  MCEL
Military Tasks - Milestone 2. 
From the date of achievement of the Military Objectives contained in Milestone 1
until the achievement of the Military Objectives contained in Milestone 2, MCEL
shall (i) perform an evaluation of the Military Prototype and MCEL’s performance
under the Military Contract to identify areas of improvement; (ii) develop and
test the proposed production-ready Military Prototype and exercise reasonable
best efforts to make the appropriate improvements thereto prior to execution of
the Production-Ready Military Contract; (iii) exercise reasonable best efforts
to negotiate and execute a proposed Production-Ready Military Contract; (iv)
seek to become the preferred provider or the exclusive provider of the
production-ready Military Prototype to the Military Customer under the
Production-Ready Military Contract; and (v) exercise reasonable best efforts to
test, develop, manufacture and deliver the Military Prototypes meeting the
specifications of the executed Production-Ready Military Contract.

 

(d)  MCEL
Military Tasks - Milestone 3. From
the date of achievement of the Military Objectives contained in Milestone 2
until the achievement of the Military Objectives contained in Milestone 3, MCEL
shall (i) perform an evaluation of the production-ready Military Prototype and
MCEL’s performance under the Production-Ready Military Contract to identify
areas of improvement; (ii) develop a manufacturing plan for a Military Product;
(iii) if applicable, identify and exercise reasonable best efforts to engage in
discussions with potential licensees and suppliers of intellectual property, raw
materials and products necessary or helpful for the manufacture of the
production-ready Military Product and seek access thereto in anticipation of the
Military P.O.; (iv) if applicable, exercise reasonable best efforts to negotiate
and enter into appropriate license agreements and supplier agreements in
anticipation of the Military P.O.; (v) if applicable, exercise reasonable best
efforts to acquire required technology (by merger, acquisition, purchase or
otherwise) to perform a proposed Military P.O.; (vi) develop and test the
proposed Military Product and exercise reasonable best efforts to make the
appropriate improvements thereto prior to the execution of the Military P.O.;
and (vii) exercise reasonable best efforts to negotiate and execute a proposed
Military P.O.; provided, that
clauses (iii) and (iv) of this Section
4.2(d) shall be
subject to Section
9.2.

 

(e)  MCEL
Military Tasks - Milestone 4. From
the date of achievement of the Military Objectives contained in Milestone 3
until the achievement of the Military Objectives contained in Milestone 4, MCEL
shall exercise reasonable best efforts to test, develop, manufacture and deliver
the Military Products meeting the specifications of the executed Military
P.O.

 

(f)  MCEL
Consumer Tasks - Throughout Term. For the
time period commencing on the date hereof and ending upon the earlier of the
achievement of the Consumer Objectives contained in Milestone 4 and the
expiration of the Term, MCEL shall (i) identify potential opportunities with
OEMs to be party to a Consumer Contract and/or Consumer P.O. and exercise
reasonable best efforts through marketing and business development activities to
enhance such potential opportunities; (ii) exercise best efforts to comply with
any then-effective Consumer Contract or Consumer P.O.; and (iii) prepare the
filings for all government/regulatory approvals necessary and appropriate for
the use of NaBH4 for the
consumer applications contemplated by the Consumer Objectives, make such filings
if and when applicable, and follow up with specific government/regulatory bodies
and exercise reasonable best efforts to respond to further application issues as
appropriate (the obligations described in this clause (iii) being the
“Consumer
NaBH4
Approval Process”).

 

5

 

(g)  MCEL
Consumer Tasks - Milestone 1. From
the date hereof until the achievement of the Consumer Objectives contained in
Milestone 1, MCEL shall (i) develop proposed Consumer Prototype specifications
to meet consumer needs for a fuel cell power source and develop proposed terms
for any future Consumer Contract; (ii) develop and test the proposed Consumer
Prototype and exercise reasonable best efforts to make the appropriate
improvements thereto; (iii) exercise reasonable best efforts to solicit letters
of support from potential OEMS with respect to the Consumer Prototype; and (iv)
exercise reasonable best efforts to attempt to negotiate and execute a bona fide
proposed Consumer Contract.

 

(h)  MCEL
Consumer Tasks - Milestone 2. From
the date of achievement of the Consumer Objectives contained in Milestone 1
until the achievement of the Consumer Objectives contained in Milestone 2, MCEL
shall exercise reasonable best efforts to test, develop, manufacture and deliver
the Consumer Prototypes meeting the specifications of the executed Consumer
Contract.

 

(i)  MCEL
Consumer Tasks - Milestone 3. There
are no MCEL Consumer Tasks to be performed in connection with Milestone
3.

 

(j)  MCEL
Consumer Tasks - Milestone 4. From
the date of achievement of the Consumer Objectives contained in Milestone 2
until the achievement of the Consumer Objectives contained in Milestone 4, MCEL
shall (i) perform an evaluation of the Consumer Prototype and MCEL’s performance
under the Consumer Contract to identify areas of improvement; (ii) develop a
manufacturing plan for a Consumer Product; (iii) if applicable, identify and
exercise reasonable best efforts to engage in discussions with potential
licensees and suppliers of intellectual property, raw materials and products
necessary or helpful for the manufacture of the Consumer Product and seek access
thereto in anticipation of the Consumer P.O.; (iv) if applicable, exercise
reasonable best efforts to negotiate and enter into appropriate license
agreements and supplier agreements in anticipation of Consumer P.O.; (v) if
applicable, exercise reasonable best efforts to acquire required technology (by
merger, acquisition, purchase or otherwise) to perform a proposed Consumer P.O.;
(vii) develop and test the proposed Consumer Product and exercise reasonable
best efforts to make the appropriate improvements thereto prior to execution of
the Consumer P.O.; (viii) exercise reasonable best efforts to negotiate and
execute a proposed Consumer P.O.; and (ix) exercise reasonable best efforts to
comply with all terms of the executed Consumer P.O.; provided, that
clauses (iii) and (iv) of this Section
4.2(j) shall be
subject to Section
9.2.

 

6

 

		5.	Development
      Obligations of Dow. 

 

5.1.  Dow
Obligations Generally.

 

(a)  Dow
FTEs Per Milestone. Dow
shall, at the request of MCEL, use commercially reasonable efforts to make
available to MCEL at a maximum such number of FTEs as follows:

 

(i)  from the
date hereof until the achievement of Milestone 1, Dow shall, at the request
of MCEL, make available at a maximum one (1) FTE to use commercially reasonable
efforts to (i) perform each of the incomplete Dow Military Tasks set forth in
Section
5.2(a) and (b) and/or
incomplete Dow Consumer Tasks set forth in Section 5.2(f)
and (g),
respectively, and (ii) provide commercial and technical services from Dow’s
current resources related to the characterization of chemicals, chemical
processes, plastics, and plastic parts with respect to the then-applicable
commercially reasonable efforts of Dow under Section
5.2;

 

(ii)  from the
date of achievement of Milestone 1 until the achievement of Milestone 2, Dow
shall, at the request of MCEL, make available at a maximum three (3) FTEs to use
commercially reasonable efforts to (i) perform each of the incomplete Dow
Military Tasks set forth in Section
5.2(a) and (c) and/or
incomplete Dow Consumer Tasks set forth in Section
5.2(f) and (h),
respectively, and (ii) provide commercial and technical services from Dow’s
current resources related to the characterization of chemicals, chemical
processes, plastics, and plastic parts with respect to the then-applicable
commercially reasonable efforts of Dow under Section
5.2; and

 

(iii)  from the
date of achievement of Milestone 2 until the achievement of Milestone 4, Dow
shall, at the request of MCEL, make available at a maximum six (6) FTEs to use
commercially reasonable efforts to (i) perform each of the incomplete Dow
Military Tasks set forth in Section
5.2(a), (d) and (e) and/or
incomplete Dow Consumer Tasks set forth in Section
5.2(f), (i) and (j),
respectively, and (ii) provide commercial and technical services from Dow’s
current resources related to the characterization of chemicals, chemical
processes, plastics, and plastic parts with respect to the then-applicable
commercially reasonable efforts of Dow under Section
5.2;

 

provided,
however, upon the
request of either Party upon the achievement of any Milestone, the Steering
Committee shall review whether to change the number of FTEs that Dow shall make
available under this Section
5.1(a);
provided,
further, that
there shall be no modification of this Section
5.1(a) or the
term “FTE” without the written agreement of the Parties. 

 

7

 

Notwithstanding
the foregoing, Dow shall only use such commercially reasonable efforts that
relate to a Dow Military Task for a Military Objective or a Dow Consumer Task
for a Consumer Objective for which MCEL is using its reasonable best efforts to
cause to occur; provided,
further, if MCEL
has made a One-Track Determination, Dow shall only be required to use
commercially reasonable efforts to perform the incomplete Dow Military Tasks or
Dow Consumer Tasks, as applicable, that MCEL is continuing to pursue and
otherwise on the terms of this Article 5. 

 

5.2.  Dow
Obligations Per Milestone.

 

(a)  Dow
Military Tasks - Throughout Term. To the
extent required by Section
5.1 above,
throughout the Term, Dow Military Tasks shall include (i) assisting MCEL in the
identification of potential opportunities with military and/or government
entities to become a Military Customer party to a Military Contract,
Production-Ready Military Contract and/or Military P.O and (ii) assisting MCEL
in the Military NaBH4 Approval
Process. 

 

(b)  Dow
Military Tasks - Milestone 1. To the
extent required by Section
5.1 above,
from the date hereof until the achievement of the Military Objectives contained
in Milestone 1, Dow Military Tasks shall include assisting MCEL in its efforts
to secure funding under and enter into the Military Contract.

 

(c)  Dow
Military Tasks - Milestone 2. To the
extent required by Section
5.1 above,
from the date of achievement of the Military Objectives contained in Milestone 1
until the achievement of the Military Objectives contained in Milestone 2, Dow
Military Tasks shall include (i) assisting MCEL to develop the Military
Prototype and (ii) assisting MCEL in its optimization of chemical systems within
the Field of Use and Application for the production of hydrogen.

 

(d)  Dow
Military Tasks - Milestone 3. To the
extent required by Section
5.1 above,
from the date of achievement of the Military Objectives contained in Milestone 2
until the achievement of the Military Objectives contained in Milestone 3, Dow
Military Tasks shall include (i) assisting MCEL in development of manufacturing
plan for Military Product; (ii) assisting MCEL in its identification and
discussions with potential licensees and suppliers of intellectual property, raw
materials and products necessary or helpful for the manufacture of the
production-ready Military Product and seek access thereto in anticipation of the
Military P.O.; and (iii) assisting MCEL in its negotiating and entering into
appropriate license agreements and supplier agreements with MCEL on
mutually-satisfactory terms and/or assisting MCEL in its negotiation of
appropriate license agreements and supplier agreements with third parties, if
appropriate, in anticipation of Military P.O.; provided, that
clauses (iii) of this Section
5.2(d) shall be
subject to Section
9.2.

 

(e)  Dow
Military Tasks - Milestone 4. To the
extent required by Section
5.1 above,
from the date of achievement of the Military Objectives contained in Milestone 3
until the achievement of the Military Objectives contained in Milestone 4, Dow
Military Tasks shall include assisting MCEL in its establishing and utilizing
manufacturing capabilities and distribution chain for
Military Products.

 

8

 

(f)  Dow
Consumer Tasks - Throughout Term. To the
extent required by Section
5.1 above,
throughout the Term, Dow Consumer Tasks shall include (i) attempting to use
corporate contacts within potential OEMs to assist MCEL in its promotion of the
Consumer Prototype and or the Consumer Product and (ii) assisting MCEL in the
Consumer NaBH4 Approval
Process.

 

(g)  Dow
Consumer Tasks - Milestone 1. To the
extent required by Section
5.1 above,
from the date hereof until the achievement of the Consumer Objectives contained
in Milestone 1, Dow Consumer Tasks shall include (i) providing market research
developed by Dow with respect to proposed technologies for Consumer Prototype,
if any; and (ii) assisting MCEL in its meetings with OEMs to promote Dow’s plans
and capabilities, if any, with respect to the Consumer Prototype.

 

(h)  Dow
Consumer Tasks - Milestone 2. To the
extent required by Section
5.1 above,
from the date of achievement of the Consumer Objectives contained in Milestone 1
until the achievement of the Consumer Objectives contained in Milestone 2, Dow
Consumer Tasks shall include (i) providing Consumer Prototype technology
evaluation capabilities to assist with technical due diligence thereof; and (ii)
assisting MCEL in its identification of manufacturing and quality control
assessment for the Consumer Prototype.

 

(i)  Dow
Consumer Tasks - Milestone 3. There
are no Dow Consumer Tasks to be performed in connection with Milestone
3.

 

(j)  Dow
Consumer Tasks - Milestone 4. To the
extent required by Section
5.1 above,
from the date of achievement of the Consumer Objectives contained in Milestone 3
until the achievement of the Consumer Objectives contained in Milestone 4, Dow
Consumer Tasks shall include (i) assisting MCEL to develop the Consumer Product;
(ii) assisting MCEL in development of manufacturing plan for Consumer Product;
(iii) assisting MCEL in its identification and discussions with potential
licensees and suppliers of intellectual property, raw materials and products
necessary or helpful for the manufacture of the Consumer Product and seek access
thereto in anticipation of the Consumer P.O.; and (iv) assisting MCEL in its
negotiating and entering into appropriate license agreements and supplier
agreements with MCEL on mutually-satisfactory terms and/or assist MCEL in its
negotiation of appropriate license agreements and supplier agreements with third
parties, if appropriate, in anticipation of Consumer P.O.; provided, that
clauses (iii) and (iv) of this Section
5.2(j) shall be
subject to Section
9.2.

 

		6.	Compensation
      to
      Dow Upon Achievement of Milestones.

 

6.1.  Compensation
Per Milestone. Subject
to the Stock Purchase Agreement and this Agreement:

 

(a)  First
Closing. In
exchange for entering into this Agreement, the Parties acknowledge and agree
that MCEL has issued to Dow, and Dow has accepted, such number of shares of
Series A-0 Preferred (as defined in the Stock Purchase Agreement) equal to a 3%
Ownership Interest as part of the First Closing (as defined in the Stock
Purchase Agreement);

 

9

 

(b)  Upon
Achievement of Milestone 1. Upon
the achievement of Milestone 1 and in the event Dow elects to pay to MCEL at
least the Minimum Series B Investment at the Second Closing (as defined in the
Stock Purchase Agreement), MCEL shall issue to Dow, and Dow shall accept
(subject to the terms of the Stock Purchase Agreement), such number of shares of
Series A-1 Preferred (as defined in the Stock Purchase Agreement) that equal,
when combined with such number of the Series B-1 Preferred (as defined in the
Stock Purchase Agreement) and Warrants, if any, purchased by Dow at the Second
Closing with the Minimum Series B Investment, a 4% Ownership Interest.

 

(d)  Upon
Achievement of Milestone 2. Upon
the achievement of Milestone 2 and in the event Dow elects to pay to MCEL at
least the Minimum Series B Investment at the Third Closing (as defined in the
Stock Purchase Agreement), MCEL shall issue to Dow, and Dow shall accept
(subject to the terms of the Stock Purchase Agreement), such number of shares of
Series A-2 Preferred (as defined in the Stock Purchase Agreement) that equal,
when combined with such number of the Series B-2 Preferred (as defined in the
Stock Purchase Agreement) and Warrants, if any, purchased by Dow at the Third
Closing with the Minimum Series B Investment, a 3% Ownership Interest.

 

(f)  Upon
Achievement of Milestone 3. Upon
the achievement of Milestone 3 and in the event Dow elects to pay to MCEL at
least the Minimum Series B Investment at the Fourth Closing (as defined in the
Stock Purchase Agreement), MCEL shall issue to Dow, and Dow shall accept
(subject to the terms of the Stock Purchase Agreement), such number of shares of
Series A-3 Preferred (as defined in the Stock Purchase Agreement) that equal,
when combined with such number of the Series B-3 Preferred (as defined in the
Stock Purchase Agreement) and Warrants, if any, purchased by Dow at the Fourth
Closing with the Minimum Series B Investment, a 5% Ownership
Interest.

 

(g)  Upon
Achievement of Milestone 4. Upon
the achievement of Milestone 4 and in the event Dow elects to pay to MCEL at
least the Minimum Series B Investment at the Fifth Closing (as defined in the
Stock Purchase Agreement), MCEL shall MCEL shall issue to Dow, and Dow shall
accept (subject to the terms of the Stock Purchase Agreement), such number of
shares of Series A-4 Preferred (as defined in the Stock Purchase Agreement) that
equal, when combined with such number of the Series B-4 Preferred (as defined in
the Stock Purchase Agreement) and Warrants, if any, purchased by Dow at the
Fifth Closing with the Minimum Series B Investment, a 4.9% Ownership
Interest.

 

		6.2.	Limitations
      on Compensation.

 

(a)  Failure
to Pay the Minimum Series B Investment. In the
event Dow does not pay to MCEL at least the Minimum Series B Investment in
connection with the achievement of any Milestone at the applicable Closing (as
defined in the Stock Purchase Agreement) pursuant to the Stock Purchase
Agreement, the shares of Series A Preferred Stock that MCEL is required to issue
to Dow shall be subject to reduction pursuant to the terms of the Stock Purchase
Agreement and Section
11.4(ii) of this
Agreement shall apply.

 

(b)  Deferred
Shares. Subject
to the terms of the Stock Purchase Agreement, in the event that, in connection
with the achievement of any Milestone, Dow elects (in its sole discretion) not
to accept, in whole or in part, any Series A Preferred Stock that Dow is
entitled to receive upon such Milestone (the “Deferred
Securities”), MCEL
shall hold such Deferred Securities in reserve for a period of up to twelve (12)
months from the date of non-acceptance by Dow (the “Deferral
Period”). Dow
shall have the right, at any time and from time to time, during the Deferral
Period to receive all or a portion of the Deferred Securities upon the same
terms and conditions that Dow would have received the Deferred Securities at the
time of original issuance.

 

10

 

(c)  Excess
Shares. Subject
to the terms of the Stock Purchase Agreement, if, at any time, an issuance of
Series A Preferred Stock or Series B Preferred Stock (or shares of Common Stock
issuable upon conversion thereof or upon the exercise of Warrants) would result
in Dow holding greater than a 19.9% Ownership Interest in respect of Series A
Preferred Stock, Series B Preferred Stock and Warrants acquired pursuant to the
terms of the Stock Purchase Agreement, then the amount of Series A Preferred
Stock or Series B Preferred Stock in excess of Dow’s 19.9% Ownership Interest
(the “Excess
Shares”) shall
be held in reserve by MCEL. Dow shall have the right, at any time and from time
to time, when Dow’s Ownership Interest is less than 19.9%, to receive or
purchase such Excess Shares, in whole or in part, upon the same terms and
conditions that Dow would have received or purchased such Excess Shares at the
time of the initial offering of such Excess Shares.

 

(d)  No
Additional Compensation. In the
event that Dow makes available more FTEs than specified in Section
5.1 or
provides services in addition to those described in Section
5.2, Dow
shall not be entitled to receive compensation pursuant to this Agreement that is
in addition to the compensation described in Section
6.1.

 

7.    Representations
and Warranties By MCEL. MCEL
makes the representations and warranties set forth below in this Article
7.

 

7.1.  General
Representations and Warranties.

 

(a)  Corporate
Power and Authorization.
MCEL has
all requisite legal and corporate power and authority to enter into this
Agreement and perform its obligations in accordance with the terms of this
Agreement. The execution and delivery of this Agreement by MCEL and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of MCEL and no further action is
required by MCEL. This Agreement has been duly executed and delivered by MCEL
and constitutes the valid and binding obligation of MCEL enforceable against
MCEL in accordance with its respective terms except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
other laws of general application relating to or affecting the enforcement of
creditors’ rights generally and (b) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.

 

(b)  Filings,
Consents and Approvals.
MCEL is
not required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by MCEL of this Agreement in accordance
with its terms.

 

11

 

7.2.  MCEL’s
Commitment. This
Agreement is made with MCEL in reliance upon MCEL’s representation to Dow that
MCEL is fully committed on the date of this Agreement to focusing primarily upon
the development activities within the Field of Use and within the Application
and the other obligations of MCEL contemplated by this Agreement. MCEL
acknowledges that Dow is presently engaged in other business activities and may
in the future be engaged in other business activities.

 

7.3.  MCEL-Contributed
Intellectual Property. 
Except as
stated on Schedule
7.3:

 

(a)  No
MCEL-Contributed Intellectual Property or product or service of MCEL related to
MCEL-Contributed Intellectual Property is subject to any proceeding or
outstanding decree, order, judgment, agreement, contract or stipulation
restricting in any manner the use, transfer or licensing thereof by MCEL, or
which may affect the validity, use or enforceability of such MCEL-Contributed
Intellectual Property. Each item of registered MCEL-Contributed Intellectual
Property is presumed valid and subsisting. All necessary registration,
maintenance and renewal fees currently due in connection with registered
MCEL-Contributed Intellectual Property have been made and all necessary
documents, recordations and certifications in connection with such registered
MCEL-Contributed Intellectual Property have been filed with the relevant patent,
copyright, trademark or other Government Authority for the purpose of
maintaining such registered MCEL-Contributed Intellectual Property.

 

(b)  MCEL owns
and has exclusive title to, or has licenses (sufficient for the conduct of the
business of MCEL as currently conducted and as proposed to be conducted) to,
each item of MCEL-Contributed Intellectual Property used in connection with the
conduct of the business of MCEL as currently conducted and as proposed to be
conducted free and clear of any lien, and MCEL is the exclusive owner or
exclusive licensee of all trademarks and service marks, trade names and domain
names used in connection with the operation or conduct of the business of MCEL,
free and clear of all liens.

 

(c)  MCEL owns
exclusively all copyrighted works that are MCEL products or which MCEL otherwise
expressly purports to own, free and clear of all liens.

 

(d)  To the
extent that any MCEL-Contributed Intellectual Property has been developed or
created by a third party for MCEL, MCEL has a written agreement with such third
party with respect thereto and MCEL thereby either (i) has obtained ownership of
and is the exclusive owner of, or (ii) has obtained a license (sufficient for
the conduct of the business of MCEL as currently conducted and as proposed to be
conducted, including MCEL’s development activities contemplated hereby) to all
of such third party’s MCEL-Contributed Intellectual Property in such work,
material or invention by operation of law or by valid assignment.

 

(e)  All
contracts relating to the MCEL-Contributed Intellectual Property are in full
force and effect. The consummation of the transactions contemplated by this
Agreement will neither violate nor result in a breach, modification,
cancellation, termination or suspension of any of such contracts. MCEL is in
compliance in all material respects with all such contracts and has not breached
any material term of any such contract. To the knowledge of MCEL, all other
parties to such contracts are in compliance in all respects with all such
contracts and have not breached any term of any such contract. 

 

12

 

(f)  To MCEL’s
knowledge, the operation of the business of MCEL as it is currently conducted
and as proposed to be conducted, including MCEL’s development activities
contemplated hereby, has not, does not and will not infringe or misappropriate
in any manner the intellectual property of any third party or constitute unfair
competition or trade practices under the applicable laws of any
jurisdiction.

 

(g)  To MCEL’s
knowledge, MCEL has not received written notice from any third party or any
other overt threats from any third party, that the operation of the business of
MCEL as it is currently conducted and as proposed to be conducted, or any act,
product or service of MCEL, infringes or misappropriates the intellectual
property of any third party or constitutes unfair competition or trade practices
under the applicable laws of any jurisdiction.

 

(h)  To the
knowledge of MCEL, no Person has or is infringing or misappropriating any
MCEL-Contributed Intellectual Property. 

 

(i)  MCEL has
taken steps which it believes to be reasonable to protect the rights of MCEL in
the Proprietary Information of MCEL or any trade secrets or confidential
information of third parties used, and, without limiting the foregoing, MCEL has
enforced a policy requiring each employee, consultant and independent contractor
to execute a proprietary information/confidentiality agreement in substantially
the form provided to Dow, and except under confidentiality obligations, or in
connection with pursuing patent rights by filing applications for patents in the
U.S. or foreign patent and trademark offices, there has not been any disclosure
by MCEL of any such trade secrets or confidential information. 

 

7.4.  Disclaimer. EXCEPT
FOR THE REPRESENTATIONS AND WARRANTIES PROVIDED IN THIS AGREEMENT, THE STOCK
PURCHASE AGREEMENT, THE CROSS-LICENSING AGREEMENT AND THE PATENT ASSIGNMENT
AGREEMENT (AS DEFINED IN THE STOCK PURCHASE AGREEMENT), MCEL MAKES NO OTHER
REPRESENTATIONS WITH RESPECT TO MCEL-CONTRIBUTED INTELLECTUAL PROPERTY AND
EXPLICITLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, ANY
IMPLIED WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR
OTHERWISE ARISING FROM A COURSE OF DEALING OR USAGE OF TRADE WITH RESPECT TO
MCEL-CONTRIBUTED INTELLECTUAL PROPERTY OR REPRESENTATIONS AND WARRANTIES OF
NON-INFRINGEMENT. 

 

7.5.  JDA
Intellectual Property. 
Except as
stated on Schedule
7.5:

 

(a)  To MCEL’s
knowledge, no JDA Intellectual Property or JDA Product or service of MCEL
related to JDA Intellectual Property is subject to any proceeding or outstanding
decree, order, judgment, agreement, contract or stipulation restricting in any
manner the use, transfer or licensing thereof by MCEL, or which may affect the
validity, use or enforceability of such JDA Intellectual Property. Each item of
registered JDA Intellectual Property is presumed valid and subsisting. All
necessary registration, maintenance and renewal fees currently due in connection
with registered JDA Intellectual Property have been made and all necessary
documents, recordations and certifications in connection with such registered
JDA Intellectual Property have been filed with the relevant patent, copyright,
trademark or other Government Authority for the purpose of maintaining such
registered JDA Intellectual Property.

 

13

 

(b)  MCEL owns
and has exclusive title to, or has licenses (sufficient for the conduct of the
business of MCEL as currently conducted and as proposed to be conducted) to,
each item of JDA Intellectual Property used in connection with the conduct of
the business of MCEL as currently conducted and as proposed to be conducted free
and clear of any lien, and MCEL is the exclusive owner or exclusive licensee of
all trademarks and service marks, trade names and domain names used in
connection with the operation or conduct of the business of MCEL, free and clear
of all liens.

 

(c)  MCEL owns
exclusively all copyrighted works that are MCEL products or which MCEL otherwise
expressly purports to own, free and clear of all liens.

 

(d)  To the
extent that any JDA Intellectual Property has been developed or created by a
third party for MCEL, MCEL has a written agreement with such third party with
respect thereto and MCEL thereby either (i) has obtained ownership of and is the
exclusive owner of, or (ii) has obtained a license (sufficient for the conduct
of the business of MCEL as currently conducted and as proposed to be conducted)
to all of such third party’s JDA Intellectual Property in such work, material or
invention by operation of law or by valid assignment.

 

(e)  All
contracts relating to the JDA Intellectual Property are in full force and
effect. The consummation of the transactions contemplated by this Agreement will
neither violate nor result in a breach, modification, cancellation, termination
or suspension of any of such contracts. MCEL is in compliance in all materials
respects with all such contracts and has not breached any material term of any
such contract. To the knowledge of MCEL, all other parties to such contracts are
in compliance in all respects with all such contracts and have not breached any
term of any such contract. 

 

(f)  To MCEL’s
knowledge, the operation of the business of MCEL as it is currently conducted
and as proposed to be conducted, including MCEL’s development activities
contemplated hereby, has not, does not and will not infringe or misappropriate
in any manner the intellectual property of any third party or, to the knowledge
of MCEL, constitute unfair competition or trade practices under the applicable
laws of any jurisdiction.

 

(g)  To MCEL’s
knowledge, MCEL has not received written notice from any third party or any
other overt threats from any third party, that the operation of the business of
MCEL as it is currently conducted and as proposed to be conducted, or any act,
product or service of MCEL, infringes or misappropriates the intellectual
property of any third party or constitutes unfair competition or trade practices
under the applicable laws of any jurisdiction.

 

14

 

(h)  To the
knowledge of MCEL, no Person has or is infringing or misappropriating any JDA
Intellectual Property. 

 

(i)  MCEL has
taken steps which it believes to be reasonable to protect the rights of MCEL in
the Proprietary Information of MCEL or any trade secrets or confidential
information of third parties used, and, without limiting the foregoing, MCEL has
enforced a policy requiring each employee, consultant and independent contractor
to execute a proprietary information/confidentiality agreement in substantially
the form provided to Dow, and except under confidentiality obligations, or in
connection with pursuing patent rights by filing applications for patents in the
U.S. or foreign patent and trademark offices, there has
not been any disclosure by MCEL of any such Proprietary
Information.

 

7.6.  Disclaimer. EXCEPT
FOR THE REPRESENTATIONS AND WARRANTIES PROVIDED IN THIS AGREEMENT, THE STOCK
PURCHASE AGREEMENT, THE CROSS-LICENSING AGREEMENT AND THE PATENT ASSIGNMENT
AGREEMENT (AS DEFINED IN THE STOCK PURCHASE AGREEMENT), MCEL MAKES NO OTHER
REPRESENTATIONS WITH RESPECT TO JDA INTELLECTUAL PROPERTY AND EXPLICITLY
DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE OR OTHERWISE ARISING FROM A COURSE OF DEALING OR USAGE OF
TRADE WITH RESPECT TO JDA INTELLECTUAL PROPERTY OR REPRESENTATIONS AND
WARRANTIES OF NON-INFRINGEMENT. 

 

8.    Representations
and Warranties By Dow. Dow
makes the representations and warranties set forth below in this Article
8.

 

8.1.  General
Representations and Warranties.

 

(a)  Corporate
Authority.
Dow has
all requisite legal and corporate power and authority to enter into this
Agreement. The execution and delivery of this Agreement and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of Dow. This Agreement has been duly executed and
delivered by Dow and constitutes the valid and binding obligation of Dow
enforceable against it in accordance with its terms except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, or other laws of general application relating to or affecting the
enforcement of creditors’ rights generally and (b) as limited by laws relating
to the availability of specific performance, injunctive relief, or other
equitable remedies

 

(b)  Binding
Obligations.
Dow is
not required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by Dow of this Agreement in accordance
with its terms.

 

(c)  Dow
acknowledges that MCEL is presently engaged in other business activities and may
in the future be engaged in other business activities.

 

15

 

8.2.  Disclaimer.
DOW MAKES
NO OTHER REPRESENTATIONS, INCLUDING WITHOUT LIMITATION, WITH RESPECT TO
DOW-LICENSED INTELLECTUAL PROPERTY AND EXPLICITLY DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE ARISING FROM A
COURSE OF DEALING OR USAGE OF TRADE WITH RESPECT TO DOW-LICENSED INTELLECTUAL
PROPERTY OR REPRESENTATIONS AND WARRANTIES OF NON-INFRINGEMENT.

 

		9.	Other
      Agreements Relating to the Joint Development Activities.

 

9.1.  Confidential
Information.

 

(a)  Confidentiality. Each
Party (in either case, the “Receiving
Party”) shall,
and shall cause its directors, officers, employees, agents or advisors
(collectively, “Representatives”) to,
hold in confidence, and not disclose to any Person without the prior written
consent of the other Party (which in the case of MCEL shall be signed by the
president or a senior vice president in either case, the “Disclosing
Party”), or
use in any manner except as contemplated by this Agreement, all Proprietary
Information of the Disclosing Party obtained by it in connection with this
Agreement, during the Term and for ten (10) years thereafter except
that such Proprietary Information may be disclosed (i) where necessary to any
regulatory authorities or governmental agencies, (ii) if required by court order
or decree or applicable law or by the rules of any securities exchange on which
such Party is listed, (iii) if it is available from public or published
information, (iv) if it is received from a third party not known to such Party
to be under an obligation to keep such information confidential, (v) if it is or
becomes known to the public other than through disclosure by such Party or its
Representatives, (vi) if such Party can demonstrate it was in its possession
prior to disclosure thereof in connection with this Agreement, or (vii) if such
Party can demonstrate it was independently developed by it.

 

(b)  Proprietary
Information. The term
“Proprietary
Information” means,
with respect to either Party, all information concerning such Party’s business
activities, business relationships and financial affairs which has become, or
may become, known to the Receiving Party in connection with this Agreement,
including, without limitation, the intellectual property of such Party
(including any intellectual property covered by this Agreement or the
Cross Licensing Agreement), business plans or processes, trade secrets,
technical information, know-how, research and development activities, product
and marketing plans, business relationships, financing plans, financing sources
and financing proposals, customer and supplier information and information
disclosed to the Receiving Party by third parties of a proprietary or
confidential nature or under an obligation of confidence. Proprietary
Information is contained in various media, including, without limitation, patent
applications, computer programs in object and/or source code, flow charts,
storyboards and other program documentation, manuals, plans, drawings, designs,
technical specifications, laboratory notebooks, supplier and customer lists,
internal financial data and other documents and records of such Party, as well
as all notes, analyses, compilations, studies, interpretations or other
documents prepared by the Receiving Party or its Representatives which contain,
reflect or are based upon, in whole or in part, the Proprietary Information.

 

16

 

(c)  Protection
of Proprietary Information. The
Receiving Party shall limit access to such other Party’s Proprietary Information
to its Representatives requiring access to achieve the purposes contemplated by
this Agreement. The Receiving Party shall exercise all reasonable precautions to
protect the integrity and confidentiality of the other Party’s Proprietary
Information that is in its possession, including advising its employees and
Representatives that are actively engaged in activities under this Agreement of
its obligations under this Section
9. Upon
the termination of this Agreement, each Party shall promptly return to the other
Party any and all materials containing any the other Party’s Proprietary
Information in such Party’s possession or under such Party’s control and shall
promptly destroy any Proprietary Information prepared by it or its
Representatives; provided,
further, each
Party, upon request of the other Party, shall certify in a letter to such Party
that is has performed the foregoing return and/or destruction in full compliance
with this Section 9.1(c).

 

(d)  Required
Disclosure. If the
Receiving Party or its Representatives are requested or required (by oral
questions, interrogatories, requests for information or documents in legal
proceedings, subpoena, civil investigative demand or other similar process) to
disclose any of the such other Party’s Proprietary Information, the Receiving
Party shall provide the other Party with prompt written notice of any such
request or requirement so that the other Party may seek a protective order or
other appropriate remedy and/or waive compliance with the provisions of this
agreement. If, in the absence of a protective order or other remedy or the
receipt of a waiver by the other Party, the Receiving Party concludes, after
consultation with legal counsel, that it nonetheless legally compelled to
disclose such other Party’s Proprietary Information, the Receiving Party or its
Representative may, without liability hereunder, disclose only that portion of
such other Party’s Proprietary Information which is legally required to be
disclosed, provided that the Receiving Party exercise its reasonable best
efforts to preserve the confidentiality of such other Party’s Proprietary
Information, including, without limitation, by reasonably cooperating with such
other Party’s efforts to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the Proprietary
Information.

 

(e)  Ownership
of Proprietary Information; Liability. Each
Party acknowledges that all Proprietary Information of the other Party is and
shall remain the exclusive property of such other Party. Except as otherwise
provided in this Agreement, each Party understands and acknowledges that the
other Party does not make any representation or warranty, express or implied, as
to the accuracy or completeness of such other Party’s Proprietary Information
and that neither Party nor any of its Representatives shall have any liability
relating to or resulting from the use of such other Party’s Proprietary
Information or any errors or omission therefrom. 

 

(f)  Equitable
Remedies. Each
Party acknowledges that the restrictions contained in this Section 9.1 are
necessary for the protection of the business and goodwill of the other Party.
Each Party agrees that any breach or threatened breach of this Section 9.1 by such
Party may cause irreparable damage to the other Party and, in the event of such
breach or threatened breach, such other Party shall be entitled, in addition to
monetary damages and to any other remedies available to such other Party under
this Agreement or at law, to equitable relief, including injunctive relief, and
to the payment of all costs incurred by such other Party in enforcing the
provisions of this Agreement, including reasonable attorneys’ fees.

 

17

 

9.2.  License
and Supplier Arrangements with Third Parties.

 

(a)  Intent
of Parties. With
respect to all potential licensees and suppliers of intellectual property, raw
materials, and products necessary for or helpful to the manufacture of (i) the
production-ready Military Products in anticipation of the Military P.O. with
respect to Milestone 3 and/or (ii) the Consumer Products in anticipation of the
Consumer P.O. with respect to Milestone 4 (each, a “Material
MCEL Agreement”), in
each case in accordance with Section 4.2 and
Section 5.2, it is
the intent of the Parties that Dow may provide all licensee and supplier
resources under all such Material MCEL Agreements with MCEL on terms
mutually-satisfactory to the Parties.

 

(b)  Right
of First Refusal.
Notwithstanding the foregoing, during the Term, in the event MCEL proposes to
enter into a Material MCEL Agreement with a third party, Dow shall have a right
of first refusal to enter into such proposed Material MCEL Agreement with MCEL
on substantially similar terms and conditions as those contained in the proposed
Material MCEL Agreement with such third party, subject to the procedure
contained in Sections
9.2(c), (d) and
(e).

 

(c)  Notice
of Proposed Transfer. After
the achievement of Milestone 1, before effecting any proposed Material MCEL
Agreement with a third party, MCEL shall give written notice (i) to Dow
describing the scope of activities under the proposed Material MCEL Agreement,
the identity of the proposed third party and the material terms of such proposed
Material MCEL Agreement (the “Agreement
Notice”). MCEL
shall also certify to Dow that the proposed Material MCEL Agreement is a bona
fide transaction and that the third party is ready, willing and able
(financially and otherwise) to enter into the proposed Material MCEL Agreement.

 

(d)  Exercise
of Right of First Refusal. At any
time within the ten (10)-Business Day period immediately following the receipt
of the Agreement Notice, Dow may elect to exercise the right of first refusal
set forth in Section 9.2(b). The
entering into of any Material MCEL Agreement pursuant to the exercise of any
such right of first refusal shall in no event be held more than thirty (30)-days
after exercise of such right of first refusal.

 

(e)  Material
MCEL Agreement with a Third Party. If (i)
Dow fails to exercise the right of first refusal under Section 9.2(b) within
the ten (10)-Business Day period following receipt of the Agreement Notice on
substantially similar terms and conditions as the those contained in the
Agreement Notice or (ii) Dow fails to enter into the Material MCEL Agreement
within the thirty (30)-day period specified therefor in Section 9.2(d), then
MCEL may, not later than thirty (30) days following the later of clause (i) and
(ii) of this Section
9.2(e), enter
into the Material MCEL Agreement on the terms and conditions described in such
Agreement Notice. Any proposed Material MCEL Agreement on terms and conditions
materially different from those described in the Agreement Notice, as well as
entering into the proposed Material MCEL Agreement with a third party after the
expiration of such thirty (30)-day period, shall again be subject to the right
of first refusal set forth in Section 9.2(b) and
shall require compliance by MCEL with the procedure described in Sections 9.2(c),
(d)
and
(e).

 

18

 

9.3.  Non-Solicitation
of Employees. Each
Party agrees that during the Term and for a period of twelve (12) months
following expiration or termination of this Agreement, neither such Party will,
without the other Party’s written consent (which in the case of MCEL shall be
signed by the president or a senior vice president), solicit for employment, as
an employee or as a contractor, any person employed then or within the preceding
180 days by the other Party if that person was involved in the performance of
this Agreement. Neither a response to an employment inquiry first initiated by a
prospective employee, nor the publishing of employment advertisements in public
or industry media, nor contacts initiated by search firms who have not been
requested to contact the specific persons, will be a violation of this
Section 9.3.

 

9.4.  Costs
and Expenses Related to Joint Development. Except
as set forth in Section 9.5(b), each
Party shall bear all costs and expenses that it incurs in performing its
obligations under this Agreement (including such Party’s costs and expenses
related to its Committee Members performing his or her duties as Committee
Members).

 

9.5.  Determination
of Milestone and Objectives under the Milestone Table. 

 

(a)  Between
Parties. At such
time as either Party believes in good faith that Milestone 1, Milestone 2,
Milestone 3 or Milestone 4 has been achieved (or a Military Objective or a
Consumer Objective contained in any such Milestone has occurred) under the
Milestone, such Party (the “Notifying
Party”) shall
notify the other Party (the “Recipient
Party”) in
writing that the Notifying Party has determined that such Milestone has been
achieved or such Military Objective or Consumer Objective has occurred. Within
five (5) Business Days of such notification, the Recipient Party shall either
(i) notify the Notifying Party in writing that it agrees that such Milestone has
been achieved or such Military Objective or Consumer Objective has occurred, at
which time such Milestone shall be conclusively deemed to have been achieved or
such Military Objective or Consumer Objective shall be conclusively deemed to
have occurred, or (ii) notify the Notifying Party in writing (the “Disagreement
Notice”) that
it disagrees with the determination made by the Notifying Party (and set forth
in reasonable detail the reasons why the Recipient Party disagrees that the
applicable Milestone has been achieved or the applicable Military Objective or
Consumer Objective has not occurred), at which time the Parties will be deemed
to have disagreed as to such determination. The Parties shall reasonably
cooperate to provide the Recipient Party with all information and access as is
necessary or appropriate for Recipient Party to agree or disagree with the
Notifying Party’s determination under this Section 9.5(a).

 

(b)  Independent
Expert Referee. If the
Recipient Party delivers a Disagreement Notice pursuant to Section 9.5(a), the
Steering Committee will meet in person on at least one occasion and negotiate in
good faith (at reasonably agreeable times) during the ten (10) Business Days
period immediately following the delivery of the Disagreement Notice to
determine whether such Milestone has been achieved or such Military Objective or
Consumer Objective has occurred. If the Steering Committee cannot reach
agreement during such 10-Business Day period, within the ten (10) Business Days
immediately following such initial 10-Business Day period, Dow shall appoint an
Independent Expert (the “Dow
Expert”) and
MCEL shall appoint an Independent Expert (the “MCEL
Expert”). Upon
the appointment of such Independent Experts, Dow shall instruct the Dow Expert
and MCEL shall instruct the MCEL Expert to cooperate with each other to appoint
a third Independent Expert (the “Referee”).
Within 30 days of the appointment of the Referee, the Dow Expert shall present
the position of Dow to the Referee and the MCEL Expert shall present the
position of MCEL to the Referee. Dow and MCEL shall then instruct the Referee to
render a decision as to whether such Milestone has been achieved or such
Military Objective or Consumer Objective has occurred, which decision shall be
final and binding on Dow and MCEL. Dow shall bear all costs and expenses of the
Dow Expert, and MCEL shall bear all costs and expenses of the MCEL Expert. The
costs and expenses of the Referee shall be borne by the Party against which the
Referee renders the unfavorable decision. 

 

19

 

9.6.  Publicity/Press
Releases.
Neither
Party will make or issue any press release, announcement or any other public
disclosure regarding this Agreement or the transactions or activities
contemplated hereby without the prior written consent of the other Party, which
consent shall not be unreasonably withheld or delayed; provided,
however, that
either Party may make such disclosure (A) if it is advised by counsel that such
disclosure is legally required under applicable law or the rules of any
securities exchange on which such Party is listed and (B) such Party provides as
much advance notice as possible to the other Party of such disclosure and, in
any event, an opportunity to review and comment on such proposed disclosure
prior to disclosure thereof.

 

9.7.  Records. Each
Party shall maintain all books and records related to its obligations hereunder
for at least three (3) years after the termination or expiration of this
Agreement.

 

9.8.  Insurance. At all
times during the Term, MCEL will procure and maintain, at its own expense and
for its own benefit, Comprehensive/Commercial General Liability Insurance and
Umbrella Insurance (including contractual liability, products liability, and
completed operations coverage) with a bodily injury, death, and property damage
combined single limit of $5,000,000 per occurrence. The scope of this coverage
is to be equivalent to standard ISO forms (e.g., 1996 Commercial General
Liability ISO form # CG 00 01 01 96, etc. or CG 00 02 01 96). If the insurance
to be provided is in the form of ISO Form CG 00 02 01 96 (claims made), the
policy shall contain an extended reporting period of at least five (5) years;
any “Retroactive Date” under said policy shall be no later than the Effective
Date. MCEL shall furnish Dow a certificate(s) from the insurance carrier (having
a minimum AM Best rating of A-) showing evidence of the foregoing insurance. The
certificate(s) will include the following statement: "The insurance certified
hereunder is applicable to all contracts between The Dow Chemical Company and
the Insured. This insurance may be canceled or altered only after thirty (30)
days written notice to DOW." The insurance, and the certificate(s), will (a)
name Dow (including Dow's officers, directors, employees, affiliates, agents,
subsidiaries, successors, and assigns) as additional insureds with respect to
matters arising from this Agreement, (b) provide that such insurance is primary
and non contributing to any liability insurance carried by Dow, and (c) provide
that underwriters and insurance companies of MCEL may not have any right of
subrogation against Dow (including Dow's officers, directors, employees,
Affiliates, agents, subsidiaries, successors, and assigns). The insurance will
contain no more than an ordinary deductible. MCEL agrees to waive any right of
recovery against Dow (including Dow's officers, directors, employees,
Affiliates, agents, successors, and assigns) for any loss or damage of the type
covered by the insurance to be procured and maintained under this Section
9.8,
regardless of whether or not such insurance is so maintained.

 

20

 

10.    Indemnification.

 

10.1.  Survival. The
representations and warranties of the Parties contained or made pursuant to in
this Agreement shall survive the execution and delivery of this Agreement and
shall continue in full force and effect until the second (2nd)
anniversary of expiration of the Term, except that, those
covenants and agreements set forth in this Agreement that, by their terms, are
to have effect after the Closings shall survive for the period contemplated by
such covenants and agreements, or, if no period is expressly set forth, for the
applicable statute of limitations.

 

10.2.  Indemnification
by MCEL. MCEL
hereby indemnifies Dow and its Affiliates, directors, officers, employees and
agents against, and agrees to hold each of them harmless from, any and all
claims, demands, costs, expenses, obligations, liabilities, damages, recoveries
and deficiencies, including, without limitation, interest, penalties, court
costs, costs and expenses (including the reasonable fees of external counsel)
(the “Damages”)
incurred or suffered by any of them:

 

(i)  arising
out of or related in any way to any misrepresentation or breach of any
representation or warranty made by MCEL in this Agreement; 

 

(ii)  arising
out of or related in any way to any breach of any covenant or agreement to be
performed by MCEL pursuant to this Agreement;

 

(iii)  arising
out of or related in any way to the infringement by MCEL or its licensees
(including without limitation through use of the MCEL-Contributed Intellectual
Property or the JDA Intellectual Property) of the intellectual property rights
of a third party;

 

(iv)   arising
out of or related in any way to any product liability or similar claims related
to any products developed by MCEL under this Agreement, including the JDA
Products; 

 

(v)  arising
out of or related in any way to the gross negligence or willful misconduct of
MCEL, its employees or its agents, while performing under this
Agreement;

 

(vi)   arising
out of violations by MCEL of applicable law; 

 

(vii)  arising
out of any death or personal injury of whatever nature or kind relating to the
performance by MCEL of MCEL’s obligations under this Agreement; or

 

21

 

(viii)  arising
out of or related to any failure by MCEL to comply or be consistent with
(through acts or omissions from action by MCEL) any and all applicable past,
present or future laws (1) for the protection of the environment or human
health and safety or (2) regulating the management, release, remediation or
exposure of Persons to any hazardous materials, or otherwise with respect to
hazardous materials, including, without limitations, with respect to the
development activities of MCEL hereunder and the JDA Products.

 

10.3.  Indemnification
by Dow. Dow
hereby indemnifies MCEL and its Affiliates, directors, officers, employees and
agents against, and agrees to hold each of them harmless from, any and all
Damages incurred or suffered by any of them:

 

(i)  arising
out of or related in any way to any misrepresentation or breach of any
representation or warranty made by Dow in this Agreement;

 

(ii)  arising
out of or related in any way to any breach of any covenant or agreement to be
performed by Dow pursuant to this Agreement; or 

 

(iii)
arising out of the gross negligence or willful misconduct of Dow, its employees
or its agents, while performing under this Agreement.

 

10.4.  Limitation. DOW SHALL
NOT UNDER ANY CIRCUMSTANCES BE LIABLE TO MCEL FOR ANY INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF PROFITS, REVENUE, OR
BUSINESS) RESULTING FROM OR IN ANY WAY RELATED TO THIS AGREEMENT, OR THE
TERMINATION OF THIS AGREEMENT, OR ARISING OUT OF OR ALLEGED TO HAVE ARISEN OUT
OF A BREACH OF THIS AGREEMENT. THIS LIMITATION APPLIES REGARDLESS OF WHETHER
SUCH DAMAGES ARE SOUGHT BASED ON THEORIES OF CONTRACT OR TORT OR ANY OTHER LEGAL
THEORY. THE LIMITATIONS IN THIS SECTION
10.4 SHALL
APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
NOTWITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT TO THE CONTRARY, DOW’S
AGGREGATE LIABILITY TO MCEL AND ANY THIRD PERSONS FOR ALL DAMAGES AND LOSSES,
DIRECT OR INDIRECT, ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT AND THE
CROSS LICENSING AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE) OR
OTHERWISE SHALL BE LIMITED TO TWO HUNDRED FIFTY THOUSAND U.S. DOLLARS
($250,000).

 

10.5.  Procedures. 

 

(a)    If any of
Dow or any of their directors, officers, employees and agents, seek
indemnification pursuant to Section
10.2, or MCEL
or any of their Affiliates or any of their directors, officers, employees and
agents, seek indemnification pursuant to Section
10.3, the
Person seeking indemnification (the “Indemnified
Party”) shall
give written notice to the party from whom such indemnification is sought (the
“Indemnifying
Party”)
promptly (and in any event within 30 days) after the Indemnified Party becomes
aware of the facts giving rise to such claim for indemnification (an
“Indemnified
Claim”)
specifying in reasonable detail the factual basis of the Indemnified Claim,
stating the amount of the Damages, if known, the method of computation thereof,
containing a reference to the provision of this Agreement in respect of which
such Indemnified Claim arises and demanding indemnification therefor. The
failure of an Indemnified Party to provide notice in accordance with this
Section
10.5 shall
not constitute a waiver of that party’s claims to indemnification pursuant to
Section
10.2 or
Section
10.3, as
applicable, except to the extent that any such failure or delay in giving notice
causes the amounts paid by the Indemnifying Party to be greater than they
otherwise would have been or otherwise results in prejudice to the Indemnifying
Party. If the Indemnified Claim arises from the assertion of any claim, or the
commencement of any suit, action or proceeding brought by a Person that is not a
party hereto (a “Third
Party Claim”), any
such notice to the Indemnifying Party shall be accompanied by a copy of any
papers theretofore served on or delivered to the Indemnified Party in connection
with such Third Party Claim. 

 

22

 

(b)    Upon
receipt of notice of a Third Party Claim from an Indemnified Party pursuant to
Section 10.5(a), the
Indemnifying Party will be entitled to assume the defense and control of such
Third Party Claim subject to the provisions of this Section 10.5. After
written notice by the Indemnifying Party to the Indemnified Party of its
election to assume the defense and control of a Third Party Claim, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
fees or expenses subsequently incurred by such Indemnified Party in connection
therewith. Notwithstanding anything in this Section 10.5 to the
contrary, if the Indemnifying Party does not assume defense and control of a
Third Party Claim as provided in this Section 10.5, the
Indemnified Party shall have the right to defend such Third Party Claim, subject
to the limitations set forth in this Section 10.5, in such
manner as it may deem appropriate. Whether the Indemnifying Party or the
Indemnified Party is defending and controlling any such Third Party Claim, they
shall select counsel, contractors, experts and consultants of recognized
standing and competence, shall take all steps necessary in the investigation,
defense or settlement thereof, and shall at all times diligently and promptly
pursue the resolution thereof. The party conducting the defense thereof shall at
all times act as if all Damages relating to the Third Party Claim were for its
own account and shall act in good faith and with reasonable prudence to minimize
Damages therefrom. The Indemnified Party shall, and shall cause each of its
Affiliates, directors, officers, employees, and agents to, cooperate fully with
the Indemnifying Party in connection with any Third Party Claim.

 

(c)    The
Indemnifying Party shall be authorized to consent to a settlement of, or the
entry of any judgment arising from, any Third Party Claims, and the Indemnified
Party shall consent to a settlement of, or the entry of any judgment arising
from, such Third Party Claims; provided, that the Indemnifying Party shall (1)
pay or cause to be paid all amounts arising out of such settlement or judgment
concurrently with the effectiveness thereof; (2) shall not encumber any of the
assets of any Indemnified Party or agree to any restriction or condition that
would apply to such Indemnified Party or to the conduct of that party’s
business; and (3) shall obtain, as a condition of any settlement or other
resolution, a complete and irrevocable release of each Indemnified Party and
such settlement or judgment (x) shall not require any admission of liability,
fault or wrongdoing by any Indemnified Party or impose any non-monetary
obligation on an Indemnified Party (such as, by way of example, and not in
limitation, injunctive relief) and (y) shall not require any admission or
statement that could reasonably be expected to materially impair, disparage or
otherwise adversely affect, the business reputation of the Indemnified Party.
Except to the extent of the foregoing, no settlement or entry of judgment in
respect of any Third Party Claim shall be consented to by any Indemnifying Party
or Indemnified Party without the express written consent of the other party,
which consent shall not be unreasonably withheld or delayed.

 

(d)    If an
Indemnifying Party makes any payment on an Indemnified Claim, the Indemnifying
Party shall be subrogated, to the extent of such payment, to all rights and
remedies of the Indemnified Party to any insurance benefits or other claims or
benefits of the Indemnified Party with respect to such claim.

 

23

 

10.6.  Additional
Obligations with respect to Intellectual
Property. In the
event that the use of the MCEL-Contributed Intellectual Property or the JDA
Intellectual Property becomes, or is likely to become the subject of any claim,
suit or proceeding or if the manufacture, use or sale of the JDA Products by
MCEL may be,
or is, enjoined, MCEL shall use its reasonable best efforts to do one or more of
the following:

 

(i)  obtain
the right to continued use of the MCEL-Contributed Intellectual Property, the
JDA Intellectual Property and/or the JDA Products; or

 

(ii)  modify or
replace the affected MCEL-Contributed Intellectual Property, the JDA
Intellectual Property and/or the JDA Products with an acceptable non-infringing
or non-conflicting alternative so long as the alternative is in compliance with
the requirements of this Agreement in all material respects; 

 

provided,
however, if such
actual or potential claim, suit, proceeding or injunction is applicable only to
a market that is not material to MCEL or Dow, then MCEL may alternatively cease
such use of MCEL-Contributed Intellectual Property or the JDA Intellectual
Property or manufacture, use of sale of JDA Products, as applicable, within such
nonmaterial market. 

 

10.7.  Exclusivity
of Remedies. Except
for such remedies as may be provide for in the other Transaction Agreements and
except for Article
11, the
indemnity and other provisions under this Article
10 shall be
the sole and exclusive remedy of Dow or MCEL, as the case may be, and their
respective Affiliates for breach or default of this Agreement; provided, that
nothing herein shall limit in any way limit either Party’s remedies in respect
of fraud by another Party or any equitable remedy arising in connection with
this Agreement.

11.    Term
and Termination.

 

11.1.  Term. This
Agreement shall be in full force and effect during the time period commencing on
the date hereof and ending on the third (3rd) year
anniversary of the date hereof (the “Term”)
(except in the event of early termination of the Term in accordance with
Sections
13.2,
13.3 or
13.4);
provided, that
the Term may be mutually extended by the Parties but only in a written
instrument executed by the Parties.

 

11.2.  Termination
by Either Party. This
Agreement shall automatically and immediately terminate upon the occurrence of a
Bankruptcy Event of the other Party.

 

24

 

11.3.  Termination
By Dow. This
Agreement may be terminated by Dow as follows: 

 

(i)  immediately
and at any time upon written notice from Dow to MCEL if any infringement by MCEL
occurs with respect to the intellectual property rights of Dow or a third party;

 

(ii)  except as
provided in clause (i) above, at any time without Cause prior to the achievement
of Milestone 1 upon 30 days’ written notice from Dow to MCEL;

 

(iii)  except as
provided in clause (i) above, at any time without Cause on or after the
achievement of Milestone 1 upon 90 days’ written notice from Dow to MCEL;
or

 

(iv)  at any
time for Cause immediately upon written notice from Dow to MCEL.

 

For
purposes of this Section
11.3,
“Cause” means
(a) a breach of MCEL’s representations and warranties under this Agreement or
the Cross Licensing Agreement, which breach is not remedied within fifteen (15)
days after MCEL receives written notice thereof, (b) a breach or default by MCEL
in the performance of any covenant or agreement under this Agreement or the
Cross Licensing Agreement, which breach is not remedied within fifteen (15) days
after MCEL receives written notice thereof, or (c) any failure whatsoever to
comply with Section 9.8.

 

11.4.  Termination
by MCEL. This
Agreement may be terminated by MCEL as follows: 

 

(i)  at any
time upon a material breach or default by Dow in the performance of any covenant
or agreement under this Agreement upon written notice from MCEL to Dow;
provided,
that, if MCEL
provides such notice to Dow under this subsection (i), Dow shall have 30 days
after such notice in which to cure such breach or default;

 

(ii)  if Dow
does not make a Minimum Series B Investment with respect to any Subsequent
Closing (as defined in the Stock Purchase Agreement) pursuant to the Stock
Purchase Agreement (after taking into account any payment made by Dow in excess
of a Minimum Series B Investment applicable to a prior Minimum Series B
Investment, as provided for in the Stock Purchase Agreement), upon written
notice from MCEL to Dow, but only within the 30 day period immediately following
Dow’s non-payment of such Minimum Series B Investment with respect to such
Subsequent Closing;
provided however, if MCEL
does not deliver such written notice to Dow during such 30-day period, then this
Agreement, the Stock Purchase Agreement and the other Transaction Agreements
will continue with respect to each subsequent Milestone as if Dow had made such
Minimum Series B Investment for such Milestone.

 

25

 

11.5.  Effect
of Termination. (a)  Dow
Ownership Generally.
Termination of this Agreement for any reason whatsoever shall not affect any
ownership interest that Dow has acquired in MCEL by virtue of this Agreement,
the Stock Purchase Agreement or any other Transaction Agreement prior to such
termination; provided,
however, if Dow
terminates this Agreement without Cause prior to July 1, 2005, Dow shall forfeit
all such ownership interests.

 

(b)  Additional
Milestone Participation. If Dow
terminates this Agreement at any time for Cause, in addition to any ownership
interest that Dow has retained in MCEL under Section
11.5(a), Dow
will be entitled, at the time of such termination to additionally
(i) purchase the Series B Preferred Stock and receive the Warrants and
(ii) receive the Series A Preferred Stock that Dow would have had the
right to acquire upon achievement of the next Milestone (as if such next
Milestone had occurred upon the termination of this Agreement and otherwise
pursuant to the terms of this Agreement, the Stock Purchase Agreement and the
other Transaction Agreements).

 

(c)  No
Release of MCEL’s Obligations.
Termination of this Agreement for any reason whatsoever (whether at expiration
of the Term or otherwise) shall not release MCEL from any obligations it may
have under any Military Contract, Military P.O., Consumer Contract, or Consumer
P.O. Any and all of such agreements shall remain in full force and effect and
MCEL shall perform its obligations under such agreements in accordance with
their terms.

 

11.6.  Survival
of Certain Provisions. Unless
otherwise expressly agreed in writing by the Parties, Section
2.4,
9.1,
9.3,
9.4 and
10.4, and
Articles
12 and
13 and all
other provisions expressly relating to obligations following termination or
expiration, shall survive the Term.

 

12.    Disputes.

 

12.1.  Alternative
Dispute Resolution. Any
unresolved controversy or claim arising out of or relating to this Agreement,
except as (a) otherwise provided in this Agreement, or (b) any such
controversies or claims arising out of either party’s intellectual property
rights for which a provisional remedy or equitable relief is sought, shall be
submitted to arbitration by one arbitrator mutually agreed upon by the Parties,
and if no agreement can be reached within 30 days after names of potential
arbitrators have been proposed by the American Arbitration Association (the
“AAA”), then
by one arbitrator having reasonable experience in corporate finance transactions
of the type provided for in this Agreement and who is chosen by the AAA. The
arbitration shall take place in the District of Columbia, in accordance with the
AAA rules then in effect, and judgment upon any award rendered in such
arbitration will be binding and may be entered in any court having jurisdiction
thereof. There shall be limited discovery prior to the arbitration hearing as
follows: (a) exchange of witness lists and copies of documentary evidence and
documents relating to or arising out of the issues to be arbitrated,
(b) depositions of all party witnesses and (c) such other depositions as
may be allowed by the arbitrators upon a showing of good cause. Depositions
shall be conducted in accordance with the Federal Rules of Civil Procedure, the
arbitrator shall be required to provide in writing to the Parties the basis for
the award or order of such arbitrator, and a court reporter shall record all
hearings, with such record constituting the official transcript of such
proceedings. The arbitrator shall award reasonable attorney’s fees, costs, and
necessary disbursements in addition to any other relief to which the arbitrator
determines a party to be entitled. Each of the Parties to this Agreement
consents to personal jurisdiction for any equitable action sought in the U.S.
District Court for the District of Columbia or any court of the District of
Columbia having subject matter jurisdiction. 

 

26

 

13.    General
Provisions.

 

13.1.  Relationship
of the Parties. It is
expressly understood that Dow and MCEL intend by this Agreement to establish the
relationship of independent contractors, and do not intend to undertake the
relationship of principal and agent or to create a joint venture or partnership
between them or their respective successors in interests. Neither Dow nor MCEL
shall have any authority to create or assume, in the name or on behalf of the
other Party, any obligation, expressed or implied, nor to act or purport to act
as the agent or the legally empowered representative of the other Party hereto
for any purpose whatsoever.

 

13.2.  Transfer;
Successors and Assigns. No
Party shall assign any rights or obligations under this Agreement without the
prior written consent of the other Party, provided, however, that Dow may assign
any and all rights and obligations under this Agreement to any of its
Affiliates. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any Party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.

 

13.3.  Governing
Law. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware without regard to its principles of conflicts of
laws.

 

13.4.  Counterparts. This
Agreement may be executed in two (2) or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument. This Agreement may also be executed and delivered by facsimile
signature and in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

 

13.5.  Construction
of Certain Terms. The
titles of the articles, sections, and subsections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement. Wherever the words “including,” “include” or “includes” are used in
this Agreement, they shall be deemed followed by the words “without limitation.”
References to any gender shall be deemed to mean any gender. The parties hereto
have participated jointly in the negotiation and drafting of this Agreement. In
the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any provisions of this Agreement.

 

27

 

13.6.  Notices. All
notices and other communications given or made pursuant to this Agreement shall
be in writing and shall be deemed effectively given: (i) upon personal delivery
to the Party to be notified, (ii) when sent by confirmed electronic mail or
facsimile if sent during normal business hours of the recipient, and if not so
confirmed, then on the next Business Day, (iii) five (5) days after having been
sent by registered or certified mail, return receipt requested, postage prepaid,
or (iv) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt. All
communications shall be sent to the address or facsimile number set forth below
or to such other address or facsimile number as delivered by notice to the other
in accordance with this Section
12.6:

 

If to
MCEL: 

 

Millennium
Cell Inc. 

1
Industrial Way West

Eatontown,
New Jersey 07724

Attention:
President

Facsimile:
732.542.4010

 

With a
copy to: 

 

Dickstein,
Shapiro, Morin & Oshinsky LLP

2101 L
Street, N.W.

Washington,
D.C. 20031-1526

Attention:
Neil Lefkowitz

Facsimile:
202.887.0689

 

If to
Dow: 

The Dow
Chemical Company

2030 Dow
Center

Midland,
Michigan 48674

Attention:
Director, Natural Resources Platform, Dow Ventures

Facsimile:
989.638.7133

With a
copy to:

The Dow
Chemical Company

2030 Dow
Center

Midland,
Michigan 48674

Attention:
Business Counsel, Dow Ventures

Facsimile:
989.636.7594

King
& Spalding LLP

1700
Pennsylvania Avenue, N.W.

Washington,
D.C. 20006

Attention:
David Gibbons

Facsimile:
202.626.3737

 

28

 

13.7.  Amendments
and Waivers. Neither
this Agreement nor any term of this Agreement may be amended, terminated or
waived without the written consent of MCEL and the holders of at least a
majority of the then-outstanding Shares. Any amendment or waiver effected in
accordance with this Section 13.7 shall be
binding upon Dow and each transferee of the Preferred Shares or Warrants (or the
Common Stock issuable upon conversion thereof), each future holder of all such
securities, and MCEL.

 

13.8.  Severability. The
invalidity of unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.

 

13.9.  Delays
or Omissions. No
delay or omission to exercise any right, power or remedy accruing to any Party
under this Agreement, upon any breach by or default of the other Party under
this Agreement, shall impair any such right, power or remedy of such
non-breaching or non-defaulting Party nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any Party of any breach or default under
this Agreement, or any waiver on the part of any Party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Party, shall be cumulative
and not alternative.

 

13.10.  Entire
Agreement. This
Agreement (including the Schedules and Exhibits hereto) and the other
Transaction Agreements constitute the full and entire understanding and
agreement between the parties with respect to the subject matter hereof, and any
other written or oral agreement relating to the subject matter hereof existing
between the parties are expressly canceled.

 

29

IN
WITNESS WHEREOF, the
Parties hereto have caused this Agreement to be executed as of the Effective
Date.

 

	 	 	 
	 	MILLENNIUM CELL
      INC.
	 
 	 
 	 
 
		By:  	
	 	
      

    
	 	Title 

	 	 	 
	 	THE DOW CHEMICAL
      COMPANY
	 
 	 
 	 
 
		By:  	
	 	
      

    
	 	Title 

 

 

30

EXHIBIT
A

 

DEFINITIONS

 

“Affiliate” means,
with respect to any person or entity (a “Person”), any
Person which, directly or indirectly, controls, is controlled by, or is under
common control with such Person, including, without limitation, any partner,
officer, director, or member of such Person; provided,
however, that
Dow is not an Affiliate of MCEL.

“Application” means
(A) production of hydrogen gas for use by fuel cells by storing and chemically
converting sodium borohydride or other boron hydride-fuel formulations into
hydrogen by (1) controlling the contact of an alkaline aqueous boron hydride
solution with a contained solid catalyst comprised of a transition metal adhered
to a substrate which promotes the chemical reaction between the boron hydride
and water to release hydrogen gas; and/or (2) [***] and (B) interconnections and
related control strategies for the integration of a fuel cell and hydrogen
generator systems for delivery of hydrogen gas produced by one of these means
for conversion to power by a fuel cell. 

 

“Bankruptcy
Event” means,
with respect to any Person, any (i) assignment by such Person for the
benefit of creditors, (ii) application by such Person for the appointment
of a trustee, liquidator, receiver or custodian of any substantial part of such
Person’s assets, (iii) filing of a petition or commencement of a proceeding
by such Person relating to itself under any bankruptcy, reorganization,
arrangement or similar law, (iv) filing of a petition or commencement of a
proceeding under any bankruptcy, reorganization, arrangement or similar law
against such Person where either (a) such Person has effectively given its
consent or (b) such proceeding has continued undischarged and unstayed for a
period of 60 days.

 

“Business
Day” means
any day except Saturday, Sunday or any day on which banks are generally not open
for business in New York City, New York.

 

“Common
Stock” has the
meaning given such term in the Stock Purchase Agreement.

 

“Consumer
Contract” means
an agreement with an OEM.

 

“Consumer
Objective” means
each item listed under the “Consumer Objective” heading in the Milestone Table
with respect to any Milestone.

 

“Consumer
P.O.” means a
purchase order with an OEM for the manufacture and production of one or more
Consumer Products.

 

“Consumer
Product” means a
finished cartridge and fuel cell system for consumer use.

 

“Consumer
Prototype” a
consumer proof-of-concept prototype for a fuel cell power source to an
OEM.

 

Information
marked
by [***] has been omitted pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the Securities and Exchange
Commission.

 

A-1

 

“Dow
Consumer Task” means
each item that Dow is required to perform pursuant to Sections
5.2(f),
5.2(g),
5.2(h),
5.2(i) and
5.2(j).

 

“Dow
Military Tasks” means
each item that Dow is required to perform pursuant to Sections
5.2(a),
5.2(b),
5.2(c),
5.2(d) and
5.2(e).

 

“Field
of Use” means
fuel cells for energy generation.

 

“FTE” means
the equivalent of 40 person hours per week or its equivalent. 

 

“Independent
Expert” means a
Person that is nationally recognized as being in the Field of Use and/or
Application and that has not been employed, retained, affiliated with or the
owner of any equity securities of either Party in the preceding three (3) years;
provided, however, such Person will not be deemed to own any equity securities
in Dow solely by virtue of such Person owning less than 3% of all issued and
outstanding common stock of Dow at any time during such 3 year
period.

 

“JDA
Intellectual Property” has the
meaning given such term in the Cross Licensing Agreement.

 

“JDA
Products” means,
collectively, the Military Prototypes, the Military Products, the Consumer
Prototypes and the Consumer Products.

 

“Government
Authority” has the
meaning given such term in the Stock Purchase Agreement

 

“MCEL
Consumer Task” means
each item that MCEL is required to perform pursuant to Sections 4.2(f),
4.2(g),
4.2(h),
4.2(i), and
4.2(j).

 

“MCEL
Military Task” means
each item that MCEL is required to perform pursuant to Sections 4.2(a),
4.2(b),
4.2(c),
4.2(d) and
4.2(e).

 

“Military
Contract” means
an agreement with a Military Customer.

 

“Military
Customer” means
any government or military entity.

 

“Military
Objective” means
each item listed under the “Military Objective” heading in the Milestone Table
with respect to any Milestone.

 

“Military
P.O.” means a
purchase order with a Military Customer for the manufacture and production of
one or more units of the Military Product.

 

“Military
Product” means a
finished cartridge and fuel cell system for military use.

 

“Military
Prototype” means a
prototype for supplying sub 50-watt solider power to a Military
Customer.

 

“Minimum
Series B Investment” has the
meaning given to such term in the Stock Purchase Agreement.

 

A-2

 

“OEM” means a
commercial customer, original development manufacturer or original equipment
manufacturer; provided, however, [***] shall not be deemed to be an “OEM” unless
[***] has agreed to combine with a manufacturer or direct marketer that
contributing at least [***] of payments under the applicable agreement with MCEL
(or MCEL and a consortium).

 

“Ownership
Interest” has the
meaning given such term in the Stock Purchase Agreement.

 

“Preferred
Shares” has the
meaning given to such term in the Stock Purchase Agreement.

 

“Production-Ready
Military Contract” means
an agreement with a Military Customer for the development of production-ready
Military Prototypes and associated cartridges.

 

“Series
A Preferred Stock” has the
meaning given such term in the Stock Purchase Agreement.

 

“Series
B Preferred Stock” has the
meaning given such term in the Stock Purchase Agreement.

 

“Steering
Committee” means
the committee formed pursuant to Section 2.3 of this
Agreement.

 

“Transaction
Agreements” has the
meaning given such term in the Stock Purchase Agreement.

 

“Warrants” has the
meaning given such term in the Stock Purchase Agreement.

 

 

 

 

 

Information
marked
by [***] has been omitted pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the Securities and Exchange
Commission.

 

 

A-3

 

EXHIBIT
B

 

MILESTONE
TABLE

 

	
       

      Milestone
	
       

      Military
      Objectives and Consumer Objectives to meet
    Milestone

	
      1
	
      Milestone
      1 will be achieved upon (i) the expiration of the 60 day period commencing
      on the Effective Date and (ii) the occurrence of either the Military
      Objectives set forth in subsection (a) below or the Consumer Objective set
      forth in subsection (b) below:

       

      (a)    Military
      Objectives:

       

      1.
      MCEL, either alone or with a consortium, has entered into a Military
      Contract whereby (i) the Military Customer party thereto is committed to
      fund at least [***] to one (1) or more entities (including MCEL) for the
      development of a Military Prototype and (ii) MCEL is entitled to
      receive at least 25% of such funds (assuming all parties to the Military
      Contract satisfy their obligations to receive such funds);
and

       

      2.
      MCEL, either alone or with a consortium, has developed, manufactured and
      delivered [***] working Military Prototype(s) to the Military Customer
      that comply with the specifications set forth in the Military Contract and
      received payment therefor.

       

      (b)    Consumer
      Objective:

       

      MCEL,
      either alone or with a consortium, has entered into a Consumer Contract
      whereby the OEM is committed to make a payment of at least [***] for the
      development of a Consumer Prototype.

	
      2
	
      Milestone
      2 will be achieved upon the occurrence of either the Military Objectives
      set forth in subsection (a) below or the Consumer Objective set forth in
      subsection (b) below:

       

      (a)    Military
      Objectives:

       

      1.
      MCEL, either alone or with a consortium, has entered into a
      Production-Ready Military Contract whereby the Military Customer is
      committed to fund at least [***] for at least [***] production-ready
      Military Prototypes and associated cartridges.

       

      2.
      MCEL, either alone or with a consortium, has developed, manufactured and
      delivered the production-ready Military Prototypes to the Military
      Customer that comply with the specifications set forth in the
      Production-Ready Military Contract and received payment
      therefor.

       

      (b)    Consumer
      Objective:

       

      MCEL,
      either alone or with a consortium, has developed, manufactured and
      delivered [***] working Consumer Prototypes to the OEM that comply with
      the specifications set forth in the Consumer Contract and received payment
      therefor.

	
      3
	
      Milestone
      3 will be achieved upon the occurrence of the Military Objective set forth
      in subsection (a) below:

       

      (a)    Military
      Objective:

       

      MCEL,
      either alone or with a consortium, has entered into a Military P.O.
      whereby the Military Customer commits (i) to make payment for at least
      [***] for units of the Military Product or (y) to purchase at least [***]
      units of the Military Product.

       

      The
      achievement of Consumer Objective Milestone 3 will be deemed to occur
      simultaneously with the achievement of Consumer Objective Milestone
      4.

	
      4
	
      Milestone
      4 will be achieved upon the occurrence of either the Military Objective
      set forth in subsection (a) below or the Consumer Objectives set forth in
      subsection (b) below:

       

      (a)    Military
      Objective:

       

      MCEL,
      either alone or with a consortium, has manufactured and delivered Military
      Products that comply with the specifications set forth in the Military
      P.O. and received at least [***] in payment therefor from the Military
      Customer.

       

      (b)    Consumer
      Objectives:

       

      1.
      MCEL, either alone or with a consortium, has entered into a Consumer P.O.
      for the manufacture and production of the Consumer Product, with the
      Consumer P.O. being for at least [***] for production of units of the
      Consumer Product; and 

       

      2.
      MCEL, either alone or with a consortium, has developed and manufactured at
      least one unit of the Consumer Product that complies with the
      specifications set forth in the Consumer P.O. and received at least [***]
      in payment therefor from the OEM.

Information
marked
by [***] has been omitted pursuant to a request for confidential treatment. The
omitted portion has been separately filed with the Securities and Exchange
Commission.

	 	 	 	 
	 	 	 	 
	
      B-1

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