Document:

Unassociated Document

Exhibit
10.1

 

EXECUTION
COPY

SECURITIES
PURCHASE AGREEMENT

 

SECURITIES
PURCHASE AGREEMENT (the
"Agreement"), dated
as of April 20, 2005, by and among Millennium Cell Inc., a Delaware
corporation, with headquarters located at One Industrial Way West, Eatontown,
New Jersey 07724 (the "Company"), and
the investors listed on the Schedule of Buyers attached hereto (individually, a
"Buyer" and
collectively, the "Buyers").

 

WHEREAS:

 

A.  The
Company and each Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the "1933
Act"), and
Rule 506 of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the
"SEC") under
the 1933 Act.

 

B.  The
Company has authorized a new series of convertible preferred shares of the
Company designated as Series C Convertible Preferred Stock, the terms of which
are set forth in the certificate of designations for such series of preferred
shares (the "Certificate
of Designations") in the
form attached hereto as Exhibit
A
(together with any convertible preferred shares issued in replacement thereof in
accordance with the terms thereof, the "Preferred
Shares"), which
Preferred Shares shall be convertible into shares of the Company's Common Stock,
par value $.001 per share (the "Common
Stock") (as
converted, the "Conversion
Shares"), in
accordance with the terms of the Certificate of Designations.

 

C.  Each
Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate number of Preferred
Shares set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers (which aggregate number for all Buyers shall be 10,000) and (ii) a
warrant, in substantially the form attached hereto as Exhibit
B
(collectively, the "Warrants"), to
acquire that number of shares of Common Stock set forth opposite such Buyer's
name in column (4) on the Schedule of Buyers (as exercised, collectively, the
"Warrant
Shares").

 

D.  The
Preferred Shares may be entitled to dividends, which at the option of the
Company, subject to certain conditions, may be paid in shares of Common Stock
(the "Dividend
Shares").

 

E.  Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit
C (the
"Registration
Rights Agreement"),
pursuant to which the Company will agree to provide certain registration rights
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

 

 

F.  The
Preferred Shares, the Conversion Shares, the Dividend Shares, the Warrants and
the Warrant Shares collectively are referred to herein as the "Securities".

 

G.  The
Preferred Shares are to be secured by the balance contained in the Cash
Collateral Account (as defined in Section 4(q) below) pursuant to a security
agreement attached hereto as Exhibit
D (the
"Security
Agreement") and an
Account Control Agreement (as defined in Section 4(q) below)(collectively, the
"Security
Documents").

 

NOW,
THEREFORE, the
Company and each Buyer hereby agree as follows:

 

1.  PURCHASE
AND SALE OF PREFERRED SHARES AND WARRANTS.

 

(a)  Purchase
of Preferred Shares and Warrants.

 

(i)  Preferred
Shares and Warrants. Subject
to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company shall issue and sell to each Buyer, and each Buyer severally,
but not jointly, agrees to purchase from the Company on the Closing Date (as
defined below), the number of Preferred Shares, as is set forth opposite such
Buyer's name in column (3) on the Schedule of Buyers, along
with Warrants to acquire that number of Warrant Shares set forth opposite such
Buyer's name in column (4) on the Schedule of Buyers (the "Closing").

 

(ii)  Closing. The
date and time of the Closing (the "Closing
Date") shall
be 10:00 a.m., New York City time, on April 25, 2005 (or such later date as is
mutually agreed to by the Company and each Buyer) after notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue,
New York, New York 10022, subject to notification of satisfaction (or waiver) of
the conditions to the Closing set forth in Sections 6 and 7 below.

 

(iii)  Purchase
Price. The
aggregate purchase price for the Preferred Shares and the Warrants to be
purchased by each such Buyer at the Closing (the "Purchase
Price") shall
be the amount set forth opposite each Buyer's name in column (5) of the Schedule
of Buyers. Each Buyer shall pay $1,000 for each Preferred Share and related
Warrants to be purchased by such Buyer at the Closing.

 

(b)  Form
of Payment. On the
Closing Date, (i) each Buyer shall pay its portion of the Purchase Price to the
Company for the Preferred Shares and Warrants to be issued and sold to such
Buyer at the Closing, by wire transfer of immediately available funds in the
amount set forth opposite such Buyer's name in column (6) of the Schedule of
Buyers in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to each Buyer the Preferred Shares (in the
denominations as such Buyer shall request) which such Buyer is then purchasing
hereunder along with the Warrants (allocated in the amounts as such Buyer shall
request) such Buyer is purchasing, duly executed on behalf of the Company and
registered in the name of such Buyer or its designee. As soon as the Account
Control Agreement has been entered into, on or after the Closing, each Buyer
shall wire the balance of its Purchase Price to the Cash Collateral Account (as
defined in Section 4(q)) by wire transfer of immediately available funds in the
amount set forth opposite such Buyer's name in column (7) of the Schedule of
Buyers and in accordance with the Company's written wire
instructions.

 

2

 

2.  BUYER'S
REPRESENTATIONS AND WARRANTIES. Each
Buyer represents and warrants with respect to only itself that: 

 

(a)  No
Sale or Distribution. Such
Buyer is acquiring the Preferred Shares and the Warrants, and upon conversion of
the Preferred Shares and exercise of the Warrants (other than pursuant to a
Cashless Exercise (as defined in the Warrants)) will acquire the Conversion
Shares issuable upon conversion of the Preferred Shares and the Warrant Shares
issuable upon exercise of the Warrants, for its own account and not with a view
towards, or for resale in connection with, the sale or distribution thereof,
except pursuant to sales registered or exempted under the 1933 Act; provided,
however, that by making the representations herein, such Buyer does not agree to
hold any of the Securities for any minimum or other specific term and reserves
the right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act and
pursuant to the applicable terms of the Transaction Documents (as defined in
Section 3(b)). Such Buyer is acquiring the Securities hereunder in the
ordinary course of its business. Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.

 

(b)  Accredited
Investor Status. Such
Buyer is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D.

 

(c)  Reliance
on Exemptions. Such
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in part
upon the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the
Securities.

 

(d)  Information. Such
Buyer and its advisors, if any, have been furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities that have been requested by such Buyer.
Such Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained herein. Such Buyer
understands that its investment in the Securities involves a high degree of risk
and is able to afford a complete loss of such investment. Such Buyer has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the
Securities.

 

(e)  No
Governmental Review. Such
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.

 

3

 

(f)  Transfer
or Resale. Such
Buyer understands that except as provided in the Registration Rights Agreement:
(i) the Securities have not been and are not being registered under the 1933 Act
or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a form and from a law
firm reasonably acceptable to the Company and its legal counsel (with Schulte
Roth & Zabel LLP being deemed acceptable), to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively, "Rule
144"); (ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person (as defined in Section 3(s)) through whom the sale is made) may
be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder.

 

(g)  Legends. Such
Buyer understands that the certificates or other instruments representing the
Preferred Shares and the Warrants and, until such time as the resale of the
Conversion Shares and the Warrant Shares have been registered under the 1933 Act
as contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares and the Warrant Shares, except as set forth
below, shall bear any legend as required by the "blue sky" laws of any state and
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):

 

[NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE
BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
FORM REASONABLY ACCEPTABLE TO THE COMPANY AND ITS LEGAL COUNSEL, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

4

 

The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Company with an
opinion of a law firm reasonably acceptable to the Company (with Schulte Roth
& Zabel LLP being deemed acceptable), in a generally acceptable form, to the
effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the 1933 Act, or (iii)
such holder provides the Company with reasonable assurance that the Securities
can be sold, assigned or transferred pursuant to Rule 144 or Rule
144A.

 

(h)  Authorization;
Validity; Enforcement. This
Agreement and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of such Buyer and shall constitute
the legal, valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies. 

 

(i)  No
Conflicts. The
execution, delivery and performance by such Buyer of this Agreement, the
Registration Rights Agreement and the Security Documents to which such Buyer is
a party and the consummation by such Buyer of the transactions contemplated
hereby and thereby will not (i) result in a violation of the organizational
documents of such Buyer or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which such Buyer is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.

 

(j)  Residency. Such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers. Such Buyer is duly organized and validly existing and, to
the extent legally applicable, in good standing under the laws of the
jurisdiction in which it was formed.

 

(k)  Broker-Dealer. Such
Buyer is not registered with the SEC as a broker-dealer.

 

3.  REPRESENTATIONS
AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to each of the Buyers that, as of the date
hereof and as of the Closing:

 

5

 

(a)  Organization
and Qualification. The
Company and its "Subsidiaries" (which
for purposes of this Agreement means any entity in which the Company, directly
or indirectly, owns at least a majority of the capital stock or holds an equity
or similar interest) are entities duly organized and validly existing and, to
the extent legally applicable, in good standing under the laws of the
jurisdiction in which they are formed, and have the requisite power and
authorization to own their properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as a
foreign entity to do business and to the extent legally applicable, is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. As used in this Agreement, "Material
Adverse Effect" means
any material adverse effect on the business, properties, assets, operations,
results of operations or financial condition of the Company and its
Subsidiaries, taken as a whole, or on the transactions contemplated hereby or by
the agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents. The Company does not hold any
equity or similar interest in any entity except as set forth on Schedule
3(a).

 

(b)  Authorization;
Enforcement; Validity. The
Company has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement, the Certificate of Designations,
the Registration Rights Agreement, the Security Documents, the Irrevocable
Transfer Agent Instructions (as defined in Section 5(b)), the Warrants and each
of the other agreements entered into by the parties hereto in connection with
the transactions contemplated by this Agreement (collectively, the "Transaction
Documents") and to
issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, (i) the issuance of the Preferred Shares and
the Warrants, (ii)  the reservation for issuance, and the issuance, of the
Conversion Shares issuable
upon conversion of the Preferred Shares (iii) the reservation for issuance,
and the issuance, of Warrant Shares issuable upon exercise of the Warrants, and
(iv) the granting of a security interest in the Collateral (as defined in the
Security Documents) have been duly authorized by the Company's Board of
Directors and other than as set forth in Section 3(e), no further filing,
consent or authorization is required by the Company, its Board of Directors or
its stockholders. This Agreement and the other Transaction Documents of even
date herewith have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies. As of the Closing, the Certificate of Designations in the
form attached as Exhibit
A shall
have been filed on or prior to the Closing Date with the Secretary of State of
the State of Delaware and shall be in full force and effect, enforceable against
the Company in with its terms and shall not have been amended.

 

(c)  Issuance
of Securities. The
issuance of the Preferred Shares and the Warrants are duly authorized, and upon
issuance in accordance with the terms hereof, shall be validly issued and free
from all taxes, liens and charges with respect to the issue thereof (other than
transfer restrictions imposed by the 1933 Act), and the Preferred Shares shall
be entitled to the rights and preferences as set forth in the Certificate of
Designations. As of the Closing, a number of shares of Common Stock shall have
been duly authorized and reserved for issuance which equals or exceeds (i) 150%
of the aggregate of the maximum number of shares of Common Stock issuable upon
conversion of the Preferred Shares (assuming a Conversion Price (as defined in
the Certificate of Designations) equal to the arithmetic average of the Weighted
Average Price (as defined in the Certificate of Designations) of the Common
Stock over the five (5) consecutive Trading Days ending on the Trading Day
immediately preceding the Closing Date), (ii) 100% of the number of Dividend
Shares issuable pursuant to the terms of the Certificate of Designations and
(iii) 100% of the number of shares of Common Stock issuable upon exercise of the
Warrants. Upon issuance, conversion or exercise in accordance with the Preferred
Shares or the Warrants, as the case may be, the Conversion Shares, the Dividend
Shares and the Warrant Shares, respectively, will be validly issued, fully paid
and nonassessable and free from all preemptive or similar rights, taxes, liens
and charges with respect to the issue thereof (other than transfer restrictions
imposed by the 1933 Act), with the holders being entitled to all rights accorded
to a holder of Common Stock. Assuming the accuracy of each of the
representations and warranties set forth in Section 2 of this Agreement, the
offer and issuance by the Company of the Securities is exempt from registration
under the 1933 Act.

 

6

 

(d)  No
Conflicts. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Preferred Shares and
Warrants and reservation for issuance and issuance of the Conversion Shares,
Dividend Shares and the Warrant Shares) and the granting of a security interest
in the Collateral will not (i) result in a violation of any certificate of
incorporation, certificate of formation, certificate of designations, bylaws or
other constituent documents of the Company or any of is Subsidiaries, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) in any material respect under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
any material agreement, indenture or instrument to which the Company or any of
its Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of The Nasdaq Smallcap Market
(the "Principal
Market"))
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected, except, in
the case of clause (iii), for such violations as would not be reasonably
expected to have a Material Adverse Effect.

 

(e)  Consents. The
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency or any
regulatory or self-regulatory agency or any other Person in order for it to
execute, deliver or perform any of its obligations under or contemplated by the
Transaction Documents, in each case in accordance with the terms hereof or
thereof, except for the following consents, authorizations, orders, filings and
registrations (none of which is required to be filed or obtained before the
Closing): (i) the filing of appropriate UCC financing statements with the
appropriate states and other authorities pursuant to the Security Agreement,
(ii) the filing with the SEC of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement, (iii) the
filing of a listing application for the listing of the Conversion Shares and
Warrant Shares with the Principal Market, which shall be done pursuant to the
rules of the Principal Market, (iv) appropriate blue sky filings with
necessary state regulatory authorities and (v) a Form D under Regulation D
of the 1933 Act. The Company and its Subsidiaries are unaware of any facts or
circumstances that are reasonably likely to prevent the Company from obtaining
or effecting any of the registration, application or filings pursuant to the
preceding sentence. 

 

7

 

(f)  Acknowledgment
Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that no Buyer is acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby, and any advice given by a Buyer or
any of its representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.

 

(g)  No
General Solicitation; Placement Agent's Fees. Neither
the Company, nor any of its affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company acknowledges that it has engaged H.C. Wainwright &
Co., Inc. as placement agent (the "Agent") in
connection with the sale of the Securities. Other than the Agent, the Company
has not engaged any placement agent or other agent in connection with the sale
of the Securities.

 

(h)  No
Integrated Offering. None of
the Company, its Subsidiaries, any of their affiliates, and any Person acting on
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of any of the Securities under the 1933 Act or cause
this offering of the Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of the
Company are listed or designated. None of the Company, its Subsidiaries, their
affiliates and any Person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require registration of any of
the Securities under the 1933 Act or cause the offering of the Securities to be
integrated with other offerings.

 

(i)  Dilutive
Effect. The
Company understands and acknowledges that the number of Conversion Shares
issuable upon conversion of the Preferred Shares and the Warrant Shares issuable
upon exercise of the Warrants will increase in certain circumstances in
accordance with the respective terms of the Certificate of Designations and the
Warrant. The Company further acknowledges that, its obligation to issue
Conversion Shares upon conversion of the Preferred Shares in accordance with
this Agreement and the Preferred Shares and its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, except as
provided in the Certificate of Designations and the Warrant, respectively,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the
Company.

 

8

 

(j)  Application
of Takeover Protections; Rights Agreement. The
Company and its board of directors have taken all necessary action, if any, in
order 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 Certificate of Incorporation
(as defined in Section 3(q)) or the laws of the state of its incorporation which
is or could become applicable to any Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and any Buyer's ownership of the Securities.

 

(k)  SEC
Documents; Financial Statements. During
the three (3) years prior to the date hereof, the Company has filed all reports,
schedules, forms, statements and other filings required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934
Act") (all
of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the
"SEC
Documents"). The
Company has delivered to each Buyer or their respective designees true, correct
and complete copies of the SEC Documents not available on the EDGAR system. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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 the
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). 

 

(l)  Absence
of Certain Changes. Since
the date of the last audited financial statements included in the SEC Documents,
except as disclosed in Schedule
3(l), (i)
there has been no change or development that has had a Material Adverse Effect,
and (ii) the Company has not (A) declared or paid any dividends, (B) sold any
assets, individually or in the aggregate, in excess of $250,000 outside of the
ordinary course of business or (C) had capital expenditures, individually or in
the aggregate, in excess of $250,000. The Company has not filed a petition or
commencement of a proceeding under any bankruptcy law and, to the Company’s
knowledge, none of the Company’s creditors have initiated involuntary bankruptcy
proceedings against the Company and the Company does not have actual knowledge
of any fact that would reasonably lead a creditor to do so. The Company is not
as of the date hereof, and after giving effect to the transactions contemplated
hereby to occur at the Closing, will not be Insolvent (as defined below). For
purposes of this Section 3(l), "Insolvent" means,
with respect to any Person (as defined in Section 3(s)), (i) the present fair
saleable value of such Person's assets is less than the amount required to pay
such Person's total Indebtedness (as defined in Section 3(s)), (ii) the Company
is unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured, (iii) such
Person intends to incur or believes that it will incur debts that would be
beyond its ability to pay as such debts mature or (iv) such Person has
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be
conducted.

 

9

 

(m)  [INTENTIONALLY
OMITTED]

 

(n)  Conduct
of Business; Regulatory Permits. Neither
the Company nor its Subsidiaries is in violation of any term of or in default
under its Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or Bylaws or their organizational charter or bylaws, respectively.
Neither the Company nor any of its Subsidiaries is in violation of any judgment,
decree or order or any statute, ordinance, rule or regulation applicable to the
Company or its Subsidiaries, except for possible violations which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Without limiting the generality of the foregoing, the Company is
not in violation of any of the applicable rules, regulations or requirements of
the Principal Market and has no knowledge of any facts or circumstances which
would reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the next twelve months, except for any violations that would
not have, individually or in the aggregate, a Material Adverse Effect. Except as
disclosed on Schedule
3(n), since
December 31, 2003, (i) the Common Stock has been designated for quotation on the
Principal Market, (ii) trading in the Common Stock has not been suspended by the
SEC or the Principal Market and (iii) other than in connection with the events
leading to the movement of the listing of the Common Stock from the Nasdaq
National Market to the Principal Market, the Company has received no
communication, written or oral, from the SEC or the Principal Market to the
effect that the Company is not in compliance with the listing or maintenance
requirements of the Principal Market regarding the suspension or delisting of
the Common Stock from the Principal Market. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.

 

(o)  Foreign
Corrupt Practices. Neither
the Company, nor any of its Subsidiaries, nor to the Company's knowledge, any
director, officer, agent, employee or other Person acting on behalf of the
Company or any of its Subsidiaries has, in the course of its actions for, or on
behalf of, the Company (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

 

10

 

(p)  Sarbanes-Oxley
Act. The
Company is in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and
all applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof, except where such noncompliance would not have,
individually or in the aggregate, a Material Adverse Effect.

 

(q)  Transactions
With Affiliates. Except
as set forth in the SEC Documents filed at least two days prior to the date
hereof and other than the grant of stock options disclosed on Schedule
3(q), none of
the officers, directors or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for ordinary
course services as employees, officers or directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any such officer, director, or employee has a substantial interest or is
an officer, director, trustee or partner.

 

(r)  Equity
Capitalization. As of
April 18, 2005, the authorized capital stock of the Company consists of (x)
70,000,000 shares of Common Stock, of which 42,467,580 are issued and
outstanding, 8,500,000 shares are reserved for issuance pursuant to the
Company's stock option and purchase plans and 667,247 shares are reserved for
issuance pursuant to securities (other than the aforementioned options, the
Preferred Shares and the Warrants) exercisable or exchangeable for, or
convertible into, shares of Common Stock, (y) 5,000,000 of preferred stock
of the Company, none of which are issued and outstanding. All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable. Except as disclosed in Schedule
3(r): (i)
none of the Company's shares of capital stock are subject to preemptive rights
or any other similar rights or any liens or encumbrances suffered or permitted
by the Company (other than any liens or encumbrances created pursuant to the
Transaction Documents); (ii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its Subsidiaries; (iii) there are no outstanding debt securities, notes,
credit agreements, credit facilities or other agreements, documents or
instruments evidencing Indebtedness (as defined in Section 3(s)) of the Company
or any of its Subsidiaries or by which the Company or any of its Subsidiaries is
or may become bound; (iv) there are no financing statements securing obligations
in any material amounts, either singly or in the aggregate, filed in connection
with the Company; (v) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement);
(vi) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries; (vii) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities; (viii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement; and (ix) the Company and its Subsidiaries have no
liabilities or obligations required to be disclosed in the SEC Documents but not
so disclosed in the SEC Documents, other than those incurred in the ordinary
course of the Company's or its Subsidiaries' respective businesses and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect. The Company has made available to the Buyer true, correct and complete
copies of the Company's Amended and Restated Certificate of Incorporation, as
amended and as in effect on the date hereof (the "Certificate
of Incorporation"), and
the Company's Bylaws, as amended and as in effect on the date hereof (the
"Bylaws"), and
the terms of all securities convertible into, or exercisable or exchangeable
for, shares of Common Stock and the material rights of the holders thereof in
respect thereto.

 

11

 

(s)  Indebtedness
and Other Contracts. Except
as disclosed in Schedule
3(s), neither
the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as
defined below), (ii) is a party to any contract, agreement or instrument, the
violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument, could reasonably be expected to result in a
Material Adverse Effect, (iii) is in violation of any term of or in default
under any contract, agreement or instrument relating to any Indebtedness, except
where such violations and defaults would not result, individually or in the
aggregate, in a Material Adverse Effect, or (iv) is a party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company's officers, has or is expected to have a Material
Adverse Effect. For purposes of this Agreement: (x) "Indebtedness" of any
Person means, without duplication (A) all indebtedness for borrowed money, (B)
all obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) "capital leases" in
accordance with generally accepted accounting principals (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (A) through (G)
above; (y) "Contingent
Obligation" means,
as to any Person, any direct or indirect liability, contingent or otherwise, of
that Person with respect to any indebtedness, lease, dividend or other
obligation of another Person if the primary purpose or intent of the Person
incurring such liability, or the primary effect thereof, is to provide assurance
to the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto; and (z) "Person" means
an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.

 

12

 

(t)  Absence
of Litigation. Except
as set forth in Schedule
3(t), there
is no action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against the Company or any of the Company's Subsidiaries or any of the Company's
or the Company's Subsidiaries' officers or directors in their capacities as
such, which action, suit, proceeding, inquiry or investigation, if determined
adversely to the Company, its Subsidiary or their respective officer or
director, as the case may be, would have a Material Adverse Effect.

 

(u)  Insurance. The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company nor
any such Subsidiary has been refused any insurance coverage sought or applied
for and neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect. 

 

(v)  Employee
Relations.
(i) Neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. No current executive officer of the
Company (as defined in Rule 501(f) of the 1933 Act) has notified the Company
that such officer intends to leave the Company or otherwise terminate such
officer's employment with the Company. To the Company’s knowledge, no executive
officer of the Company, is in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement or any other similar contract or agreement, or any
restrictive covenant pertaining to the subject matter of any such contract or
agreement, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.

 

(ii)  The
Company and its Subsidiaries are in compliance with all applicable federal,
state, local and foreign laws and regulations respecting labor, employment and
employment practices and benefits, terms and conditions of employment and wages
and hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.

 

13

 

(w)  Title. The
Company and its Subsidiaries have good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned by
them which is material to the business of the Company and its Subsidiaries, in
each case free and clear of all liens, encumbrances and defects such as are
described in Schedule
3(w) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries. Any real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.

 

(x)  Intellectual
Property Rights. The
Company and its Subsidiaries own or possess adequate rights or licenses to use
all trademarks, service marks and all applications and registrations therefor,
trade names, patents, patent rights, copyrights, original works of authorship,
inventions, trade secrets and other intellectual property rights ("Intellectual
Property Rights")
necessary to conduct their respective businesses as now conducted. Except as
disclosed on Schedule 3(x), none of
the Company's registered Intellectual Property Rights have expired or terminated
or have been abandoned, or by their terms shall expire within three (3) years
from the date of this Agreement. The Company has not received a written notice
that the
Intellectual Property Rights of the
Company and its Subsidiaries infringes upon the Intellectual Property Rights of
any other Person. There is no claim, action or proceeding pending or, to the
knowledge of the Company, threatened in writing, against the Company or its
Subsidiaries regarding its Intellectual Property Rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property
Rights.

 

(y)  Environmental
Laws. The
Company and its Subsidiaries (i) are in compliance with any and all
Environmental Laws (as hereinafter defined), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (iii) are in compliance with all
terms and conditions of any such permit, license or approval where, in each of
the foregoing clauses (i), (ii) and (iii), the failure to so comply could be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect. The term "Environmental
Laws" means
all federal, state, local or foreign laws applicable to the Company relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants, or toxic
or hazardous substances or wastes (collectively, "Hazardous
Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, notices or notice letters, orders, plans or regulations
issued, entered, promulgated or enforced by any governmental authority
thereunder.

 

(z)  Subsidiary
Rights. The
Company or one of its Subsidiaries has the unrestricted right to vote, and
(subject to limitations imposed by applicable law) to receive dividends and
distributions on, all capital securities of its Subsidiaries as owned by the
Company or such Subsidiary.

 

14

 

(aa)  Tax
Status. The
Company and each of its Subsidiaries (i) has made or filed all foreign, federal
and state income and all other tax returns, reports and declarations required to
be made or filed by it by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.

 

(bb)  Internal
Accounting and Disclosure Controls. The
Company and each of its Subsidiaries maintain 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 and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference. The Company maintains disclosure controls and procedures (as such
term is defined in Rule 13a-14 under the 1934 Act) that are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
SEC, including, without limitation, controls and procedures designed in to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is accumulated and communicated to
the Company's management, including its principal executive officer or officers
and its principal financial officer or officers, as appropriate, to allow timely
decisions regarding required disclosure.

 

(cc)  Off
Balance Sheet Arrangements. There
is no transaction, arrangement, or other relationship between the Company and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed or
that otherwise would be reasonably likely to have a Material Adverse
Effect.

 

(dd)  Investment
Company Status. The
Company is not, and upon consummation of the sale of the Securities will not be,
an "investment company," a company controlled by an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended.

 

(ee)  Form
S-3 Eligibility. The
Company is eligible to register the Conversion Shares, Dividend Shares and the
Warrant Shares for resale by the Buyers using Form S-3 promulgated under the
1933 Act.

 

(ff)  Transfer
Taxes. On the
Closing Date, all stock transfer or other taxes (other than income or similar
taxes) which are required to be paid in connection with the sale and transfer of
the Securities to be sold to each Buyer hereunder will be, or will have been,
fully paid or provided for by the Company, and all laws imposing such taxes will
be or will have been complied with.

 

15

 

(gg)  Manipulation
of Price. The
Company has not, and to its knowledge no one acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid for,
purchased, or, paid any compensation for soliciting purchases of, any of the
Securities (other than for the Agent’s placement of the Securities), or (iii)
paid or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.

 

(hh)  Disclosure. The
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Buyers or their agents or counsel with any information that
constitutes material, nonpublic information. The Company understands and
confirms that each of the Buyers will rely on the foregoing representations in
effecting transactions in securities of the Company. All disclosure provided to
the Buyers regarding the Company, its business and the transactions contemplated
hereby, including the Schedules to this Agreement, is true and correct in all
material respects and does not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, in
all material respects not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or
disclosed.

 

(ii)  Acknowledgement
Regarding Buyers' Trading Activity.
Anything in this Agreement or elsewhere herein to the contrary notwithstanding,
it is understood and acknowledged by the Company (i) that none of the Buyers
have been asked to agree, nor has any Buyer agreed, to desist from purchasing or
selling, long and/or short, securities of the Company, or "derivative"
securities based on securities issued by the Company or to hold the Securities
for any specified term; (ii) that any Buyer, and counter parties in "derivative"
transactions to which any such Buyer is a party, directly or indirectly,
presently may have a "short" position in the Common Stock, and (iii) that each
Buyer shall not be deemed to have any affiliation with or control over any arm's
length counter-party in any "derivative" transaction. The Company further
understands and acknowledges that one or more Buyers may engage in hedging
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Conversion Shares, the Warrant Shares and Dividend Shares deliverable with
respect to Securities are being determined.

 

4.  COVENANTS.

 

(a)  Best
Efforts. Each
party shall use its best efforts timely to satisfy each of the conditions to be
satisfied by it as provided in Sections 6 and 7 of this Agreement.

 

(b)  Form D
and Blue Sky. The
Company agrees to file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to each Buyer promptly after such
filing. The Company shall, on or before the Closing Date, take such action as
the Company shall reasonably determine is necessary in order to obtain an
exemption for or to qualify the Securities for sale to the Buyers at the Closing
pursuant to this Agreement under applicable securities or "Blue Sky" laws of the
states of the United States (or to obtain an exemption from such qualification).
The Company shall make all filings and reports relating to the offer and sale of
the Securities required under applicable securities or "Blue Sky" laws of the
states of the United States following the Closing Date.

 

16

 

(c)  Reporting
Status. Until
the date on which the Investors (as defined in the Registration Rights
Agreement) shall have sold all the Conversion Shares, Dividend Shares and
Warrant Shares and none
of the Preferred Shares or
Warrants is outstanding (the "Reporting
Period"), the
Company shall timely file all reports required to be filed with the SEC pursuant
to the 1934 Act, and the Company shall not terminate its status as an issuer
required to timely file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would otherwise permit such
termination.

 

(d)  Use of
Proceeds. The
Company will use the proceeds from the sale of the Securities for working
capital and general corporate purposes and not for the repayment of any
outstanding Indebtedness of the Company or any of its Subsidiaries or redemption
or repurchase of any of its equity securities, except in connection with an
acquisition of assets or securities by the Company not for capital raising
purposes.

 

(e)  Financial
Information. The
Company agrees to send the following to each Investor during the Reporting
Period (i) unless the following are filed with the SEC through EDGAR and are
available to the public through the EDGAR system, within one (1) Business Day
after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act, (ii) unless attached to a Current Report on a Form 8-K
filed with the SEC through EDGAR, on the same day as the release thereof,
facsimile copies of all press releases issued by the Company or any of its
Subsidiaries, and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders. For the purposes of this Section 4(e) only, the Company may send
notice to the Investors by electronic mail to their respective electronic mail
addresses as set forth in the Schedule of Buyers attached hereto. As used
herein, "Business
Day" means
any day other than Saturday, Sunday or other day on which commercial banks in
The City of New York are authorized or required by law to remain
closed.

 

(f)  Listing. The
Company shall use its best efforts to promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall use its best efforts to maintain, so long as any other shares of
Common Stock shall be so listed and in accordance with the Preferred Shares and
Warrants, such listing of all Registrable Securities from time to time issuable
under the terms of the Transaction Documents. The Company shall use its best
efforts to maintain the Common Stocks' authorization for quotation on the
Principal Market. Neither the Company nor any of its Subsidiaries shall take any
action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market; provided, however, that
the Company makes no covenant regarding the trading price of the Common Stock.
The Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).

 

17

 

(g)  Fees. The
Company and the Buyers hereby acknowledge that the Company has advanced to
Portside Growth & Opportunity Fund an amount equal to $65,000 for fees and
expenses of the Buyers in connection with the preparation, execution and
performance of the Transaction Documents and the transactions contemplated
hereby and thereby. Subject to Section 8 below, at the Closing, subject to
receipt of appropriate supporting documentation, the Company shall reimburse
Portside Growth & Opportunity Fund (a Buyer) or its designee(s) (in addition
to any other amounts paid to any Buyer or its designee prior to the date of this
Agreement) for its reasonable fees and expenses in connection with the
preparation, execution and performance of the Transaction Documents and the
transactions contemplated hereby and thereby, in an amount not to exceed
$12,500, which amount shall be withheld from such Buyer’s Purchase Price at the
Closing. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or broker's commissions (other than for
Persons engaged by any Buyer or its agents) relating to or arising out of the
transactions contemplated hereby, including, without limitation, any fees or
commissions payable to the Agent. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment. Except as otherwise set forth in
the Transaction Documents, each party to this Agreement shall bear its own
expenses in connection with the sale of the Securities to the
Buyers.

 

(h)  Pledge
of Securities. The
Company acknowledges and agrees that the Securities may be pledged by an
Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities. The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Investor
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without limitation,
Section 2(f) hereof; provided that an Investor and its pledgee shall be required
to comply with the provisions of Section 2(f) hereof in order to effect a sale,
transfer or assignment of Securities to such pledgee. The Company hereby agrees
to execute and deliver such documentation acknowledging the existence of a
pledge as a pledgee of the Securities may reasonably request in connection with
a pledge of the Securities to such pledgee by an Investor.

 

(i)  Disclosure
of Transactions and Other Material Information. On or
before 8:30 a.m., New York City time, on the first Business Day following the
earlier of (x) the public announcement of the first closing of the transactions
contemplated by the Dow Purchase Agreement and (y) the Closing Date, but no
later than 5:00 p.m. on April 25, 2005, the Company shall file a Current Report
on Form 8-K describing the terms of the transactions contemplated by the
Transaction Documents in the form required by the 1934 Act and attaching the
material Transaction Documents (including, without limitation, this Agreement
the form of the Certificate of Designations, the form of Warrant, the form of
the Voting Agreement, the form of the Registration Rights Agreement and the form
of Security Documents) as exhibits to such filing (including all attachments,
the "8-K
Filing"). From
and after the filing of the 8-K Filing with the SEC, no Buyer shall be in
possession of any material, nonpublic information received from the Company, any
of its Subsidiaries or any of its respective officers, directors, employees or
agents, that is not disclosed in the 8-K Filing. The Company shall not, and
shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents, not to, provide any Buyer with any
material, nonpublic information regarding the Company or any of its Subsidiaries
from and after the filing of the 8-K Filing with the SEC without the express
written consent of such Buyer. If, notwithstanding the foregoing, the Company,
its Subsidiaries or each of their respective officers, directors, employees and
agents, provide any Buyer with any material, nonpublic information, regarding
the Company or any of its Subsidiaries, the Buyer shall provide the Company with
written notice thereof. The Company shall, within five (5) Trading Days of
receipt of such notice, make public disclosure of such material, nonpublic
information. In the event of a breach of the foregoing covenant by the Company,
any of its Subsidiaries, or any of its or their respective officers, directors,
employees and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public disclosure,
in the form of a press release, public advertisement or otherwise, of such
material, nonpublic information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents. No Buyer shall have any liability to the Company, its Subsidiaries,
or any of its or their respective officers, directors, employees, stockholders
or agents for any such disclosure. Subject to the foregoing, neither the Company
nor any Buyer shall issue any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions (i)
in substantial conformity with the 8-K Filing and contemporaneously therewith
and (ii) as is required by applicable law and regulations (provided that in the
case of clause (i) each Buyer shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its
release).

 

18

 

(j)  Additional
Registration Statements. Until
the date that the Registration Statement (as defined in the Registration Rights
Agreement) is first declared effective by the SEC (the "Effective
Date"), other
than any registration statement to be filed pursuant to the Registration Rights
Agreement between the Company and The Dow Chemical Company ("Dow"),
executed pursuant to the Dow Purchase Agreement (as defined below), the Company
shall not file a registration statement under the 1933 Act relating to
securities that are not the Securities.

 

(k)  Additional
Notes; Variable Securities; Dilutive Issuances. So long
as any Buyer beneficially owns any Preferred Shares, other than pursuant to the
Stock Purchase Agreement between the Company and Dow, dated as of February, 27,
2005, as amended prior to the Closing (the "Dow
Purchase Agreement"), the
Company will not issue any Preferred Shares other than to the Buyers as
contemplated hereby and the Company shall not issue any other securities that
would cause a breach or default under the Certificate of Designations. For so
long as 25% or more of the Preferred Shares or Warrants remain outstanding,
other than pursuant to the Dow Purchase Agreement, the Company shall not, in any
manner, issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock or directly or indirectly convertible into or exchangeable
or exercisable for Common Stock at a price which varies or may vary with the
market price of the Common Stock, including by way of one or more reset(s) to
any fixed price unless the conversion, exchange or exercise price of any such
security cannot be less than the then applicable Conversion Price (as defined in
the Certificate of Designations) with respect to the Common Stock into which any
Preferred Share is convertible or the then applicable Exercise Price (as defined
in the Warrants) with respect to the Common Stock into which any Warrant is
exercisable. For so long as any Preferred Shares or Warrants remain outstanding,
the Company shall not, in any manner, enter into or affect any Dilutive Issuance
(as defined in the Certificate of Designations) if the effect of such Dilutive
Issuance is to cause the Company to be required to issue upon conversion of any
Preferred Share or exercise of any Warrant any shares of Common Stock in excess
of that number of shares of Common Stock which the Company may issue upon
conversion of the Preferred Shares, and exercise of the Warrants without
breaching the Company's obligations under the rules or regulations of the
Principal Market.

 

19

 

(l)  Corporate
Existence. So long
as any Buyer beneficially owns any Preferred Shares or Warrants, the Company
shall not be party to any Fundamental Transaction (as defined in the Certificate
of Designations) unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Certificate of
Designations and the Warrants.

 

(m)  Reservation
of Shares. The
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than the sum of (1) 130% of the
number of shares of Common Stock issuable upon conversion of the issued and
outstanding Preferred Shares, (2) 100% of the number of Dividend Shares issuable
pursuant to the terms of the Preferred Shares and (3) 100% of the number of
shares of Common Stock issuable upon exercise of the issued and outstanding
Warrants.

 

(n)  Conduct
of Business. The
business of the Company and its Subsidiaries shall not be conducted in violation
of any law, ordinance or regulation of any governmental entity applicable to the
business of the Company and its Subsidiaries, except where such violations could
not result, either individually or in the aggregate, in a Material Adverse
Effect.

 

(o)  Additional
Issuances of Securities.

 

(i)  For
purposes of this Section 4(o), the following definitions shall
apply.

 

(A)  "Convertible
Securities" means
any stock or securities (other than Options) convertible into or exercisable or
exchangeable for shares of Common
Stock.

 

(B)  "Options" means
any rights, warrants or options to subscribe for or purchase shares of
Common Stock or
Convertible Securities.

 

(C)  "Common
Stock Equivalents" means,
collectively, Options and Convertible Securities.

 

20

 

(ii)  Other
than the Series A Convertible Preferred Stock, the Series B Convertible
Preferred Stock and the warrants to acquire Common Stock which shall be issued
or issuable pursuant to the Dow Purchase Agreement (or the shares of Common
Stock issuable upon conversion of such preferred shares or the exercise of such
warrants), from the date hereof until the date that is thirty (30) Trading Days
(as defined in the Certificate of Designations) following the Effective Date (as
defined in the Registration Rights Agreement) (the "Trigger
Date"), the
Company will not, directly or indirectly, offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition of) any of its or its Subsidiaries'
equity or equity equivalent securities, including without limitation any debt,
preferred stock or other instrument or security that is, at any time during its
life and under any circumstances, convertible into or exchangeable or
exercisable for shares of Common Stock or Common Stock Equivalents (any such
offer, sale, grant, disposition or announcement being referred to as a
"Subsequent
Placement").

 

(iii)  Other
than the Series A Convertible Preferred Stock, the Series B Convertible
Preferred Stock and the warrants to acquire Common Stock which shall be issued
or issuable pursuant to the Dow Purchase Agreement (or the shares of Common
Stock issuable upon conversion of such preferred shares or exercise of such
warrants), from the Trigger Date until the two year anniversary of the Closing
Date, the Company will not, directly or indirectly, effect any Subsequent
Placement unless the Company shall have first complied with this Section
4(o)(iii).

 

(A)  The
Company shall deliver to each Buyer a written notice (the "Offer
Notice") (which
will be used by the Buyer in compliance with applicable law) of any proposed or
intended issuance or sale or exchange (the "Offer") of the
securities being offered (the "Offered
Securities") in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they
are to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyers a pro rata portion of 30% of the Offered Securities
allocated among such Buyers (a) based on such Buyer's pro rata portion of the
aggregate Preferred Shares purchased hereunder (the "Basic
Amount"), and
(b) with respect to each Buyer that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Buyers as such Buyer shall indicate it will purchase or acquire should
the other Buyers subscribe for less than their Basic Amounts (the "Undersubscription
Amount").

 

(B)  To accept
an Offer, in whole or in part, such Buyer must deliver a written notice to the
Company prior to the end of the fifth (5th)
Business Day after such Buyer's receipt of the Offer Notice (the "Offer
Period"),
setting forth the portion of such Buyer's Basic Amount that such Buyer elects to
purchase and, if such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the "Notice
of Acceptance"). If
the Basic Amounts subscribed for by all Buyers are less than the total of all of
the Basic Amounts, then each Buyer who has set forth an Undersubscription Amount
in its Notice of Acceptance shall be entitled to purchase, in addition to the
Basic Amounts subscribed for, the Undersubscription Amount it has subscribed
for; provided,
however, that if
the Undersubscription Amounts subscribed for exceed the difference between the
total of all the Basic Amounts and the Basic Amounts subscribed for (the
"Available
Undersubscription Amount"), each
Buyer who has subscribed for any Undersubscription Amount shall be entitled to
purchase only that portion of the Available Undersubscription Amount as the
Basic Amount of such Buyer bears to the total Basic Amounts of all Buyers that
have subscribed for Undersubscription Amounts, subject to rounding by the
Company to the extent its deems reasonably necessary.

 

21

 

(iv)  The
Company shall have twenty (20) Business Days from the expiration of the Offer
Period above to offer, issue, sell or exchange all or any part of such Offered
Securities as to which a Notice of Acceptance has not been given by the Buyers
(the "Refused
Securities"), but
only to the offerees described in the Offer Notice (if so described therein) and
only upon terms and conditions (including, without limitation, unit prices and
interest rates) that are not more favorable to the acquiring person or persons
or less favorable to the Company than those set forth in the Offer
Notice.

 

(v)  In the
event the Company shall propose to sell less than all the Refused Securities
(any such sale to be in the manner and on the terms specified in Section
4(p)(iii)(3) above), then each Buyer may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified in
its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Buyer elected to purchase pursuant to
Section 4(p)(iii)(2) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Buyers pursuant to Section 4(p)(iii)(3) above prior to such
reduction) and (ii) the denominator of which shall be the original amount of the
Offered Securities. In the event that any Buyer so elects to reduce the number
or amount of Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced number or amount
of the Offered Securities unless and until such securities have again been
offered to the Buyers in accordance with Section 4(p)(iii)(1)
above.

 

(vi)  Upon the
closing of the issuance, sale or exchange of all or less than all of the Refused
Securities, the Buyers shall acquire from the Company, and the Company shall
issue to the Buyers, the number or amount of Offered Securities specified in the
Notices of Acceptance, as reduced pursuant to Section 4(p)(iii)(3) above if the
Buyers have so elected, upon the terms and conditions specified in the Offer.
The purchase by the Buyers of any Offered Securities is subject in all cases to
the preparation, execution and delivery by the Company and the Buyers of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Buyers and their respective counsel.

 

(vii)  Any
Offered Securities not acquired by the Buyers or other persons in accordance
with Section 4(p)(iii)(3) above may not be issued, sold or exchanged until they
are again offered to the Buyers under the procedures specified in this
Agreement.

 

22

 

(viii)  The
restrictions contained in subsections (ii) and (iii) of this Section 4(p) shall
not apply in connection with the issuance of any Excluded Securities (as defined
in the Certificate of Designations).

 

(p)  Cash
Collateral Account.
(i) On or
prior to the Closing, the Company shall establish with a bank acceptable to the
Buyers and the Company (as defined in the Account Control Agreement) (the
"Cash
Collateral Bank") a
deposit account (together with all monies on deposit in such deposit account and
all certificates and instruments, if any, representing or evidencing such
deposit account, the "Cash
Collateral Account"), and
shall cause the Cash Collateral Bank to enter into an account control agreement
with the Buyers, substantially in the form of Exhibit
E (the
"Account
Control Agreement"). Upon
the request of the Buyers, the Company shall also execute and deliver such other
customary agreements and instruments necessary to grant the Buyers a first
priority perfected security interest in the Cash Collateral Account to secure
the Preferred Shares. The Company agrees that it shall not permit the Cash
Collateral Account to be subject to any lien, pledge, charge, security interest
or other encumbrance other than as provided in the immediately preceding
sentence.

 

(ii)  The funds
in the Cash Collateral Account shall be distributed as set forth
below:

 

(A)  In
connection with any payment of dividends on the Preferred Shares ("Preferred
Dividends") on
each Dividend Date (as defined in the Certificate of Designations) pursuant to
and in such amounts provided in the Certificate of Designations, the Company
shall deliver written instructions to the Cash Collateral Bank directing the
release to the Company, from the Cash Collateral Account, with a copy of the
notice to the holders of Preferred Shares (such notice, a "Dividend
Notice"), of an
amount equal to the cash amount of the aggregate Preferred Dividends paid to the
holders of Preferred Shares on such Dividend Date; and 

 

(B)  If any
balance remains in the Cash Collateral Account on the Maturity Date (as defined
in the Certificate of Designations), the Buyers shall deliver written
instructions to the Cash Collateral Bank directing it to release to the Company
the balance of any such amount remaining in the Cash Collateral Account.

 

(q)  Stockholder
Approval. The
Company shall provide each stockholder entitled to vote at a special or annual
meeting of stockholders of the Company (the "Stockholder
Meeting"), which
shall be promptly called and held not later than April 30, 2006 (the
"Stockholder
Meeting Deadline"), a
proxy statement, substantially in the form which has been previously reviewed by
the Buyers and a counsel of their choice (which review shall be completed within
five (5) Business Days of such counsel's receipt of the proxy statement and such
review requirement shall be waived if such counsel has not completed its review
within such five (5) Business Day period), soliciting each such stockholder's
affirmative vote at the Stockholder Meeting for approval of resolutions
providing for (i) the Company's issuance of all of the Securities as described
in the Transaction Documents in accordance with applicable law and the rules and
regulations of the Principal Market and (ii) increasing the number of authorized
shares of Common Stock (such
affirmative
approval being referred to herein as the "Stockholder
Approval"), and
the Company shall use its best efforts to solicit its stockholders' approval of
such resolutions and to cause the Board of Directors of the Company to recommend
to the stockholders that they approve such resolutions. The Company shall be
obligated to seek to obtain the Stockholder Approval by the Stockholder Meeting
Deadline. If, despite the Company's best efforts the Stockholder Approval is not
obtained on or prior to the Stockholder Meeting Deadline, the Company shall
either (x) cause an additional Stockholder Meeting to be held every six (6)
months thereafter until such Stockholder Approval is obtained or (y) cause one
(1) additional Stockholder Meeting to be held within six (6) months thereafter
and if such Stockholder Approval is not obtained, each Buyer shall have the
right, at such Buyer's option, to require the Company to redeem any of such
Buyer's Preferred Shares at the Redemption Price (as defined in the Certificate
of Designations, with such failure being deemed a Redemption Event for purposes
of such definition hereunder).

 

23

 

(r)  Voting
Agreement. The
Company shall use its reasonable best efforts to effectuate the transactions
contemplated by the Voting Agreement, substantially in the form attached hereto
as Exhibit
F (the
"Voting
Agreement"),
executed by the Company and each of John Giolli, Adam Briggs, Rex Luzader, Dave
Ramm, Chris Andersen, George Zalepa and John Battaglini (the "Stockholders").

 

5.  REGISTER;
TRANSFER AGENT INSTRUCTIONS.

 

(a)  Register. The
Company shall maintain at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to each holder of
Securities), a register for the Preferred Shares and the Warrants, in which the
Company shall record the name and address of the Person in whose name the
Preferred Shares and the
Warrants have been issued (including the name and address of each transferee),
the face amount of Preferred Shares held by such Person, the number of Warrant
Shares issuable upon exercise of the Warrants held by such Person and the number
of Preferred Shares held by such Person. The Company shall keep the register
open and available at all times during business hours for inspection of any
Buyer or its legal representatives.

 

(b)  Transfer
Agent Instructions. The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates or credit shares to the
applicable balance accounts at The Depository Trust Company ("DTC"),
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares, and the Warrant Shares issued at the Closing or upon
conversion of the Preferred Shares or exercise of the Warrants in such amounts
as specified from time to time by each Buyer to the Company upon conversion of
the Preferred Shares or exercise of the Warrants in the form of Exhibit
G attached
hereto (the "Irrevocable
Transfer Agent Instructions"). The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(g) hereof, will be given by the Company to its transfer
agent, and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue one
or more certificates or credit shares to the applicable balance accounts at DTC
in such name and in such denominations as specified by such Buyer to effect such
sale, transfer or assignment. In the event that such sale, assignment or
transfer involves Conversion Shares or Warrant Shares sold, assigned or
transferred pursuant to an effective registration statement or pursuant to Rule
144, the transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.

 

24

 

6.  CONDITIONS
TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Preferred Shares and
to each Buyer at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Buyer with prior written
notice thereof:

 

(a)  Such
Buyer shall have executed and delivered each of the Transaction Documents to
which it is a party and delivered the same to the Company

 

(b)  Such
Buyer shall have delivered to the Company the Purchase Price (less, in the case
of Portside Growth & Opportunity Fund, the amounts withheld pursuant to
Section 4(g)) for the Preferred Shares and the related Warrants being purchased
by such Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.

 

(c)  The
representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date), and such Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.

 

7.  CONDITIONS
TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Preferred Shares and the
related Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

 

(a)  The
Company shall have executed and delivered to such Buyer (i) each of the
Transaction Documents (other than the Account Control Agreement) and (ii)
certificates representing the Preferred Shares (in such denominations as such
Buyer shall request), the related Warrants (in such amounts as such Buyer shall
request) being purchased by such Buyer at the Closing pursuant to this
Agreement.

 

25

 

(b)  The
Voting Agreement shall have been executed and delivered to such Buyer by the
Company and each the Stockholders.

 

(c)  Such
Buyer shall have received the opinion of Dickstein Shapiro Morin & Oshinsky
LLP, the Company's counsel, dated as of the Closing Date, in substantially the
form of Exhibit
H attached
hereto.

 

(d)  The
Company shall have delivered to such Buyer a copy of the Irrevocable Transfer
Agent Instructions, in the form of Exhibit
G attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.

 

(e)  The
Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company issued by the Secretary of State of
the State of Delaware, as of a date within 10 days of the Closing
Date.

 

(f)  The
Company shall have delivered to such Buyer a certificate evidencing the
Company's qualification as a foreign corporation and good standing issued by the
Secretary of State of the State of New Jersey as of a date within 10 days of the
Closing Date.

 

(g)  The
Company shall have delivered to such Buyer a certified copy of the Certificate
of Incorporation as certified by the Secretary of State of the State of Delaware
within 10 days of the Closing Date.

 

(h)  The
Company shall have delivered to such Buyer a certificate, executed by the
Secretary of the Company and dated as of the Closing Date, as to (i) the
resolutions as adopted by the Executive Committee of the Company's Board of
Directors in a form reasonably acceptable to such Buyer, (ii) the Certificate of
Incorporation and (iii) the Bylaws, each as in effect at the Closing in the form
attached hereto as Exhibit
I.

 

(i)  The
representations and warranties of the Company shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer in the form attached hereto
as Exhibit
J.

 

(j)  The
Company shall have delivered to such Buyer a letter from the Company's transfer
agent certifying the number of shares of Common Stock outstanding as of a date
within five Business Days of the Closing Date.

 

(k)  The
Common Stock (i) shall be designated for quotation or listed on the Principal
Market and (ii) shall not have been suspended, as of the Closing Date, by the
SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by
falling below the minimum listing maintenance requirements of the Principal
Market.

 

26

 

(l)  The
Certificate of Designations in the form attached as Exhibit
A shall
have been filed on or prior to the Closing Date with the Secretary of State of
the State of Delaware and shall be in full force and effect, enforceable against
the Company in accordance with its terms and shall not have been
amended.

 

(m)  The
Company shall have obtained all governmental, regulatory or third party consents
and approvals, if any, required to be obtained on or prior to the Closing Date
with respect to the sale of the Securities.

 

(n)  Within
six (6) Business Days prior to the Closing, the Company shall have delivered or
caused to be delivered to each Buyer a perfection certificate, duly completed
and executed by the Company and each of its Subsidiaries, in form and substance
satisfactory to the Buyers.

 

(o)  The
transactions contemplated by the Dow Purchase Agreement shall have closed and
the transaction documents with respect to such transaction shall not be changed
in any respect material to the Buyers from the drafts attached
hereto.

 

(p)  The
Company shall have delivered to such Buyer such other documents relating to the
transactions contemplated by this Agreement as such Buyer or its counsel may
reasonably request.

 

8.  TERMINATION. In the
event that the Closing shall not have occurred with respect to a Buyer on or
before five (5) Business Days from the date hereof due to the Company's or such
Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above
(and the nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, this if this
Agreement is terminated pursuant to this Section 8, the Company shall remain
obligated to reimburse the non-breaching Buyers for the expenses described in
Section 4(g) above.

 

9.  MISCELLANEOUS.

 

(a)  Governing
Law; Jurisdiction; Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY. 

 

27

 

(b)  Counterparts. This
Agreement may be executed in two or more identical counterparts, all of which
shall be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.

 

(c)  Headings. The
headings of this Agreement are for convenience of reference and shall not form
part of, or affect the interpretation of, this Agreement.

 

(d)  Severability. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.

 

(e)  Entire
Agreement; Amendments. This
Agreement supersedes all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the holders of at least a majority of the Preferred Shares then
outstanding, and any amendment to this Agreement made in conformity with the
provisions of this Section 9(e) shall be binding on all Buyers and holders of
Securities. No provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Preferred Shares then outstanding. No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
also is offered to all of the parties to the Transaction Documents, holders of
Preferred Shares or holders of the Warrants, as the case may be. The Company has
not, directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.

 

28

 

(f)  Notices. Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with an overnight courier service, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:

 

If to the
Company:

 

Millennium
Cell Inc.

One
Industrial Way West

Eatontown,
New Jersey 07724

Telephone:  
(732)
542-4000

Facsimile:     
(732)
542-4010

Attention:    
President

with a
copy to:

 

Dickstein
Shapiro Morin & Oshinsky LLP 

1177
Avenue of the Americas 

New York,
New York 10036 

Telephone:  
(212)
835-1400

Facsimile:    
(212)
997-9880

Attention:   
Malcolm
I. Ross, Esq.

 

If to the
Transfer Agent:

 

American
Stock Transfer & Trust Company

59 Maiden
Lane

New York,
NY 10038

Telephone:  
(718) 921-8293

Facsimile:     
(718) 921-8334

Attention:    
Isaac Kagan

 

If to a
Buyer, to its address and facsimile number set forth on the Schedule of Buyers,
with copies to such Buyer's representatives as set forth on the Schedule of
Buyers, 

 

with a
copy (for informational purposes) to:

 

Schulte
Roth & Zabel LLP

919 Third
Avenue

New York,
New York 10022

Telephone:
(212) 756-2000

Facsimile:
(212) 593-5955

Attention:
Eleazer N. Klein, Esq.

 

29

 

or to
such other address and/or facsimile number and/or to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by an
overnight courier service shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from an overnight courier service in accordance
with clause (i), (ii) or (iii) above, respectively.

 

(g)  Successors
and Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the
Preferred Shares or the Warrants. The Company shall not assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
holders of at least a majority of the Preferred Shares then outstanding,
including by way of a Fundamental Transaction (unless the Company is in
compliance with the applicable provisions governing Fundamental Transactions set
forth in the Certificate of Designations and the Warrants). A Buyer may assign
some or all of its rights hereunder without the consent of the Company in
connection with a transfer by such Buyer of any of the Securities, in which
event such assignee shall be deemed to be a Buyer hereunder with respect to such
assigned rights; provided that
such assignment is in compliance with applicable securities laws and the terms
of the Transaction Documents.

 

(h)  No
Third Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.

 

(i)  Survival. Unless
this Agreement is terminated under Section 8, the representations and warranties
of the Company and the Buyers contained in Sections 2 and 3, the agreements and
covenants set forth in Sections 4, 5 and 9 shall survive the Closing. Each Buyer
shall be responsible only for its own representations, warranties, agreements
and covenants hereunder.

 

(j)  Further
Assurances. Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as any other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.

 

(k)  Indemnification. In
consideration of each Buyer's execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and in addition to all of the
Company's other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless each Buyer and each other holder of
the Securities and all of their stockholders, partners, members, officers,
directors, employees and direct or indirect investors and any of the foregoing
Persons' agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from
and against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages (other than lost profits), and expenses
in connection therewith (irrespective of whether any such Indemnitee is a party
to the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any breach of any representation or warranty made by the Company in the
Transaction Documents, or (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or (c) any
cause of action, suit or claim brought or made against such Indemnitee by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution, delivery
or performance of the Transaction Documents, (ii) any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Securities, or (iii) the status of such Buyer or holder of
the Securities as an investor in the Company pursuant to the transactions
contemplated by the Transaction Documents; provided that indemnification
pursuant to this clause (iii) shall not be available to the extent arising from
such Buyer's bad faith, breach of the Transaction Documents, fraud, gross
negligence or willful misconduct. To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law. Except as otherwise set
forth herein, the mechanics and procedures with respect to the rights and
obligations under this Section 9(k) shall be the same as those set forth in
Section 6 of the Registration Rights Agreement.

 

30

 

(l)  No
Strict Construction. The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.

 

(m)  Remedies. Each
Buyer and each holder of the Securities shall have all rights and remedies set
forth in the Transaction Documents and all rights and remedies which such
holders have been granted at any time under any other agreement or contract and
all of the rights which such holders have under any law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. Furthermore, the Company recognizes
that in the event that it fails to perform, observe, or discharge any or all of
its obligations under the Transaction Documents, any remedy at law may prove to
be inadequate relief to the Buyers. The Company therefore agrees that the Buyers
shall be entitled to seek temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages and without posting a bond
or other security.

 

(n)  Rescission and
Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting any
similar provisions of) the Transaction Documents, whenever any Buyer exercises a
right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then such Buyer may rescind or withdraw, in its sole discretion from
time to time upon written notice to the Company, any relevant notice, demand or
election in whole or in part without prejudice to its future actions and
rights

 

(o)  Payment
Set Aside. To the
extent that the Company makes a payment or payments to the Buyers hereunder or
pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their rights hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other Person under any law
(including, without limitation, any bankruptcy law, foreign, state or federal
law, common law or equitable cause of action), then to the extent of any such
restoration the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or setoff had not occurred.

 

31

 

(p)  Independent
Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Buyers are
in any way acting in concert or as a group with respect to such obligations or
the transactions contemplated by the Transaction Documents. Each Buyer confirms
that it has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.

 

[Signature
Page Follows]

 

32

 

IN
WITNESS WHEREOF, each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

 

	 	 	 
	 	
      COMPANY: 

	 	 
	 	MILLENNIUM CELL
      INC.
	 
 	 
 	 
 
		By: 	
      /s/ John
      D. Giolli

	 	
      

      Name: John D. Giolli
	 	Title: Acting
      Chief Financial Officer

 

[Signature
Page to Securities Purchase Agreement]

 

 

IN
WITNESS WHEREOF, each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

	 	 	 
	 	
      BUYERS:

	 	 
	 	PORTSIDE GROWTH
      & OPPORTUNITY FUND
	 
 	 
 	 
 
	 	By:  	
      /s/
      Jeffrey Smith

	 	
      

      Name: Jeffrey Smith
	 	Title: Authorized
      Signatory

 

 

[Signature Page to Securities Purchase
Agreement]

 

IN
WITNESS WHEREOF, each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

 

	 	 	 
	 	OTHER
      BUYERS:
	 	 
	 	PROVIDENT
      PREMIER MASTER FUND LTD.
	 
 	 
 	 
 
	 	By:  	/s/ Steven
      Winters
	 	
      

      Name: Steven Winters
	 	Title: Attorney-in-fact

 

 

[Signature Page to Securities Purchase
Agreement]

 

IN
WITNESS WHEREOF, each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

 

	 	 	 
	 	OTHER
      BUYERS:
	 	 
	 	IROQUOIS MASTER FUND
      LTD. 
	 
 	 
 	 
 
		By:  	/s/ Justin
      Silverman
	 	
      

      Name: Justin Silverman
	 	Title: Authorized
      Signatory

 

 

[Signature Page to Securities Purchase
Agreement]

 

IN
WITNESS WHEREOF, each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

 

	 	 	 
	 	OTHER
      BUYERS:
	 	 
	 	LANGLEY
      PARTNERS, L.P.
	 
 	 
 	 
 
		By:  	/s/ Jeffery
      Thorp
	 	
      

      Name: Jeffery Thorp
	 	Title: Managing Member
      of Langley
      Capital, LLP, its General Partner

 

 

[Signature Page to Securities Purchase
Agreement]

 

IN
WITNESS WHEREOF, each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

 

	 	 	 
	 	OTHER
      BUYERS:
	 	 
	 	
      JGB
      CAPITAL L.P.

	 
 	 
 	 
 
	 	By:  	
      /s/
      Brett Cohen

	 	
      

      Name: Brett Cohen
	 	Title: President
      JGB Management Inc., as General
Partner

 

 

[Signature Page to Securities Purchase
Agreement]

 

 

IN
WITNESS WHEREOF, each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

 

	 	 	 
	 	OTHER
      BUYERS:
	 	 
	 	SMITHFIELD FIDUCIARY
      LLC 
	 
 	 
 	 
 
		By:  	/s/ Adam
      J. Chill
	 	
      

      Name: Adam J. Chill
	 	Title: Authorized
      Signatory

 

[Signature Page to Securities Purchase
Agreement]

 

IN
WITNESS WHEREOF, each
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

 

	 	 	 
	 	OTHER
      BUYERS:
	 	 
	 	THE TAIL WIND FUND
    LTD. 
	 	 	 
	 	By: 	Tail Wind Advisory and Management Ltd., as
      investment manager 
	 
 	 
 	 
 
		By:  	/s/ David Crook
	 	
      

      Name: David Crook
	 	Title: CEO

 

[Signature Page to Securities Purchase
Agreement]

 

 

SCHEDULE
OF BUYERS

	
      (1)
	 	
       

      (2)
	 	
       

      (3)
	 	
       

      (4)
	 	
      (5)
	 	
      (6)
	 	
      (7)
	 	
      (8)

	
       

       

       

      Buyer
	 	
       

       

       

      Address
      and Facsimile Number
	 	
       

      Aggregate
      Number 

      of
      Preferred Shares
	 	
       

      Aggregate
      Number of Warrants
	 	
      Purchase
      Price
	 	
      Closing
      

      Payment
      Amount
	 	
      Account
      Control 

      Deposit
      Amount
	 	
       

      Legal
      Representative's

      Address
      and Facsimile Number

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
       

      Portside
      Growth & Opportunity Fund
	 	
      c/o
      Ramius Capital Group, LLC

      666
      Third Avenue, 26th
      Floor

      New
      York, New York 10017

      Attention:
      Jeffrey Smith

      Michael
      Neidell

      Facsimile:
      (212) 845-7999

      Telephone:
      (212) 845-7955

      E-mail:
      jsmith@ramius.com

      mneidell@ramius.com

      Residence:
      Cayman Islands
	 	
       

      3,100
	 	
       

      387,500
	 	
       

      $3,100,000
	 	
       

      $2,511,000.00
	 	
       

      $589,000.00
	 	
       

      Schulte
      Roth & Zabel LLP

      919
      Third Avenue

      New
      York, New York 10022

      Attention:
      Eleazer Klein, Esq.

      Facsimile:
      (212) 593-5955

      Telephone:
      (212) 756-2376

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
      Provident
      Premier Master Fund Ltd.
	 	
      c/o
      Gemini Investment Strategies,

      LLC

      35
      Waterview Blvd.

      Parsippany,
      NJ 07054

      Attention:
      Steven Winters

      Facsimile:
      (973) 404-1360

      Telephone:
      (973) 404-1350

      E-mail:
      Steve@GeminiStrategies.com

      Residence:
      Cayman Islands
	 	
       

      1,150
	 	
       

      143,750
	 	
       

      $1,150,000
	 	
       

      $931,500.00
	 	
       

      $218,500.00
	 	
       

      N/A

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
      Iroquois
      Master Fund Ltd.
	 	
      Iroquois
      Master Fund Ltd.

      641
      Lexington Ave.

      26th
      Floor

      New
      York, New York 10022

      Facsimile:
      (646) 274-1728

      Telephone:
      (212) 974-3070

      Attention:
      Joshua Silverman

      Residence:
      
	 	
       

      1,150
	 	
       

      143,750
	 	
       

      $1,150,000
	 	
       

      $931,500.00
	 	
       

      $218,500.00
	 	
       

      N/A

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
      Langley
      Partners, L.P.
	 	
      c/o
      Langley Capital, LLP

      535
      Madison Avenue

      7th
      Floor

      New
      York, NY 10022

      Attention:
      Jeffery Thorp

      Facsimile:
      (212) 850-7589

      Telephone:
      (212) 850-7528

      Email:
      JeffreyThorp@lcap.com

      Residence:
      New York

      State
      of Incorporation: Delaware
	 	
       

      1,150
	 	
       

      143,750
	 	
       

      $1,150,000
	 	
       

      $931,500.00
	 	
       

      $218,500.00
	 	
       

      N/A

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
      JGB
      Capital L.P.
	 	
      660
      Madison Avenue

      21st
      Floor

      New
      York, NY 10021

      Attention:
      Brett Cohen

      Everett
      Alexander

      Facsimile:
      (212) 253-4093

      Telephone:
      (212) 355-5771

      E-mail:
      bcohen@jgbcap.com
	 	
       

      1,150
	 	
       

      143,750
	 	
       

      $1,150,000
	 	
       

      $931,500.00
	 	
       

      $218,500.00
	 	
       

      N/A

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
      Smithfield
      Fiduciary LLC
	 	
      c/o
      Highbridge Capital Management, LLC

      9
      West 57th Street

      27th
      Floor

      New
      York, NY 10019

      Attention:
      Ari J. Storch  

      Adam
      J. Chill

      Facsimile:
      (212) 751-0755

      Telephone:
      (212) 287-4720

      Residence:
      Cayman Islands
	 	
      1,150
	 	
      143,750
	 	
      $1,150,000
	 	
      $931,500.00
	 	
      $218,500.00
	 	
      N/A

 

 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
      The
      Tail Wind Fund Ltd.
	 	
      Notices
      to the following address:

       

      The
      Tail Wind Fund Ltd.

      c/o
      Tail Wind Advisory and Management Ltd.

      Attn:
      David Crook 

      1st
      Floor, No. 1 Regent Street

      London,
      SW1Y 4NS UK

      Facsimile:
      44-207-468-7657

      Telephone:
      44-207-468-7660

      Email:
      dcrook@tailwindam.com 

       

      Any
      securities should be sent to the following address:

       

      The
      Tail Wind Fund Ltd.

      c/o
      The Bank of Nova Scotia Trust Company (Bahamas) Limited

      404
      East Bay Street

      Nassau,
      Bahamas

      Attention:
      Ngaire Strachan

      Facsimile:
      (242) 393-0582

      Telephone:
      (242) 393-8777

       

      Residence:
      British Virgin Islands
	 	
       

      1,150
	 	
       

      143,750
	 	
       

      $1,150,000
	 	
       

      $931,500.00
	 	
       

      $218,500.00
	 	
      Peter
      J. Weisman, P.C.

      335
      Madison Avenue, Suite 1702

      New
      York, NY 10017

      Telephone:
      212-418-4972

      Facsimile:
      212-317-8855

      Email:
      pweisman@pweisman.com 

	
      Total
	 	 	 	
       

      10,000
	 	
       

      1,250,000
	 	
       

      $10,000,000
	 	
       

      $8,100,000
	 	
       

      $1,900,000
	 	 

EXHIBITS

	
      Exhibit
      A
	
      Form
      of Certificate of Designations

	
      Exhibit
      B
	
      Form
      of Warrant

	
      Exhibit
      C
	
      Form
      of Registration Rights Agreement

	
      Exhibit
      D
	
      Form
      of Security Agreement

	
      Exhibit
      E
	
      Form
      of Account Control Agreement

	
      Exhibit
      F
	
      Form
      of Voting Agreement

	
      Exhibit
      G
	
      Form
      of Irrevocable Transfer Agent Instructions

	
      Exhibit
      H
	
      Form
      of Opinion of Company’s Counsel

	
      Exhibit
      I
	
      Form
      of Secretary's Certificate

	
      Exhibit
      J
	
      Form
      of Officers Certificate

SCHEDULES

	
      Schedule
      3(a)
	
      Subsidiaries

	
      Schedule
      3(l)
	
      Absence
      of Certain Changes

	
      Schedule
      3(n)
	
      Conduct
      of Business; Regulatory Permits

	
      Schedule
      3(q)
	
      Transaction
      with Affiliates

	
      Schedule
      3(r) 
	
      Equity
      Capitalization

	
      Schedule
      3(s)
	
      Indebtedness
      and Other Contracts

	
      Schedule
      3(t)
	
      Absence
      of Litigation

	
      Schedule
      3(w) 
	
      Title

	
      Schedule
      3(x)
	
      Intellectual
      Property RightsUnassociated Document

Exhibit
10.2

 

[FORM
OF WARRANT]

 

NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
FORM AND FROM COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER AND ITS COUNSEL, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

MILLENNIUM
CELL INC.

 

Warrant
To Purchase Common Stock

Warrant
No.: ____________   

Number of
Shares of Common Stock:_____________

Date of
Issuance: April 25, 2005 ("Issuance
Date")

Millennium
Cell Inc., a Delaware corporation (the "Company"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, [BUYER], the registered holder
hereof or its permitted assigns (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company, at
the Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the "Warrant"), at
any time or times on or after October 26, 2005, but not after 11:59 p.m., New
York time, on the Expiration Date (as defined below), ______________
(_____________)fully paid nonassessable shares of Common Stock (as defined
below) (the
"Warrant
Shares").
Except as otherwise defined herein, capitalized terms in this Warrant shall have
the meanings set forth in Section 15. This Warrant is one of the Warrants to
Purchase Common Stock (the "SPA
Warrants") issued
pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of
April 20, 2005 (the "Subscription
Date"), by
and among the Company and the investors (the "Buyers")
referred to therein (the "Securities
Purchase Agreement").

 

 

1.  EXERCISE
OF WARRANT.

 

(a)  Mechanics
of Exercise. Subject
to the terms and conditions hereof (including, without limitation, the
limitations set forth in Section 1(e)), this Warrant may be exercised by the
Holder on any day on or after October 26, 2005, in whole or in part, by
(i) delivery of a written notice, in the form attached hereto as
Exhibit
A (the
"Exercise
Notice"), of
the Holder's election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price multiplied by the
number of Warrant Shares as to which this Warrant is being exercised (the
"Aggregate
Exercise Price") in
cash or by wire transfer of immediately available funds to an account designated
by the Company or (B) by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The
Holder shall not be required to deliver the original Warrant in order to effect
an exercise hereunder. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
first Business Day following the date on which the Company has received each of
the Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (the "Exercise
Delivery Documents"), the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Delivery Documents to the Holder and the Company's transfer
agent (the "Transfer
Agent"). On or
before the third Business Day following the date on which the Company has
received all of the Exercise Delivery Documents (the "Share
Delivery Date"), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of the Holder, credit
such aggregate number of Warrant Shares to which the Holder is entitled pursuant
to such exercise to the Holder's or its designee's balance account with DTC
through its Deposit Withdrawal Agent Commission System, or (Y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer
Program, issue and dispatch by overnight courier to the address as specified in
the Exercise Notice, a certificate dated the date of such exercise and
registered in the Company's share register in the name of the Holder or its
designee, for the number of Warrant Shares to which the Holder is entitled
pursuant to such exercise. Upon delivery of the Exercise Delivery Documents, the
Holder shall be deemed, to the extent permitted by applicable law, for all
corporate purposes to have become the holder of record of the Warrant Shares
with respect to which this Warrant has been exercised, irrespective of the date
such Warrant Shares are credited to the Holder's DTC balance account or the date
of delivery of the certificates evidencing such Warrant Shares, as the case may
be. If this Warrant is submitted in connection with any exercise pursuant to
this Section 1(a) and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as practicable and in
no event later than three (3) Business Days after any exercise and at its own
expense, issue a new Warrant (issued in accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares purchasable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
shares of Common Stock are to be issued upon the exercise of this Warrant, but
rather the number of shares of Common Stock to be issued shall be rounded up to
the nearest whole number. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant. 

 

-2-

 

(b)  Exercise
Price. For
purposes of this Warrant, "Exercise
Price" means
$2.00, subject to adjustment as provided herein.

 

(c)  Company's
Failure to Timely Deliver Securities. Subject
to Section 1(f), if within three (3) Business Days after the Company's receipt
of the Exercise Delivery Documents, the Company shall fail to issue and deliver
a certificate to the Holder for the number of Warrant Shares to which such
Holder is entitled or to credit the Holder's balance account with DTC for the
number of Warrant Shares to which the Holder is entitled upon such holder's
exercise hereunder, and if on or after such third Business Day but prior to the
Company's cure of such failure, the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of shares of Common Stock issuable upon such exercise that
the Holder anticipated receiving from the Company (a "Buy-In"), then
the Company shall, within three (3) Business Days after the Holder's request and
in the Holder's discretion, either (i) pay cash to the Holder in an amount equal
to the Holder's total purchase price (including reasonable brokerage
commissions, if any) for the shares of Common Stock so purchased (the
"Buy-In
Price"), at
which point the Company's obligation to deliver such certificate (and to issue
such Warrant Shares) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such Warrant
Shares and pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of Warrant Shares, times
(B) the Closing Bid Price on the date of exercise.

 

(d)  Cashless
Exercise.
 Notwithstanding
anything contained herein to the contrary, if a Registration Statement (as
defined in the Registration Rights Agreement) covering the Warrant Shares that
are the subject of the Exercise Notice (the "Unavailable
Warrant Shares") is not
then in effect, the Holder may, in its sole discretion, exercise this Warrant in
whole or in part and, in lieu of making the cash payment of the Aggregate
Exercise Price, elect instead to receive upon such exercise the "Net Number" of
shares of Common Stock determined according to the following formula (a
"Cashless
Exercise"):

 

Net
Number = (A x
B) - (A x C)

 

B

 

For
purposes of the foregoing formula:

 

A= the
total number of shares with respect to which this Warrant is then being
exercised.

 

B= the
Closing Sale Price of the shares of Common Stock (as reported by Bloomberg) on
the date immediately preceding the date of the Exercise Notice.

 

C= the
Exercise Price then in effect for the applicable Warrant Shares at the time of
such exercise.

(e)  Disputes. In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 12.

 

-3-

 

(f)  Limitations
on Exercises.

 

(i)    
Beneficial
Ownership. The
Company shall not effect the exercise of this Warrant, and the Holder shall not
have the right to exercise this Warrant, to the extent that after giving effect
to such exercise, the Holder (together with the Holder's affiliates) would
beneficially own in excess of 4.99% of the number of shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned by such Person and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such sentence is being made, but shall exclude shares
of Common Stock which would be issuable upon (i) exercise of the remaining,
unexercised portion of this Warrant beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by such Person
and its affiliates (including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein. Except as set forth in
the preceding sentence, for purposes of this paragraph, beneficial ownership
shall be calculated in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended. For purposes of this Warrant, in determining the number
of outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the
Securities and Exchange Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of the Holder, the
Company shall within two Business Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including the
SPA Securities and the SPA Warrants, by the Holder and its affiliates since the
date as of which such number of outstanding shares of Common Stock was reported.
By written notice to the Company, the Holder may increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% specified in
such notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day
after such notice is delivered to the Company, and (ii) any such increase or
decrease will apply only to the Holder and not to any other holder of SPA
Warrants.

 

-4-

 

 (ii)     
Principal
Market Regulation. The
Company shall not be obligated to issue any Warrant Shares upon exercise of this
Warrant if the issuance of such Warrant Shares would exceed that number of
shares of Common Stock which the Company may issue upon exercise of this Warrant
(including, as applicable, any shares of Common Stock issued upon conversion or
exercise of the SPA Securities) without breaching the Company's obligations
under the rules or regulations of the Principal Market (the "Exchange
Cap"),
except that such limitation shall not apply in the event that the Company (A)
obtains the approval of its stockholders as required by the applicable rules of
the Principal Market for issuances of shares of Common Stock in excess of such
amount or (B) obtains a written opinion from outside counsel to the Company that
such approval is not required, which opinion shall be reasonably satisfactory to
the Required Holders. Until such approval or written opinion is obtained, no
Buyer shall be issued, in the aggregate, upon conversion of Preferred Shares, or
exercise of this Warrant or as dividends, shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the total number of shares of Common Stock underlying this
Warrant issued to such Buyers pursuant to the Securities Purchase Agreement on
the Issuance Date and the denominator of which is the aggregate number of shares
of Common Stock underlying the SPA Warrants issued to the Buyers pursuant to the
Securities Purchase Agreement on the Issuance Date (with respect to each Buyer,
the "Exchange
Cap Allocation"). In
the event that any Buyer shall sell or otherwise transfer any of such Buyer's
SPA Warrants, the transferee shall agree in writing to be bound by the Exchange
Cap and shall be allocated a pro rata portion of such Buyer's Exchange Cap
Allocation, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation allocated
to such transferee. In the event that any holder of SPA Warrants shall exercise
all of such holder's SPA Warrants into a number of shares of Common Stock which,
in the aggregate, is less than such holder's Exchange Cap Allocation, then the
difference between such holder's Exchange Cap Allocation and the number of
shares of Common Stock actually issued to such holder shall be allocated to the
respective Exchange Cap Allocations of the remaining holders of SPA Warrants on
a pro rata basis in proportion to the shares of Common Stock underlying the SPA
Warrants then held by each such holder. In the event that the Company is
prohibited from issuing any Warrant Shares for which an Exercise Notice has been
received as a result of the operation of this Section 1(e)(ii), the Company
shall pay cash in exchange for cancellation of such Warrant Shares, at a price
per Warrant Share equal to the difference between the Closing Sale Price and the
Exercise Price as of the date of the attempted exercise.

 

-5-

 

2.  ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price shall be adjusted from time to time as follows:

 

(a)  Adjustment
upon Issuance of shares of Common Stock. If and
whenever on or after the Subscription Date the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the Certificate of Designations)) for a consideration
per share less than a price (the "Applicable
Price") equal
to the Exercise Price in effect immediately prior to such issue or sale or
deemed issuance or sale (the foregoing a "Dilutive
Issuance"), then
immediately after such Dilutive Issuance, the Exercise Price then in effect
shall be reduced to an amount equal to the
product of (A) the Exercise Price in effect immediately prior to such
Dilutive Issuance and (B) the quotient determined by dividing (1) the
sum of (I) the product derived by multiplying the Exercise Price in effect
immediately prior to such Dilutive Issuance and the number of shares of Common
Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus
(II) the consideration, if any, received by the Company upon such Dilutive
Issuance, by (2) the product derived by multiplying (I) the Exercise Price
in effect immediately prior to such Dilutive Issuance by (II) the number of
shares of Common Stock Deemed Outstanding immediately after such Dilutive
Issuance. For
purposes of determining the adjusted Exercise Price under this Section 2(a), the
following shall be applicable:

 

(i)    
Issuance
of Options. If the
Company in any manner grants any Options and the lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion, exercise or exchange of any Convertible Securities issuable
upon exercise of any such Option is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the granting or sale of such Option for
such price per share. For purposes of this Section 2(a)(i), the "lowest price
per share for which one share of Common Stock is issuable upon exercise of such
Options or upon conversion, exercise or exchange of such Convertible Securities"
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of the Option and
upon conversion, exercise or exchange of any Convertible Security issuable upon
exercise of such Option. Except as provided in Section 2(a)(ii), no further
adjustment of the Exercise Price shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities. 

 

-6-

(ii)    
Issuance
of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the purposes of this
Section 2(a)(ii), the "lowest price per share for which one share of Common
Stock is issuable upon the conversion, exercise or exchange" shall be equal to
the sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to one share of Common Stock upon the issuance or
sale of the Convertible Security and upon conversion, exercise or exchange of
such Convertible Security. No further adjustment of the Exercise Price shall be
made upon the actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue or sale.

 

(iii)    
Change
in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exercisable or exchangeable for shares of Common Stock increases or decreases
at any time, the Exercise Price in effect at the time of such increase or
decrease shall be adjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or increased or
decreased conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 2(a)(iii), if the terms of any
Option or Convertible Security that was outstanding as of the date of issuance
of this Warrant are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
shares of Common Stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such increase or
decrease. No adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price then in effect or a
decrease in the number of Warrant Shares.

 

-7-

 

(iv)    
Calculation
of Consideration Received. In case
any Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01. If any shares
of Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor will
be deemed to be the net amount received by the Company therefor. If any shares
of Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such security on the
date of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such shares of Common Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or securities will be
determined jointly by the Company and the Required Holders. If such parties are
unable to reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the "Valuation
Event"), the
fair value of such consideration will be determined within five (5) Business
Days after the tenth day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Required Holders.
The determination of such appraiser shall be final and binding upon all parties
absent manifest error. The reasonable expenses of such appraiser in making such
determination shall be paid by the Company in the event the Holder's calculation
was correct, or by the Holder in the event the Company's calculation was
correct, or equally by the Company and the Holder in the event that neither the
Company's or the Holder's calculation was correct.

 

(v)    
Record
Date. If the
Company takes a record of the holders of shares of Common Stock for the purpose
of entitling them (A) to receive a dividend or other distribution payable
in shares of Common Stock, Options or in Convertible Securities or (B) to
subscribe for or purchase shares of Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

 

-8-

 

(b)  Adjustment
upon Subdivision or Combination of shares of Common Stock. If the
Company at any time on or after the Subscription Date subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Exercise
Price in effect immediately prior to such subdivision will be proportionately
reduced and the number of Warrant Shares will be proportionately increased. If
the Company at any time on or after the Subscription Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes
effective.

 

(c)  Other
Events. If any
event occurs of the type contemplated by the provisions of this Section 2 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and, if the event is of the type
contemplated by Section 2(b), the number of Warrant Shares so as to protect the
rights of the Holder; provided that no such adjustment pursuant to this Section
2(c) will increase the Exercise Price or, if the event is of the type
contemplated by Section 2(b), decrease the number of Warrant Shares as otherwise
determined pursuant to this Section 2.

 

3.  RIGHTS
UPON DISTRIBUTION OF ASSETS. If the
Company shall declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common Stock, by way
of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"), at
any time after the issuance of this Warrant, then, in each such
case:

 

(a)  any
Exercise Price in effect immediately prior to the close of business on the
record date fixed for the determination of holders of shares of Common Stock
entitled to receive the Distribution shall be reduced, effective as of the close
of business on such record date, to a price determined by multiplying such
Exercise Price by a fraction of which (i) the numerator shall be the Closing Bid
Price of the shares of Common Stock on the trading day immediately preceding
such record date minus the value of the Distribution (as determined in good
faith by the Company's Board of Directors) applicable to one share of Common
Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of
Common Stock on the trading day immediately preceding such record date;
and

 

-9-

 

(b)  the
number of Warrant Shares shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of shares of
Common Stock entitled to receive the Distribution multiplied by the reciprocal
of the fraction set forth in the immediately preceding paragraph (a); provided
that in the event that the Distribution is of shares of Common Stock (or common
stock) ("Other
Shares of Common Stock") of a
company whose common shares are traded on a national securities exchange or a
national automated quotation system, then the Holder may elect to receive a
warrant to purchase Other Shares of Common Stock in lieu of an increase in the
number of Warrant Shares, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the number of shares
of Other Shares of Common Stock that would have been payable to the Holder
pursuant to the Distribution had the Holder exercised this Warrant immediately
prior to such record date and with an aggregate exercise price equal to the
product of the amount by which the exercise price of this Warrant was decreased
with respect to the Distribution pursuant to the terms of the immediately
preceding paragraph (a) and the number of Warrant Shares calculated in
accordance with the first part of this paragraph (b).

 

4.  PURCHASE
RIGHTS; FUNDAMENTAL TRANSACTIONS.

 

(a)  Purchase
Rights. In
addition to any adjustments pursuant to Section 2 above, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the "Purchase
Rights"), then
the Holder will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of shares of Common Stock are
to be determined for the grant, issue or sale of such Purchase
Rights.

 

(b)  Fundamental
Transactions. The
Company shall not enter into or be party to a Fundamental Transaction unless
(i)  the Successor Entity assumes in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance
with the provisions of this Section (4)(b) pursuant to written agreements in
connection with the closing of such Fundamental Transaction, including
agreements to deliver to each holder of Warrants in exchange for such Warrants a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant, including, without limitation, an
adjusted exercise price equal to the value for the shares of Common Stock
reflected by the terms of such Fundamental Transaction, and exercisable for a
corresponding number of shares of capital stock equivalent to the shares of
Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant), and (ii) the
Successor Entity (including its Parent Entity) is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market.
Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Warrant referring to the
"Company" shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Warrant with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of the Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon exercise of this Warrant at any
time after the consummation of the Fundamental Transaction, in lieu of the
shares of the Common Stock (or other
securities, cash, assets or other property) purchasable
upon the exercise of the Warrant
prior to
such Fundamental Transaction, such
shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction had this Warrant been
converted immediately prior to such Fundamental Transaction, as adjusted in
accordance with the provisions of this Warrant.
In
addition to and not in substitution for any other rights hereunder, prior to the
consummation of any Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a "Corporate
Event"), the
Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon an exercise of this Warrant
at any
time after the consummation of the
Fundamental Transaction but prior
to the Expiration Date, in lieu
of the shares of the Common Stock (or other
securities, cash, assets or other property) purchasable
upon the exercise of the Warrant prior to such Fundamental
Transaction, such
shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction had the Warrant been exercised immediately prior to such Fundamental
Transaction. Provision
made pursuant to the preceding sentence shall be in a form and substance
reasonably satisfactory to the Required Holders (such approval not to be
unreasonably withheld or delayed). The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise of
this Warrant.

 

-10-

 

5.  NONCIRCUMVENTION. The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the Holder. Without limiting
the generality of the foregoing, the Company (i) shall not increase the par
value of any shares of Common Stock receivable upon the exercise of this Warrant
above the Exercise Price then in effect, (ii) shall take all such actions
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants
are outstanding, take all action necessary to reserve and keep available out of
its authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the SPA Warrants, 130% of the number of shares of
Common Stock as shall from time to time be necessary to effect the exercise of
the SPA Warrants then outstanding (without regard to any limitations on
exercise).

 

6.  WARRANT
HOLDER NOT DEEMED A STOCKHOLDER. Except
as otherwise specifically provided herein, the Holder, solely in such Person's
capacity as a holder of this Warrant, shall not be entitled to vote or receive
dividends or be deemed the holder of share capital of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the Holder, solely in such Person's capacity as the Holder of this Warrant,
any of the rights of a stockholder of the Company or any right to vote, give or
withhold consent to any corporate action (whether any reorganization, issue of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares
which such Person is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on the Holder to purchase any securities (upon exercise
of this Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.

 

-11-

 

7.  REISSUANCE
OF WARRANTS.

 

(a)  Transfer
of Warrant. If this
Warrant is to be transferred, the Holder shall surrender this Warrant to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Warrant (issued in accordance with Section 7(d)), registered
as the Holder may request, representing the right to purchase the number of
Warrant Shares being transferred by the Holder and, if less then the total
number of Warrant Shares then underlying this Warrant is being transferred, a
new Warrant (issued in accordance with Section 7(d)) to the Holder representing
the right to purchase the number of Warrant Shares not being
transferred.

 

(b)  Lost,
Stolen or Mutilated Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the Holder to
the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Warrant, the Company shall execute and deliver to the
Holder a new Warrant (issued in accordance with Section 7(d)) representing the
right to purchase the Warrant Shares then underlying this Warrant.

 

(c)  Exchangeable
for Multiple Warrants. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Warrant or Warrants (issued in
accordance with Section 7(d)) representing in the aggregate the right to
purchase the number of Warrant Shares then underlying this Warrant, and each
such new Warrant will represent the right to purchase such portion of such
Warrant Shares as is designated by the Holder at the time of such surrender;
provided, however, that no Warrants for fractional shares of Common Stock shall
be given.

 

(d)  Issuance
of New Warrants.
Whenever the Company is required to issue a new Warrant pursuant to the terms of
this Warrant, such new Warrant (i) shall be of like tenor with this Warrant,
(ii) shall represent, as indicated on the face of such new Warrant, the right to
purchase the Warrant Shares then underlying this Warrant (or in the case of a
new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant
Shares designated by the Holder which, when added to the number of shares of
Common Stock underlying the other new Warrants issued in connection with such
issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) shall have an issuance date, as indicated on the face of such
new Warrant which is the same as the Issuance Date, and (iv) shall have the same
rights and conditions as this Warrant.

 

-12-

 

8.  NOTICES.
Whenever notice is required to be given under this Warrant, unless otherwise
provided herein, such notice shall be given in accordance with Section 9(f) of
the Securities Purchase Agreement. The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Exercise Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen days prior to the date on which the Company
closes its books or takes a record of the holders of shares of Common Stock (A)
with respect to any dividend or distribution upon the shares of Common Stock,
(B) with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to holders of shares of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.

 

9.  AMENDMENT
AND WAIVER. Except
as otherwise provided herein, the provisions of this Warrant may be amended and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company has obtained the
written consent of the Required Holders and any such amendment or action so
approved shall be binding upon all existing and future Holders of this Warrant;
provided that no such action may increase the exercise price of any SPA Warrant
or decrease the number of shares or class of stock obtainable upon exercise of
any SPA Warrant without the written consent of the Holder. No such amendment
shall be effective to the extent that it applies to less than all of the holders
of the SPA Warrants then outstanding.

 

10.  GOVERNING
LAW. This
Warrant shall be governed by and construed and enforced in accor-dance with, and
all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.

 

11.  CONSTRUCTION;
HEADINGS. This
Warrant shall be deemed to be jointly drafted by the Company and all the Buyers
and shall not be construed against any person as the drafter hereof. The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.

 

12.  DISPUTE
RESOLUTION. In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall instruct the
Transfer Agent to issue to the Holder the number of shares of Common Stock that
is not disputed and shall transmit an explanation of the disputed determinations
or arithmetic calculations to the Holder via facsimile as soon as possible, but
in no event later than two (2) Business Day after receipt of such Holder's
Exercise Notice or other date of determination. If such Holder and the Company
are unable to agree upon the determination of the Exercise Price or arithmetic
calculation of the Warrant Shares within two (2) Business Days of such disputed
determination or arithmetic calculation being transmitted to the Holder, then
the Company shall within one (1) Business Day of such two (2) Business Day
period submit via facsimile (A) the disputed determination of the Exercise Price
to an independent, reputable investment bank selected by the Company and
approved by the Holder or (B) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant. The Company shall cause
the investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than two (2) Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent error. The reasonable expenses of such investment bank or
accountant in making such determination shall be paid by the Company in the
event the holder's calculation was correct, or by the Holder in the event the
Company's calculation was correct, or equally by the Company and the Holder in
the event that neither the Company's or the holder's calculation was
correct.

 

-13-

 

13.  REMEDIES,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

 

14.  TRANSFER.This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(f) of
the Securities Purchase Agreement.

 

15.  CERTAIN
DEFINITIONS. For
purposes of this Warrant, the following terms shall have the following
meanings:

 

(a)  "Bloomberg" means
Bloomberg Financial Markets.

 

(b)  "Business
Day" means
any day other than Saturday, Sunday or other day on which commercial banks in
The City of New York are authorized or required by law to remain
closed.

 

(c)  "Certificate
of Designations" means
the Certificate of Designations, Preferences and Rights of Series C Convertible
Preferred Stock of the Company.

 

-14-

 

(d)  "Closing
Bid Price" and
"Closing
Sale Price" means,
for any security as of any date, the last closing bid price and last closing
trade price, respectively, for such security on the Principal Market, as
reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved pursuant to
Section 12. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.

 

(e)  "Common
Stock" means
(i) the Company's shares of Common Stock, par value $0.001 per share, and
(ii) any share capital into which such Common Stock shall have been changed
or any share capital resulting from a reclassification of such Common
Stock.

 

(f)  "Common
Stock Deemed Outstanding" means,
at any given time, the number of shares of Common Stock actually outstanding at
such time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the
Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of the
Company or issuable upon conversion and exercise, as applicable, of the SPA
Securities and the Warrants.

 

(g)  "Convertible
Securities" means
any stock or securities (other than Options) directly or indirectly convertible
into or exercisable or exchangeable for shares of Common Stock.

 

(h)  "Eligible
Market" means
the Principal Market, The New York Stock Exchange, Inc., the American Stock
Exchange or the Nasdaq National Market.

 

(i)  "Expiration
Date" means
the date thirty-six months after the Issuance Date or, if such date falls on a
day other than a Business Day, the next date that is a Business
Day.

 

-15-

 

(j)  "Fundamental
Transaction" means
that the Company shall, directly or indirectly, in one or more related
transactions, (i) consolidate or merge with or into (whether or not the Company
is the surviving corporation) another Person, or (ii) sell, assign, transfer,
convey or otherwise dispose of all or substantially all of the properties or
assets of the Company to another Person, or (iii) allow another Person to make a
purchase, tender or exchange offer that is accepted by the holders of more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the Person or Persons making or party to, or associated or
affiliated with the Persons making or party to, such purchase, tender or
exchange offer), or (iv) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than the 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock purchase agreement or other business combination), or (v)
reorganize, recapitalize or reclassify its Common Stock. A Fundamental
Transaction shall not be deemed to include any of the transactions contemplated
by the Stock Purchase Agreement between the Company and The Dow Chemical Company
dated as of February 27, 2005 as amended prior to the Issuance Date, and not
amended in any respect material to the Holders after the Issuance
Date.

 

(k)  "Options" means
any rights, warrants or options to subscribe for or purchase shares of Common
Stock or Convertible Securities.

 

(l)  "Parent
Entity" of a
Person means an entity that, directly or indirectly, controls the applicable
Person and whose common stock or equivalent equity security is quoted or listed
on an Eligible Market, or, if there is more than one such Person or Parent
Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental
Transaction.

 

(m)  "Person" means
an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, any other entity and a
government or any department or agency thereof.

 

(n)  "Principal
Market" means
The Nasdaq SmallCap Market.

 

(o)  "Registration
Rights Agreement" means
that certain registration rights agreement by and among the Company and the
Buyers.

 

(p)  "Required
Holders" means
the holders of the SPA Warrants representing at least a majority of shares of
Common Stock underlying the SPA Warrants then outstanding.

 

(q)  "SPA
Securities" means
the Series C Convertible Preferred Shares issued pursuant to the Securities
Purchase Agreement.

 

(r)  "Successor
Entity" means
the Person (or, if so elected by the Required Holders, the Parent Entity) formed
by, resulting from or surviving any Fundamental Transaction or the Person (or,
if so elected by the Required Holders, the Parent Entity) with which such
Fundamental Transaction shall have been entered into.

 

 

-16-

 

[Signature
Page Follows]

 

-17-

 

IN
WITNESS WHEREOF, the
Company has caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.

	 	 	 
	 	MILLENNIUM CELL
  INC.
	 
 	 
 	 
 
		By:  	
	 	
      

      Name:
	 	Title: 

 

EXHIBIT
A

EXERCISE
NOTICE

 

TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT
TO PURCHASE COMMON STOCK

 

MILLENNIUM
CELL INC.

 

The
undersigned holder hereby exercises the right to purchase _________________ of
the shares of Common Stock ("Warrant
Shares") of
Millennium Cell Inc., a Delaware corporation (the "Company"),
evidenced by the attached Warrant to Purchase Common Stock (the "Warrant").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

1. Form
of Exercise Price. The Holder intends that payment of the Exercise Price shall
be made as:

____________ a
"Cash
Exercise" with
respect to _________________ Warrant Shares; and/or

____________ a
"Cashless
Exercise" with
respect to _______________ Warrant Shares.

2.
Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the
Warrant.

3.
Delivery of Warrant Shares. The Company shall deliver to the holder __________
Warrant Shares in accordance with the terms of the Warrant.

	Date:	_______________ __, ______ 
	 	 

 

	 
	
      Name of Registered
Holder 

 

	By: 	
	 	Name:	 
	 	
      Title:
	 
	 	 

 

 

 

ACKNOWLEDGMENT

 

The
Company hereby acknowledges this Exercise Notice and hereby directs American
Stock Transfer & Trust Company to issue the above indicated number of shares
of Common Stock in accordance with the Transfer Agent Instructions dated April
25, 2005 from the Company and acknowledged and agreed to by American Stock
Transfer & Trust Company.

 

	 	 	 
	 	MILLENNIUM CELL
      INC.
	 
 	 
 	 
 
		By:  	
	 	
      

      Name:
	 	Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00083-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00083-of-00352.parquet"}]]