Document:

Exhibit
4.1

[Form
of]

DESIGNATIONS OF PREFERENCES,

LIMITATIONS,
AND RELATIVE RIGHTS OF SERIES A

CONVERTIBLE
PREFERRED STOCK OF

MILLENNIUM
CELL INC.

Pursuant
to authority granted in the certificate of incorporation, as amended (the
“Certificate
of Incorporation”),
of Millennium
Cell Inc. (the
“Corporation”) and
Section 102 of the Delaware General Corporation Law (the “DGCL”),
the Corporation has been authorized to issue in series [____________] shares
of preferred stock of the Corporation, par value $0.001 per share (the
“Preferred
Stock”), and to designate the terms, preferences, limitations and
relative rights of each series established. By resolution of the required vote
of the Board of Directors of the Corporation, the Corporation has established
and fixed the preferences, powers, limitations and relative rights
of
[_______]
shares
of Preferred Stock designated as “Series A-0 Convertible Preferred Stock,” par
value $0.001 per share (the “Series
A-0 Preferred Stock”),
[__________] shares
of Preferred Stock designated as “Series A-1 Convertible Preferred Stock,” par
value $0.001 per share (the “Series
A-1 Preferred Stock”),
[__________] shares
of Preferred Stock designated as “Series A-2 Convertible Preferred Stock,” par
value $0.001 per share (the “Series
A-2 Preferred Stock”),
[__________] shares
of Preferred Stock designated as “Series A-3 Convertible Preferred Stock,” par
value $0.001 per share (the “Series
A-3 Preferred Stock”),
and [__________] shares
of Preferred Stock designated as “Series A-4 Convertible Preferred Stock,” par
value $0.001 per share, (the “Series
A-4 Preferred Stock,”
and together with the Series A-0 Series Preferred Stock, the Series A-1
Preferred Stock, the Series A-2 Preferred Stock and the Series A-3 Preferred
Stock, the “Series
A Preferred Stock”).

 

For
the purposes of these Designations (as defined below), the following terms shall
have the meanings specified:

 

“Applicable
Conversion Price”
shall mean the Series A-0 Conversion Price, the Series A-1 Conversion Price, the
Series A-2 Conversion Price, the Series A-3 Conversion Price or the Series A-4
Conversion Price, as applicable.

 

“Applicable
Conversion Value”
shall mean the Series A-0 Conversion Value, the Series A-1 Conversion Value, the
Series A-2 Conversion Value, the Series A-3 Conversion Value or the Series A-4
Conversion Value, as applicable.

 

“Applicable
Issue Date”
shall mean the Series A-0 Issue Date, Series A-1 Issue Date, the Series A-2
Issue Date, the Series A-3 Issue Date or the Series A-4 Issue Date, as
applicable.

 

“Applicable
Liquidation Value”
shall mean the Series A-0 Liquidation Value, the Series A-1 Liquidation Value,
the Series A-2 Liquidation Value, the Series A-3 Liquidation Value or the Series
A-4 Liquidation Value, as applicable.

 

“Board
of Directors”
shall mean the board of directors of the Corporation.

 

1

“Common
Stock”
shall mean the common stock of the Corporation, par value $0.001 per
share.

 

“Designations”
shall mean the terms, preferences, limitations and relative rights of the Series
A Preferred Stock established hereby and set forth herein.

 

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

 

“Joint
Development Agreement”
shall mean that certain Joint Development Agreement to be dated on or about the
date hereof, by and among the Corporation and TDCC.

 

“Liquidation”
shall have the meaning provided in Section (b).

 

“Milestone
4”
shall have the meaning provided in the Joint Development Agreement.

 

“Minimum
Trading Volume”
shall mean the product of the (x) average daily trading volume for Common Stock
during calendar years 2003 and 2004 multiplied by (y) fifteen (15).

 

“Person”
means any individual, firm, corporation, partnership, trust, limited liability
company, incorporated or unincorporated association, joint venture, joint stock
company, or other entity of any kind, and shall include any successor (by merger
or otherwise) of any such entity.

 

“Purchase
Agreement”
shall mean that certain Stock Purchase Agreement to be dated on or about
February 24, 2005, by and among the Corporation and TDCC, pursuant to which the
issuances of shares of Series A Preferred Stock is to occur.

 

“Sale
or Merger”
shall have the meaning specified in Section (b).

 

“Securities
Act”
shall mean the Securities Act of 1933, as amended.

 

“Series
A-0 Conversion Price”
shall mean the Series A-0 Liquidation Value subject to adjustment as provided in
Section
(d).

 

“Series
A-0 Conversion Value”
shall mean the product of (A) the Series A-0 Liquidation Value multiplied by (B)
ten (10).

 

“Series
A-0 Issue Date”
shall mean the date on which the shares of Series A-0 Preferred Stock are
actually issued pursuant to the Purchase Agreement.

 

2

“Series
A-0 Liquidation Value”
shall mean the value equal to the VWAP of the Common Stock for the thirty
(30)-trading day period immediately preceding the Series A-0 Issue Date (as
adjusted for any stock dividends, combinations, stock splits or similar
recapitalization events).

 

“Series
A-1 Conversion Price”
shall mean the Series A-1 Liquidation Value subject to adjustment as provided in
Section
(d).

 

“Series
A-1 Conversion Value”
shall mean the product of (A) the Series A-1 Liquidation Value multiplied by (B)
ten (10).

 

“Series
A-1 Issue Date”
shall mean the date on which the shares of Series A-1 Preferred Stock are
actually issued pursuant to the Purchase Agreement.

 

“Series
A-1 Liquidation Value”
shall mean the value equal to the VWAP of the Common Stock for the thirty
(30)-trading day period immediately preceding the Series A-1 Issue Date (as
adjusted for any stock dividends, combinations, stock splits or similar
recapitalization events).

 

“Series
A-2 Conversion Price”
shall mean the Series A-2 Liquidation Value subject to adjustment as provided in
Section
(d).

 

“Series
A-2 Conversion Value”
shall mean the product of (A) the Series A-2 Liquidation Value multiplied by (B)
ten (10).

 

“Series
A-2 Issue Date”
shall mean the date on which the shares of Series A-2 Preferred Stock are
actually issued pursuant to the Purchase Agreement.

 

“Series
A-2 Liquidation Value”
shall mean the value equal to the VWAP of the Common Stock for the thirty
(30)-trading day period immediately preceding the Series A-2 Issue Date (as
adjusted for any stock dividends, combinations, stock splits or similar
recapitalization events).

 

“Series
A-3 Conversion Price”
shall mean the Series A-3 Liquidation Value subject to adjustment as provided in
Section
(d).

 

“Series
A-3 Conversion Value”
shall mean the product of (A) the Series A-3 Liquidation Value multiplied by (B)
ten (10).

 

“Series
A-3 Issue Date”
shall mean the date on which the shares of Series A-3 Preferred Stock are
actually issued pursuant to the Purchase Agreement.

 

“Series
A-3 Liquidation Value”
shall mean the value equal to the VWAP of the Common Stock for the thirty
(30)-trading day period immediately preceding the Series A-3 Issue Date (as
adjusted for any stock dividends, combinations, stock splits or similar
recapitalization events).

 

3

“Series
A-4 Conversion Price”
shall mean the Series A-4 Liquidation Value subject to adjustment as provided in
Section
(d).

 

“Series
A-4 Conversion Value”
shall mean the product of (A) the Series A-4 Liquidation Value multiplied by (B)
ten (10).

 

“Series
A-4 Issue Date”
shall mean the date on which the shares of Series A-4 Preferred Stock are
actually issued pursuant to the Purchase Agreement.

 

“Series
A-4 Liquidation Value”
shall mean the value equal to the VWAP of the Common Stock for the thirty
(30)-trading day period immediately preceding the Series A-4 Issue Date (as
adjusted for any stock dividends, combinations, stock splits or similar
recapitalization events).

 

“Series
B Designations”
shall mean the terms, preferences, limitations and relative rights of the Series
B Preferred Stock established thereby and set forth therein.

 

“Series
B Preferred Stock”
shall mean the Series B Convertible Preferred Stock of the Corporation, par
value $0.001 per share.

 

“TDCC”
shall mean The Dow Chemical Company, a Delaware corporation.

 

“Trading
Market”
shall mean any of the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market or the Nasdaq Smallcap Market.

 

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

 

The
Designations granted to and imposed upon the Series A Preferred Stock are as
follows:

 

(a)  Dividend
Rights.
The holders of shares of Series A Preferred Stock shall not be entitled to any
dividends.

 

(b)  Liquidation
Rights.

 

(1)  In
the event of:

 

4

(A)  
the liquidation, dissolution or winding up of the Corporation, or such of the
Corporation’s subsidiaries the assets of which constitute all or substantially
all the assets of the business of the Corporation and its subsidiaries taken as
a whole, in a single transaction or series of related transactions (a
“Liquidation”),
or

 

(B)  a
Sale or Merger (as defined below),

 

each
holder of Series A Preferred Stock then outstanding shall be entitled to receive
on a pari passu basis with the holders of Series B Preferred Stock, out of the
assets of the Corporation available for distribution to its stockholders, before
any payment shall be made in respect of all other classes of capital stock
ranking junior on liquidation to the Series A Preferred Stock and Series B
Preferred Stock, an amount equal to the sum of: (i) the number of outstanding
shares of Series A-0 Preferred Stock held by such holder of Series A Preferred
Stock multiplied by the Series A-0 Liquidation Value, (ii) the number of
outstanding shares of Series A-1 Preferred Stock, if any, held by such holder of
Series A Preferred Stock multiplied by the Series A-1 Liquidation Value, (iii)
the number of outstanding shares of Series A-2 Preferred Stock, if any, held by
such holder of Series A Preferred Stock multiplied by the Series A-2 Liquidation
Value, (iv) the number of outstanding shares of Series A-3 Preferred Stock, if
any, held by such holder of Series A Preferred Stock multiplied by the Series
A-3 Liquidation Value and (v) the number of outstanding shares of Series A-4
Preferred Stock, if any, held by such holder of Series A Preferred Stock
multiplied by the Series A-4 Liquidation Value (the “Series
A Liquidation Preference”).
 After
payment of (i) the Series A Liquidation Preference to each holder of Series A
Preferred Stock and (ii) the Series B Liquidation Preference (as defined in the
Series B Designations) to each holder of Series B Preferred Stock, any remaining
assets and property of the Corporation available for distribution to
stockholders shall be distributed pro rata among the holders of Common Stock,
other classes of capital stock ranking junior in Liquidation to the Series A
Preferred Stock and the Series B Preferred Stock, Series A Preferred Stock and
Series B Preferred Stock, treating for purposes of such distribution each share
of Series A Preferred Stock or Series B Preferred Stock as such number of shares
of Common Stock into which such share of Series A Preferred Stock or Series B
Preferred Stock, as the case may be, would be convertible into under the
circumstances described in Section (d) of these Designations or the Series B Designations, as applicable,
on the record date for any such distribution.

 

(2)  To
the extent necessary, the Corporation shall cause such actions to be taken by
any of its subsidiaries so as to enable, to the maximum extent permitted by law,
the proceeds of a Liquidation or a Sale or Merger to be distributed to the
holders of shares of Series A Preferred Stock in accordance with this
Section (b).
All the preferential amounts to be paid to the holders of the Series A Preferred
Stock under this Section (b) shall
be paid or set apart for payment before the payment or setting apart for payment
of any amount for, or the distribution of any assets of the Corporation to, the
holders of all other classes of capital stock ranking junior on liquidation to
the Series A Preferred Stock and Series B Preferred Stock in connection with a
Liquidation or a Sale or Merger as to which this Section (b) applies.
If the assets or surplus funds to be distributed to the holders of the Series A
Preferred Stock and the Series B Preferred Stock are insufficient to permit the
payment to such holders of the full amounts payable to such holders, the assets
and surplus funds legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock and Series B Preferred
Stock in proportion to the full amount each such holder is otherwise entitled to
receive.

 

5

(3)  For
purposes of these Designations, a “Sale
or Merger”
shall mean any of the following:

 

(A)  the
merger, reorganization or consolidation of the Corporation or such subsidiary or
subsidiaries of the Corporation the assets of which constitute all or
substantially all the assets of the business of the Corporation and its
subsidiaries taken as a whole into
or with
another corporation,
partnership, joint venture, limited liability company, or other
entity,
in which the Corporation’s stockholders holding the right to vote generally in
the election of directors, general partners, managing members or individuals
holding similar positions (the “Corporation’s
Voting Power”) immediately
preceding such merger, reorganization or consolidation (solely by virtue of
their shares or other securities of the Corporation or such
subsidiaries) shall own less than fifty percent (50%) of the
securities of the surviving corporation,
partnership, joint venture, limited liability company, or other entity entitled
to vote generally in the election of directors, general partners,
managing members or individuals holding similar positions;

 

(B)  the
sale, transfer or lease (but not including a transfer or lease by pledge or
mortgage to a bona
fide
lender), of all or substantially all the assets of the Corporation, whether
pursuant to a single transaction or a series of related transactions or plan
(which assets shall include for these purposes the assets of the Corporation’s
subsidiaries); or

 

(C)  the
sale or transfer, whether in a single transaction or a series of related
transactions, of securities of the Corporation such that the Corporation’s
stockholders holding the Corporation’s Voting Power immediately prior to such
sale or transfer or series of transfers cease to hold a majority of the
Corporation’s Voting Power after such sale or transfer or series of
transfers.

 

(4)  Any
securities to be delivered to the holders of the Series A Preferred Stock
pursuant to this Section (b) as
a consequence of a Sale or Merger shall be valued as follows:

 

(i)  Securities
not subject to an investment letter or other similar restriction on free
marketability covered by (ii) below:

 

(A)  if
listed for trading on any Trading Market, the average closing sale price of the
security for the thirty (30)-trading day period ending three (3) days prior
to the closing of such Sale or Merger;

 

6

(B)  if
actively traded over-the-counter, by averaging the closing bid or sale prices
(whichever are applicable) over the thirty (30)-day period ending three
(3) days prior to the closing of such Sale or Merger; and

 

(C)  if
there is no active public market, at the fair market value thereof, as
determined in accordance with Section
(b)(4)(iii).

 

(ii)  The
method of valuation of securities subject to an investment letter or other
restrictions on free marketability (other than restrictions arising solely by
virtue of a stockholder’s status as an affiliate or former affiliate) shall
be to make an appropriate discount from the market value determined as above in
Section
(b)(4)(i) to
reflect the approximate fair market value thereof, as determined in accordance
with Section (b)(4)(iii).

 

(iii)  The
fair market value of securities delivered pursuant to Section
(b)
shall be established by the vote of a majority of the members of the Board of
Directors, in good faith following the delivery of the notice required under
Section
(b)(6);
provided however
that prior to the consummation of a Sale or Merger in which the securities
described in Section (b)(4)(i)(C)
are delivered to the holders of the Series A Preferred Stock as a consequence of
a Sale or Merger, (m) the majority of the independent members of the Board of
Directors of the Corporation shall concur in such vote and (n) the
Corporation shall obtain a favorable opinion with respect to the fairness of the
consideration to be received by all stockholders of the Corporation in the Sale
or Merger from a financial point of view, with such “fairness” opinion being
provided by a financial advisory firm of national or New York metropolitan area
recognized standing.

 

(5)  In
the event the requirements of this Section (b) with
respect to a Sale or Merger are not complied with, the Corporation shall
forthwith either:

 

(i) cause
the closing of such Sale or Merger to be postponed until such time as the
requirements of Section (b)(4)(iii) have
been complied with, or

 

(ii) cancel
such transaction, in which event the rights, preferences and privileges of the
holders of the Series A Preferred Stock shall revert to and be the same such
rights, preferences and privileges as existed immediately prior to the date of
the first notice referred to in Section
(b)(6).

 

(6)  The
Corporation shall give each holder of record of Series A Preferred Stock written
notice of any impending Sale or Merger not later than twenty (20) days
prior to the earliest of: (i) the stockholders’ meeting called to approve such
transaction or (ii) the closing of such transaction, and shall also notify such
holder in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending Sale
or Merger and the provisions of this Section (b),
and the Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the Corporation has given the first notice provided
for herein or sooner than five (5) days after the Corporation has given
notice of any material changes provided for herein; provided,
however,
that such periods may be shortened upon the written consent of the holders of a
majority of the then outstanding shares of Series A Preferred
Stock.

 

7

(7)  The
provisions of this Section (b) are
in addition to and not in limitation of the provisions of Section (e).

 

(c)  Voting
Rights.

 

(1)  Generally.
Except as set forth specifically below, each holder of a share of Series A
Preferred Stock shall be entitled to the whole number of votes equal to the
number of shares of Common Stock into which such holder’s shares of Series A
Preferred Stock would be convertible under the circumstances described in
Section (d) 
on the record date for the vote or consent of stockholders, and shall otherwise
have voting rights and powers equal to the voting rights and powers of the
Common Stock. Each holder of a share of Series A Preferred Stock shall be
entitled to receive the same prior notice of any stockholders’ meeting as is
provided to the holders of Common Stock in accordance with the bylaws of the
Corporation, as well as prior notice of all stockholder actions to be taken by
legally available means in lieu of a meeting, and shall vote with holders of the
Common Stock as if they were a single class of securities upon any matter
submitted to a vote of stockholders, except those matters required by law or by
the terms hereof to be submitted to a class vote of the holders of Series A
Preferred Stock, in which case the holders of Series A Preferred Stock only
shall vote as a separate class.

 

(d)  Conversion.
The holders of shares of Series A Preferred Stock shall have conversion rights
as follows (the “Series
A Conversion Rights”):

 

(1)  Conversion
Rate.
For purposes of this Section (d),
the shares of Series A Preferred Stock shall be convertible, at the times and
under the conditions described in this Section (d),
at the rate (the “Applicable Conversion
Rate”) of
one share of Series A Preferred Stock to the number of shares of Common Stock
that equals the quotient obtained by dividing the Applicable Conversion Value by
the corresponding Applicable Conversion Price. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date of the
surrender of the shares of Series A Preferred Stock to be converted in
accordance with the procedures described in Section (d)(5).
The initial Applicable Conversion Rate shall be ten (10) shares of Common Stock
for each share of Series A Preferred Stock.

 

(2)  Optional
Conversion.
Each share of Series A Preferred Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share at the
office of the Corporation or any transfer agent for the Series A Preferred
Stock, into Common Stock at the then effective Applicable Conversion Rate. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of the surrender of the shares of Series A Preferred Stock
to be converted in accordance with the procedures described in Section
(d)(5).

 

8

(3)  Required
Conversion.
After the one-year anniversary of the achievement of Milestone 4, as long as the
Common Stock is listed for trading on a Trading Market and the average trading
volume for the thirty (30)-trading day period immediately preceding the date of
such election exceeds the Minimum Trading Volume, the Corporation may elect to
require the holders of shares of Series A Preferred Stock to convert all or any
portion of the shares of Series A Preferred Stock held by such holders, if, at
the time of such election by the Corporation the VWAP of the Common Stock for
the thirty (30)-trading day period immediately preceding the date of such
election is at least two (2) times greater than the Applicable Conversion Price
for such shares of Series A Preferred Stock; provided,
that in the event the Corporation elects to require the holders of Series A
Preferred Stock to only convert a portion of their shares of Series A Preferred
Stock, then such portion shall be allocated pro rata among the holders of Series
A Preferred Stock based on the number of shares owned by each such holder. In
any conversion pursuant to this Section (d)(3),
such conversion shall be automatic upon election by the Corporation, without
need for any further action by the holders of shares of Series A Preferred Stock
and regardless of whether the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided,
however,
that the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing such shares of Series A Preferred Stock so converted are surrendered
to the Corporation in accordance with the procedures described in Section (d)(5).
Upon the conversion of the Series A Preferred Stock pursuant to this
Section (d)(3),
the Corporation shall promptly send written notice thereof, by registered or
certified mail, return receipt requested and postage prepaid, by hand delivery
or by overnight delivery, to each holder of record of Series A Preferred Stock
at his, her or its address then shown on the records of the Corporation, which
notice shall state that certificates evidencing shares of Series A Preferred
Stock so converted must be surrendered at the office of the Corporation (or of
its transfer agent for the Common Stock, if applicable) in the manner
described in Section (d)(5).

 

(4)  No
Fractional Shares.
No fractional shares of Common Stock shall be issued upon conversion of any
series of Series A Preferred Stock. In lieu of fractional shares, the
Corporation shall pay therefor, at the time of any conversion of Series A
Preferred Stock as herein provided, an amount in cash equal to such fraction
multiplied by the VWAP of the Common Stock for the thirty (30)-trading day
period immediately preceding the date of conversion, payable upon surrender of
the certificates representing the shares of Series A Preferred Stock being
converted.

 

(5)  Mechanics
of Conversion.
Before any holder of Series A Preferred Stock shall be entitled to receive
certificates representing the shares of Common Stock into which shares of Series
A Preferred Stock are converted in accordance with Sections
(d)(2) or
(d)(3),
such holder shall surrender the certificate or certificates for such shares of
Series A Preferred Stock, duly endorsed, at the office of the Corporation or of
any transfer agent for the Series A Preferred Stock, and shall give written
notice to the Corporation at such office of the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued, if different from the name shown on the books and records of the
Corporation. Said conversion notice shall also contain such representations as
may reasonably be required by the Corporation to the effect that the shares to
be received upon conversion are not being acquired and will not be transferred
in any way that might violate the then applicable securities laws. The
Corporation shall, as soon as practicable thereafter and in no event later than
thirty (30) days after the delivery of said certificates, issue and deliver
at such office to such holder of Series A Preferred Stock, or to the nominee or
nominees of such holder as provided in such notice, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled. The person or persons entitled to receive the shares of Common
Stock issuable upon a conversion pursuant to Sections
(d)(2) or
(d)(3) shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock as of the effective date of conversion specified in such section.
All certificates issued upon the exercise or occurrence of the conversion shall
contain a legend governing restrictions upon such shares imposed by law or
agreement of the holder or his or its predecessors.

 

9

(6)  Adjustment
for Subdivisions or Combinations of Common Stock; Stock
Dividends.
In the event the Corporation at any time or from time to time after the Series
A-1 Issue Date effects a subdivision or split of its Common Stock into a greater
number of shares of Common Stock or shall issue a stock dividend on the
outstanding Common Stock without an equivalent subdivision or split of, or
dividend on, the Series A Preferred Stock, then in such event the Applicable
Conversion Price for each of the issued and outstanding series of Series A
Preferred Stock in effect immediately prior to such subdivision or split or the
issuance of such dividend shall be proportionately decreased (and the Applicable
Conversion Rate for each of the issued and outstanding series of Series A
Preferred Stock thus proportionately increased), effective at the close of
business on the date of such subdivision, split or dividend. In the event the
Corporation at any time or from time to time after the Series A-0 Issue Date
effects a combination of the outstanding Common Stock into a lesser number of
shares without an equivalent combination of the outstanding Series A Preferred
Stock, then in such event the Applicable Conversion Price for each of the issued
and outstanding series of Series A Preferred Stock in effect immediately prior
to such combination, shall be proportionately increased (and the Applicable
Conversion Rate for each of the issued and outstanding series of Series A
Preferred Stock thus proportionately decreased), effective at the close of
business on the date of such combination.

 

(7)  Adjustment
of Conversion Price for Diluting Issues.

 

(i)  Series
A-0 Conversion Price.
In the event the Corporation issues any Additional Shares of Common Stock (as
defined below) following the Series A-0 Issue Date, at a per share
consideration less than the Series A-0 Conversion Price then in effect, then the
Series A-0 Conversion Price shall be reduced, concurrently with such issuance,
to a price (calculated to the nearest cent) determined by multiplying such
Series A-0 Conversion Price by a fraction:

 

(A)  the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus
the number of shares of Common Stock issuable upon conversion of all Common
Stock Equivalents outstanding immediately prior to such issuance plus
the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common Stock in
such issuance would purchase at the Series A-0 Conversion Price in effect
immediately prior to such issuance; and 

 

10

(B)  the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus
the
number of shares of Common Stock issuable upon conversion of all Common Stock
Equivalents outstanding immediately prior to such issuance plus
the number of such Additional Shares of Common Stock so issued.

 

(ii)  Series
A-1 Conversion Price.
In the event the Corporation issues any Additional Shares of Common Stock
following the Series A-1 Issue Date, at a per share consideration less than the
Series A-1 Conversion Price then in effect, then the Series A-1 Conversion Price
shall be reduced, concurrently with such issuance, to a price (calculated to the
nearest cent) determined by multiplying such Series A-1 Conversion Price by
a fraction:

 

(A)  the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus
the number of shares of Common Stock issuable upon conversion of all Common
Stock Equivalents outstanding immediately prior to such issuance plus
the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common Stock in
such issuance would purchase at the Series A-1 Conversion Price in effect
immediately prior to such issuance; and 

 

(B)  the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus
the
number of shares of Common Stock issuable upon conversion of all Common Stock
Equivalents outstanding immediately prior to such issuance plus
the number of such Additional Shares of Common Stock so issued.

 

(iii)  Series
A-2 Conversion Price.
In the event the Corporation issues any Additional Shares of Common
Stock following the Series A-3 Issue Date, at a per share consideration
less than the Series A-2 Conversion Price then in effect, then the Series A-2
Conversion Price shall be reduced, concurrently with such issuance, to a price
(calculated to the nearest cent) determined to be the per share consideration,
if any, received, or deemed to have been received, pursuant to Section (d)(7)(vii),
by the Corporation upon such issuance of Additional Shares of Common
Stock.

 

(iv)  Series
A-3 Conversion Price.
In the event the Corporation issues any Additional Shares of Common Stock
following the Series A-3 Issue Date, at a per share consideration less than the
Series A-3 Conversion Price then in effect, then the Series A-3 Conversion Price
shall be reduced, concurrently with such issuance, to the price (calculated to
the nearest cent) determined to be the per share consideration, if any,
received, or deemed to have been received, pursuant to Section (d)(7)(vii),
by the Corporation upon such issuance of Additional Shares of Common
Stock.

 

11

(v)  Series
A-4 Conversion Price.
In the event the Corporation issues any Additional Shares of Common Stock
following the Series A-4 Issue Date, at a per share consideration less than the
Series A-4 Conversion Price then in effect, then the Series A-4 Conversion Price
shall be reduced, concurrently with such issuance, to a price (calculated to the
nearest cent) which is the sum of:

 

(a)  the
product of (X) .5 multiplied by (Y) the Series A-4 Conversion Price multiplied
by (Z) a fraction:

 

(A)  the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus
the number of shares of Common Stock issuable upon conversion of all Common
Stock Equivalents outstanding immediately prior to such issuance plus
the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common Stock in
such issuance would purchase at the Series A-4 Conversion Price in effect
immediately prior to such issuance; and 

 

(B)  the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus
the
number of shares of Common Stock issuable upon conversion of all Common Stock
Equivalents outstanding immediately prior to such issuance plus
the number of such Additional Shares of Common Stock so issued; and

 

(b)  the
product of (X) .5 multiplied by (Y) the price (calculated to the nearest cent)
determined to be the per share consideration, if any, received, or deemed to
have been received, pursuant to Section (d)(7)(vii),
by the Corporation upon such issuance of Additional Shares of Common
Stock.

 

(vi)  As
used herein, “Additional
Shares of Common Stock”
shall mean either (x) shares of Common Stock, or (y) the maximum
number of shares of Common Stock issuable upon conversion, exchange or exercise
of Common Stock Equivalents; provided,
however,
that Additional Shares of Common Stock shall not include:

 

(A)  any
securities to be issued to employees, officers or directors of, or consultants
or advisors to, the Corporation pursuant to stock purchase or stock option plans
or other arrangements that are for purposes of compensation to such persons in
their capacity as employees, officers, directors, consultants or advisors and
are approved by the Board of Directors, subject to an aggregate maximum of the
lower of (x) 4,000,000 shares of Common Stock (as adjusted by stock dividends,
splits, subdivisions or combinations of shares and on an as-converted basis) and
(y) 10% of the outstanding shares of Common Stock (determined on a Fully Diluted
Basis); 

 

12

(B)  any
securities of any class or series issued or to be issued pursuant to any options
or warrants (but not convertible debentures) outstanding as of the date of the
Purchase Agreement; 

 

(C)  any
securities of any class or series issued or to be issued pursuant to the
conversion or exercise of any securities issued in connection with the Purchase
Agreement; 

 

(D)  any
securities of any class or series issued or to be issued pursuant to the
Purchase Agreement;

 

(E)  Common
Stock for which an adjustment has been made pursuant to Section (d)(6);

 

(F)  any
securities issued for consideration other than cash pursuant to a merger,
consolidation, acquisition or similar business combination, subject to an
aggregate maximum of the lower of (x) 2,000,000 shares of Common Stock (as
adjusted by stock dividends, splits, subdivisions or combinations of shares and
on an as-converted basis) and (y) 5% of the outstanding shares of Common Stock
(determined on a Fully Diluted Basis); 

 

(G)  any
securities issued in connection with any stock split, stock dividend,
recapitalization or similar transaction by the Corporation; 

 

(H)  any
securities issued as consideration, whether in whole or in part, to any person
or entity for providing services or supplying goods to the Corporation, subject
to an aggregate maximum of the lower of (x) 2,000,000 shares of Common Stock (as
adjusted by stock dividends, splits, subdivisions or combinations of shares and
on an as-converted basis) and (y) 5% of the outstanding shares of Common Stock
(determined on a Fully Diluted Basis); 

 

(I)  any
securities issued to any entity which is or will be, itself or through its
subsidiaries or affiliates, an operating company in a business related to or
complementary with the business of the Corporation and in which the Corporation
receives reasonably material benefits in addition to the investment of funds,
subject to an aggregate maximum of the lower of (x) 2,000,000 shares of Common
Stock (as adjusted by stock dividends, splits, subdivisions or combinations of
shares and on an as-converted basis) and (y) 5% of the outstanding shares of
Common Stock (determined on a Fully Diluted Basis);

 

(J)  any
securities issued pursuant to any equipment leasing arrangement, subject to an
aggregate maximum of the lower of (x) 2,000,000 shares of Common Stock (as
adjusted by stock dividends, splits, subdivisions or combinations of shares and
on an as-converted basis) and (y) 5% of the outstanding shares of Common Stock
(determined on a Fully Diluted Basis);

 

13

(K)  any
securities issued to pay all or a portion of any investment banking, finders or
similar fee or commission, which entitles the holders thereof to acquire shares
of Common Stock at a price not less than the market price of the Common Stock on
the date of such issuance and which is not subject to any adjustments other than
on account of stock splits and reverse stock splits, subject to an aggregate
maximum of the lower of (x) 2,000,000 shares of Common Stock (as adjusted by
stock dividends, splits, subdivisions or combinations of shares and on an
as-converted basis) and (y) 5% of the outstanding shares of Common Stock
(determined on a Fully Diluted Basis); and 

 

(L)  other
securities as may be mutually agreed in writing prior to their issuance by the
Corporation and the holders of at least a majority of the outstanding shares of
Series A Preferred Stock; 

 

provided,
however,
the exemptions from adjustment for the issuance of securities described in
clauses (A), (F), (H), (I), (J) and (K), in the aggregate, will be subject to an
aggregate maximum of the lower of (x) 5,000,000 shares of Common Stock (as
adjusted by stock dividends, splits, subdivisions or combinations of shares and
on an as-converted basis) and (y) 12.5% of the outstanding shares of Common
Stock (determined on a Fully Diluted Basis).

 

(vii)  The
per share consideration with respect to the sale or issuance of a share of
Common Stock shall be the price per share received by the Corporation, prior to
the payment of any expenses, commissions, underwriting discounts and other
applicable costs. With respect to the sale or issuance of Common Stock
Equivalents that are convertible into or exchangeable for Common Stock without
further consideration, the per share consideration shall be determined by
dividing the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for subsequent
adjustment of such number) of Common Stock issuable with respect to such
Common Stock Equivalents into the aggregate consideration received by the
Corporation upon the sale or issuance of such Common Stock Equivalents. With
respect to the issuance of other Common Stock Equivalents, the per share
consideration shall be determined by dividing the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for subsequent adjustment of such number) of Common Stock
issuable with respect to such Common Stock Equivalents into the aggregate
consideration received by the Corporation upon the sale or issuance of such
Common Stock Equivalents plus the total consideration receivable by the
Corporation upon the conversion or exercise of such Common Stock Equivalents. In
connection with the sale or issuance of Common Stock and/or Common Stock
Equivalents for non-cash consideration, the amount of consideration shall be
determined by the Board of Directors in good faith.

 

(viii)  Once
any Additional Shares of Common Stock have been treated as having been issued
for the purpose of this Section (d)(7),
they shall be treated as issued and outstanding shares of Common Stock whenever
any subsequent calculations must be made pursuant hereto.

 

14

(8)  Recapitalizations,
Reorganizations, etc. In
the event of any recapitalization, reorganization, consolidation or merger of
the Corporation with or into another Person or the sale, transfer or other
disposition of all or substantially all of the assets of the Corporation and its
subsidiaries (viewed as a whole) to another Person (other than a
consolidation, merger or sale treated as a Liquidation or Sale or Merger
pursuant to Section (b)),
each share of Series A Preferred Stock shall thereafter be convertible into the
kind and amount of shares of stock or other securities or property that a holder
of the number of shares of Common Stock deliverable upon conversion of Series A
Preferred Stock would have been entitled to receive upon such recapitalization,
reorganization, consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be
made in the application of the provisions set forth in this Section (d) with
respect to the rights and interests thereafter of the holders of Series A
Preferred Stock, to the end that the provisions set forth in this Section (d) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon conversion of
Series A Preferred Stock. The Corporation shall not enter into any such
recapitalization, reorganization, consolidation, merger or sale (other than a
consolidation, merger or sale treated as a Liquidation or Sale or Merger
pursuant to Section (b),
for which Section (b) shall control) without
giving effect to the conversion provisions contained in this Section
(d)
or any other governing documents and requiring any successor to the Corporation
resulting from such recapitalization, reorganization, consolidation, merger or
sale to agree in writing to be bound by such provisions.

 

(9)  De
Minimis Adjustments.
No adjustment to the Applicable Conversion Price (and, thereby, the Applicable
Conversion Rate) shall be made if such adjustment would result in a change
in the Applicable Conversion Price of less than $0.01. Any adjustment of less
than $0.01 that is not made shall be carried forward and taken into account in
any subsequent adjustment to the Applicable Conversion Price and shall be made
at the time of and together with any subsequent adjustment that, on a cumulative
basis, amounts to an adjustment of $0.01 or more in the Applicable Conversion
Price.

 

(10)  No
Impairment.
Except as provided in Section (e),
the Corporation shall not, by amendment of its Certificate of Incorporation or
bylaws or through any reorganization, transfer of assets, consolidation, merger,
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 to be observed
or performed hereunder by the Corporation, but shall at all times in good faith
assist in the carrying out of all the provisions of this Section (d) and
in the taking of all such action as may be necessary or appropriate in order to
protect the Series A Conversion Rights of the holders of the Series A Preferred
Stock against impairment.

 

(11)  Certificate
as to Adjustments.
Upon the occurrence of each adjustment or readjustment of any Applicable
Conversion Price pursuant to this Section (d),
the chief financial officer of the Corporation shall promptly compute such
adjustment or readjustment in accordance with the terms hereof; provided,
however
that upon the reasonable request of The Dow Chemical Company, as holder of the
Series A Preferred Stock, the Corporation shall cause independent public
accountants selected by the Corporation to verify such computation in a written
instrument furnished to The Dow Chemical Company, as holder of the Series A
Preferred Stock. The chief financial officer of the Corporation shall also
prepare and furnish to each holder of Series A Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series A Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Applicable Conversion
Price(s) and the Applicable Conversion Rate(s) at that time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property that at that time would be received upon the conversion of Series A
Preferred Stock.

 

15

(12)  Notices
of Record Date.
In the event of any taking by the Corporation of a record of the holders of any
class of securities other than Series A Preferred Stock for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any Common Stock Equivalents or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
mail to each holder of Series A Preferred Stock, at least twenty (20) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
rights, and the amount and character of such dividend, distribution or
rights.

 

(13)  Reservation
of Stock Issuable Upon Conversion.
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock would be
insufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, the Corporation shall take such corporate action prior
to taking any action that would result in any such insufficiency as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.

 

(e)  Protective
Provisions.

 

(1)  Actions
Requiring Majority Approval of Series A Preferred Stock.
So long as TDCC holds not less than twenty-five percent (25%) of the shares of
Series A Preferred Stock that have been issued under the Purchase Agreement as
of such time, in addition to any other rights provided by law, except where the
vote or written consent of the holders of a greater number of shares is required
by law or by another provision of the Certificate of Incorporation, without
first obtaining the affirmative vote or written consent of the holders of a
majority of the total number of shares of Series A Preferred Stock outstanding,
voting together as a single class, the Corporation shall not:

 

16

(A)  amend
or repeal any provision of, or add any provision to, the Certificate of
Incorporation or bylaws, or file any certificate of designations, preferences,
limitations and relative rights of any series of preferred stock, if such action
would adversely alter or change the preferences, rights, privileges or powers
of, or restrictions provided for the benefit of the Series A Preferred Stock,
regardless of whether any such action shall be by means of amendment to the
Certificate of Incorporation or by merger, consolidation or
otherwise;

 

(B)  increase
or decrease (other than by conversion) the authorized number of shares of
the Series A Preferred Stock;

 

(C)  create
or authorize (by reclassification or otherwise) any new class or series of
shares that has a preference over or is on a parity with the Series A Preferred
Stock with respect to dividends or the distribution of assets on the
liquidation, dissolution or winding up of the Corporation; 

 

(D)  purchase,
repurchase or redeem any shares of Common Stock (other than pursuant to equity
incentive agreements with employees giving the Corporation the right to
repurchase shares upon the termination of services);

 

(E)  pay
dividends or make any other distribution on the Common Stock; or

 

(F)  whether
or not prohibited by the terms of the Series A Preferred Stock, circumvent a
right of the Series A Preferred.

 

(f)  Holding
Period.
For any Series A Preferred Stock, the holder of such series of Series A
Preferred Stock shall hold such shares of Series A Preferred Stock or the shares
of Common Stock underlying such Series A Preferred Stock, for a minimum of six
(6) months after the Applicable Issue Date.

 

(g)  Notices.
Any notice required by the provisions hereof to be given to the holders of
shares of Series A Preferred Stock shall be deemed given on (i) the third
business day following (and not including) the date on which such notice is
deposited in the United States mail, first-class, postage prepaid, and addressed
to each holder of record at his address appearing on the books of the
Corporation or (ii) the business day following the date on which such notice is
sent via overnight delivery by nationally recognized overnight courier. Notice
by any other means shall not be deemed effective until actually
received.

 

17Exhibit
4.2

[Form
of]

DESIGNATIONS OF PREFERENCES,

LIMITATIONS,
AND RELATIVE RIGHTS OF SERIES B

CONVERTIBLE
PREFERRED STOCK OF

MILLENNIUM
CELL INC.

Pursuant
to authority granted in the certificate of incorporation, as amended (the
“Certificate
of Incorporation”),
of Millennium
Cell Inc. (the
“Corporation”) and
Section 102 of the Delaware General Corporation Law (the “DGCL”),
the Corporation has been authorized to issue in series [____________] shares
of preferred stock of the Corporation, par value $0.001 per share (the
“Preferred
Stock”), and to designate the terms, preferences, limitations and
relative rights of each series established. By resolution of the required vote
of the Board of Directors of the Corporation, the Corporation has established
and fixed the preferences, powers, limitations and relative rights
of
[_______]
shares
of Preferred Stock designated as “Series B-1 Convertible Preferred Stock,” par
value $0.001 per share (the “Series
B-1 Preferred Stock”),
[__________] shares
of Preferred Stock designated as “Series B-2 Convertible Preferred Stock,” par
value $0.001 per share (the “Series
B-2 Preferred Stock”),
[__________] shares
of Preferred Stock designated as “Series B-3 Convertible Preferred Stock,” par
value $0.001 per share (the “Series
B-3 Preferred Stock”),
and [__________] shares
of Preferred Stock designated as “Series B-4 Convertible Preferred Stock,” par
value $0.001 per share (the “Series
B-4 Preferred Stock” and
together with the Series B-1 Preferred Stock, the Series B-2 Preferred Stock and
the Series B-3 Preferred Stock, the “Series
B Preferred Stock”).

 

For
the purposes of these Designations (as defined below), the following terms shall
have the meanings specified:

 

“Applicable
Conversion Price”
shall mean the Series B-1 Conversion Price, the Series B-2 Conversion Price, the
Series B-3 Conversion Price or the Series B-4 Conversion Price, as
applicable.

 

“Applicable
Conversion Value”
shall mean the Series B-1 Conversion Value, the Series B-2 Conversion Value, the
Series B-3 Conversion Value or the Series B-4 Conversion Value, as
applicable.

 

“Applicable
Issue Date”
shall mean the Series B-1 Issue Date, the Series B-2 Issue Date, the Series B-3
Issue Date or the Series B-4 Issue Date, as applicable.

 

“Applicable
Liquidation Value”
shall mean the Series B-1 Liquidation Value, the Series B-2 Liquidation Value,
the Series B-3 Liquidation Value or the Series B-4 Liquidation Value, as
applicable.

 

“Applicable
Purchase Price”
shall mean the Series B-1 Purchase Price, the Series B-2 Purchase Price, the
Series B-3 Purchase Price or the Series B-4 Purchase Price, as
applicable.

 

1

 

“Board
of Directors”
shall mean the board of directors of the Corporation.

 

“Common
Stock”
shall mean the common stock of the Corporation, par value $0.001 per
share.

 

“Designations”
shall mean the terms, preferences, limitations and relative rights of the Series
B Preferred Stock established hereby and set forth herein.

 

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

 

“Joint
Development Agreement”
shall mean that certain Joint Development Agreement to be dated on or about the
date hereof, by and among the Corporation and TDCC.

 

“Liquidation”
shall have the meaning provided in Section (b).

 

“Milestone
4”
shall have the meaning provided in the Joint Development Agreement.

 

“Minimum
Trading Volume”
shall mean the product of the (x) average daily trading volume for Common Stock
during calendar years 2003 and 2004 multiplied by (y) fifteen (15).

 

“Person”
means any individual, firm, corporation, partnership, trust, limited liability
company, incorporated or unincorporated association, joint venture, joint stock
company, or other entity of any kind, and shall include any successor (by merger
or otherwise) of any such entity.

 

“Purchase
Agreement”
shall mean that certain Stock Purchase Agreement to be dated on or
about February
24, 2005, by and among the Corporation and TDCC, pursuant to which the issuances
of shares of Series B Preferred Stock is to occur.

 

“Put
Option Period”
shall mean the six (6)-month period following any Threshold Date.

 

“Sale
or Merger”
shall have the meaning specified in Section (b).

 

“Securities
Act”
shall mean the Securities Act of 1933, as amended.

 

“Series
A Designations”
shall mean the terms, preferences, limitations and relative rights of the Series
A Preferred Stock established thereby and set forth therein.

 

2

“Series
A Preferred Stock”
shall mean the Series A Convertible Preferred Stock of the Corporation, par
value $0.001 per share.

 

“Series
B-1 Conversion Price”
shall mean the Series B-1 Purchase Price subject to adjustment as provided in
Section
(d).

 

“Series
B-1 Conversion Value”
shall mean the product of (A) the Series B-1 Purchase Price multiplied by (B)
ten (10).

 

“Series
B-1 Issue Date”
shall mean the date on which the shares of Series B-1 Preferred Stock are
actually issued pursuant to the Purchase Agreement.

 

“Series
B-1 Purchase Price”
shall mean the product of (A) the VWAP of the Common Stock for the thirty
(30)-trading day period immediately preceding the Series B-1 Issue Date
multiplied by (B) ten (10).

 

“Series
B-2 Conversion Price”
shall mean the Series B-2 Purchase Price subject to adjustment as provided in
Section
(d).

 

“Series
B-2 Conversion Value”
shall mean the product of (A) the Series B-2 Purchase Price multiplied by (B)
ten (10).

 

“Series
B-2 Issue Date”
shall mean the date on which the shares of Series B-2 Preferred Stock are
actually issued pursuant to the Purchase Agreement.

 

“Series
B-2 Purchase Price”
shall mean the product of (A) the VWAP of the Common Stock for the thirty
(30)-trading day period immediately preceding the Series B-2 Issue Date
multiplied by (B) ten (10). 

 

“Series
B-3 Conversion Price”
shall mean the Series B-3 Purchase Price subject to adjustment as provided in
Section
(d).

 

“Series
B-3 Conversion Value”
shall mean the product of (A) the Series B-3 Purchase Price multiplied by (B)
ten (10).

 

“Series
B-3 Issue Date”
shall mean the date on which the shares of Series B-3 Preferred Stock are
actually issued pursuant to the Purchase Agreement.

 

“Series
B-3 Purchase Price”
shall mean the product of (A) the VWAP of the Common Stock for the thirty
(30)-trading day period immediately preceding the Series B-3 Issue Date
multiplied by (B) ten (10). 

 

“Series
B-4 Conversion Price”
shall mean the Series B-4 Purchase Price subject to adjustment as provided in
Section
(d).

 

“Series
B-4 Conversion Value”
shall mean the product of (A) the Series B-4 Purchase Price multiplied by (B)
ten (10).

 

3

“Series
B-4 Issue Date”
shall mean the date on which the shares of Series B-4 Preferred Stock are
actually issued pursuant to the Purchase Agreement.

 

“Series
B-4 Purchase Price”
shall mean the product of (A) the VWAP of the Common Stock for the thirty
(30)-trading day period immediately preceding the Series B-4 Issue Date
multiplied by (B) ten (10).

 

“TDCC”
shall mean The Dow Chemical Company, a Delaware corporation.

 

“Threshold
Date”
shall mean any day on which the VWAP of Common Stock for the previous five (5)
consecutive trading days is less than $0.50 per share (as adjusted for any stock
dividends, combinations, stock splits or similar recapitalization
events).

 

“Trading
Market”
shall mean any of the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market or the Nasdaq Smallcap Market.

 

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

 

The
Designations granted to and imposed upon the Series B Preferred Stock are as
follows:

 

(a)  Dividend
Rights.
The holders of shares of Series B Preferred Stock shall be entitled to receive,
in preference to the holders of any and all other classes of capital stock of
the Corporation, cumulative dividends which shall accrue commencing on the
Applicable Issue Date at the rate of six percent (6%) of the Applicable Purchase
Price (as adjusted for any stock dividends, combinations, stock splits or
similar recapitalization events) per annum, compounding quarterly, on each share
of Series B Preferred Stock held by such holders until the Series B Preferred
Stock is converted in accordance with Section
(d).
Notwithstanding anything to the contrary contained herein, subject to the
requirements of the DGCL, upon a conversion of the Series B Preferred Stock, all
accrued or declared dividends remaining unpaid as of such date shall be
immediately payable in cash or, at the option of the Corporation, in shares of
Common Stock, with the number of shares of Common Stock to be determined by
dividing the aggregate amount of the accrued or declared but unpaid dividends by
the VWAP of the Common Stock for the thirty (30)-trading day period immediately
preceding the date of conversion.

 

(b)  Liquidation
Rights.

 

(1)  In
the event of:

 

4

(A)  
the liquidation, dissolution or winding up of the Corporation, or such of the
Corporation’s subsidiaries the assets of which constitute all or substantially
all the assets of the business of the Corporation and its subsidiaries taken as
a whole, in a single transaction or series of related transactions (a
“Liquidation”),
or

 

(B)  a
Sale or Merger (as defined below),

 

each
holder of Series B Preferred Stock then outstanding shall be entitled to receive
on a pari passu basis with the holders of Series A Preferred Stock, out of the
assets of the Corporation available for distribution to its stockholders, before
any payment shall be made in respect of all other classes of capital stock
ranking junior on liquidation to the Series A Preferred Stock and Series B
Preferred Stock, an amount equal to the sum of: (i) the number of outstanding
shares of Series B-1 Preferred Stock, if any, held by such holder of Series B
Preferred Stock multiplied by the Series B-1 Purchase Price plus any accrued and
unpaid dividends on the Series B-1 Preferred Stock, (ii) the number of
outstanding shares of Series B-2 Preferred Stock, if any, held by such holder of
Series B Preferred Stock multiplied by the Series B-2 Purchase Price plus any
accrued and unpaid dividends on the Series B-2 Preferred Stock, (iii) the number
of outstanding shares of Series B-3 Preferred Stock, if any, held by such holder
of Series B Preferred Stock multiplied by the Series B-3 Purchase Price plus any
accrued and unpaid dividends on the Series B-3 Preferred Stock, and (iv) the
number of outstanding shares of Series B-4 Preferred Stock, if any, held by such
holder of Series B Preferred Stock multiplied by the Series B-4 Purchase Price
plus any accrued and unpaid dividends on the Series B-4 Preferred Stock, (the
“Series
B Liquidation Preference”).
 After
payment of (i) the Series B Liquidation Preference to each holder of Series B
Preferred Stock and (ii) the Series A Liquidation Preference (as defined in the
Series A Designations) to each holder of Series A Preferred Stock, any remaining
assets and property of the Corporation available for distribution to
stockholders shall be distributed pro rata among the holders of Common Stock,
other classes of capital stock ranking junior in Liquidation to the Series A
Preferred Stock and the Series B Preferred Stock, Series A Preferred Stock and
Series B Preferred Stock, treating for purposes of such distribution each share
of Series A Preferred Stock or Series B Preferred Stock as such number of shares
of Common Stock into which such share of Series A Preferred Stock or Series B
Preferred Stock, as the case may be, would be convertible under the
circumstances described in Section (d) of
these Designations or the Series A Designations, as applicable, on the record
date for any such distribution.

 

(2)  To
the extent necessary, the Corporation shall cause such actions to be taken by
any of its subsidiaries so as to enable, to the maximum extent permitted by law,
the proceeds of a Liquidation or a Sale or Merger to be distributed to the
holders of shares of Series B Preferred Stock in accordance with this
Section (b).
All the preferential amounts to be paid to the holders of the Series B Preferred
Stock under this Section (b) shall
be paid or set apart for payment before the payment or setting apart for payment
of any amount for, or the distribution of any assets of the Corporation to, the
holders of all other classes of capital stock ranking junior on liquidation to
the Series A Preferred Stock and Series B Preferred Stock in connection with a
Liquidation or a Sale or Merger as to which this Section (b) applies.
If the assets or surplus funds to be distributed to the holders of the Series A
Preferred Stock and the Series B Preferred Stock are insufficient to permit the
payment to such holders of the full amounts payable to such holders, the assets
and surplus funds legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock and Series B Preferred
Stock in proportion to the full amount each such holder is otherwise entitled to
receive.

 

5

(3)  For
purposes of these Designations, a “Sale
or Merger”
shall mean any of the following:

 

(A)  the
merger, reorganization or consolidation of the Corporation or such subsidiary or
subsidiaries of the Corporation the assets of which constitute all or
substantially all the assets of the business of the Corporation and its
subsidiaries taken as a whole into
or with
another corporation,
partnership, joint venture, limited liability company, or other
entity,
in which the Corporation’s stockholders holding the right to vote generally in
the election of directors, general partners, managing members or individuals
holding similar positions (the “Corporation’s
Voting Power”) immediately
preceding such merger, reorganization or consolidation (solely by virtue of
their shares or other securities of the Corporation or such
subsidiaries) shall own less than fifty percent (50%) of the
securities of the surviving corporation,
partnership, joint venture, limited liability company, or other entity entitled
to vote generally in the election of directors, general partners,
managing members or individuals holding similar positions;

 

(B)  the
sale, transfer or lease (but not including a transfer or lease by pledge or
mortgage to a bona
fide
lender) of all or substantially all the assets of the Corporation, whether
pursuant to a single transaction or a series of related transactions or plan
(which assets shall include for these purposes the assets of the Corporation’s
subsidiaries); or

 

(C)  the
sale or transfer, whether in a single transaction or a series of related
transactions, of securities of the Corporation such that the Corporation’s
stockholders holding the Corporation’s Voting Power immediately prior to such
sale or transfer or series of transfers cease to hold a majority of the
Corporation’s Voting Power after such sale or transfer or series of
transfers.

 

(4)  Any
securities to be delivered to the holders of the Series B Preferred Stock
pursuant to this Section (b) as
a consequence of a Sale or Merger shall be valued as follows:

 

(i)  Securities
not subject to an investment letter or other similar restriction on free
marketability covered by (ii) below:

 

(A)  if
listed for trading on any Trading Market, the average closing sale price of the
security for the thirty (30)-trading day period ending three (3) days prior
to the closing of such Sale or Merger;

 

6

(B)  if
actively traded over-the-counter, by averaging the closing bid or sale prices
(whichever are applicable) over the thirty (30)-day period ending three
(3) days prior to the closing of such Sale or Merger; and

 

(C)  if
there is no active public market, at the fair market value thereof, as
determined in accordance with Section
(b)(4)(iii).

 

(ii)  The
method of valuation of securities subject to an investment letter or other
restrictions on free marketability (other than restrictions arising solely by
virtue of a stockholder’s status as an affiliate or former affiliate) shall
be to make an appropriate discount from the market value determined as above in
Section
(b)(4)(i) to
reflect the approximate fair market value thereof, as determined in accordance
with Section (b)(4)(iii).

 

(iii)  The
fair market value of securities delivered pursuant to Section (b)
shall be established by the vote of a majority of the members of the Board of
Directors, in good faith following the delivery of the notice required under
Section (b)(6);
provided however that prior to the consummation of a Sale or Merger in which the
securities described in Section (b)(4)(i)(C)
are delivered to the holders of the Series B Preferred Stock as a consequence of
a Sale or Merger, (m) the majority of the independent members of the Board of
Directors of the Corporation shall concur in such vote and (n) the Corporation
shall obtain a favorable opinion with respect to the fairness of the
consideration to be received by all stockholders of the Corporation in the Sale
or Merger from a financial point of view, with such “fairness” opinion being
provided by a financial advisory firm of national or New York metropolitan area
recognized standing. 

 

(5)  In
the event the requirements of this Section (b) with
respect to a Sale or Merger are not complied with, the Corporation shall
forthwith either:

 

(i)
cause
the closing of such Sale or Merger to be postponed until such time as the
requirements of Section (b) (4)(iii)
have been complied with, or

 

(ii)
cancel
such transaction, in which event the rights, preferences and privileges of the
holders of the Series B Preferred Stock shall revert to and be the same such
rights, preferences and privileges as existed immediately prior to the date of
the first notice referred to in Section
(b)(6).

 

(6)  The
Corporation shall give each holder of record of Series B Preferred Stock written
notice of any impending Sale or Merger not later than twenty (20) days
prior to the earliest of: (i) the stockholders’ meeting called to approve such
transaction or (ii) the closing of such transaction, and shall also notify such
holder in writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the impending Sale
or Merger and the provisions of this Section (b),
and the Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
twenty (20) days after the Corporation has given the first notice provided
for herein or sooner than five (5) days after the Corporation has given
notice of any material changes provided for herein; provided,
however,
that such periods may be shortened upon the written consent of the holders of a
majority of the then outstanding shares of Series B Preferred
Stock.

 

7

(7)  The
provisions of this Section (b) are
in addition to and not in limitation of the provisions of Section (e).

 

(c)  Voting
Rights.

 

(1)  Generally.
Except as set forth specifically below, each holder of a share of Series B
Preferred Stock shall be entitled to the whole number of votes equal to the
number of shares of Common Stock into which such holder’s shares of Series B
Preferred Stock would be convertible under the circumstances described in
Section (d) 
on the record date for the vote or consent of stockholders, and shall otherwise
have voting rights and powers equal to the voting rights and powers of the
Common Stock. Each holder of a share of Series B Preferred Stock shall be
entitled to receive the same prior notice of any stockholders’ meeting as is
provided to the holders of Common Stock in accordance with the bylaws of the
Corporation, as well as prior notice of all stockholder actions to be taken by
legally available means in lieu of a meeting, and shall vote with holders of the
Common Stock as if they were a single class of securities upon any matter
submitted to a vote of stockholders, except those matters required by law or by
the terms hereof to be submitted to a class vote of the holders of Series B
Preferred Stock, in which case the holders of Series B Preferred Stock only
shall vote as a separate class.

 

(d)  Conversion.
The holders of shares of Series B Preferred Stock shall have conversion rights
as follows (the “Series
B Conversion Rights”):

 

(1)  Conversion
Rate.
For purposes of this Section (d),
the shares of Series B Preferred Stock shall be convertible, at the times and
under the conditions described in this Section (d),
at the rate (the “Applicable Conversion
Rate”) of
one share of Series B Preferred Stock to the number of shares of Common Stock
that equals the quotient obtained by dividing the Applicable Conversion Value by
the corresponding Applicable Conversion Price. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date of the
surrender of the shares of Series B Preferred Stock to be converted in
accordance with the procedures described in Section (d)(5).
The initial Applicable Conversion Rate shall be ten (10) shares of Common Stock
for each share of Series B Preferred Stock.

 

(2)  Optional
Conversion.
Each share of Series B Preferred Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share at the
office of the Corporation or any transfer agent for the Series B Preferred
Stock, into Common Stock at the then effective Applicable Conversion Rate. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of the surrender of the shares of Series B Preferred Stock
to be converted in accordance with the procedures described in Section
(d)(5).

 

8

(3)  Required
Conversion.
After the one-year anniversary of the achievement of Milestone 4, as long as the
Common Stock is listed for trading on a Trading Market and the average trading
volume for the thirty (30)-trading day period immediately preceding the date of
such election exceeds the Minimum Trading Volume, the Corporation may elect to
require the holders of shares of Series B Preferred Stock to convert all or any
portion of the shares of Series B Preferred Stock held by such holders, if, at
the time of such election by the Corporation, the VWAP of the Common Stock for
the thirty (30)-trading day period immediately preceding the date of such
election is at least two (2) times greater than the Applicable Conversion Price
for such shares of Series B Preferred Stock; provided,
that in the event the Corporation elects to require the holders of Series B
Preferred Stock to only convert a portion of their shares of Series B Preferred
Stock, then such portion shall be allocated pro rata among the holders of Series
B Preferred Stock based on the number of shares owned by each such holder. In
any conversion pursuant to this Section (d)(3),
such conversion shall be automatic upon election by the Corporation, without
need for any further action by the holders of shares of Series B Preferred Stock
and regardless of whether the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided,
however,
that the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing such shares of Series B Preferred Stock so converted are surrendered
to the Corporation in accordance with the procedures described in Section (d)(5).
Upon the conversion of the Series B Preferred Stock pursuant to this
Section (d)(3),
the Corporation shall promptly send written notice thereof, by registered or
certified mail, return receipt requested and postage prepaid, by hand delivery
or by overnight delivery, to each holder of record of Series B Preferred Stock
at his, her or its address then shown on the records of the Corporation, which
notice shall state that certificates evidencing shares of Series B Preferred
Stock so converted must be surrendered at the office of the Corporation (or of
its transfer agent for the Common Stock, if applicable) in the manner
described in Section (d)(5).

 

(4)  No
Fractional Shares.
No fractional shares of Common Stock shall be issued upon conversion of any
series of Series B Preferred Stock. In lieu of fractional shares, the
Corporation shall pay therefor, at the time of any conversion of Series B
Preferred Stock as herein provided, an amount in cash equal to such fraction
multiplied by the VWAP of the Common Stock for the thirty (30)-trading day
period immediately preceding the date of conversion, payable upon surrender of
the certificates representing the shares of Series B Preferred Stock being
converted.

 

(5)  Mechanics
of Conversion.
Before any holder of Series B Preferred Stock shall be entitled to receive
certificates representing the shares of Common Stock into which shares of Series
B Preferred Stock are converted in accordance with Sections
(d)(2) or
(d)(3),
such holder shall surrender the certificate or certificates for such shares of
Series B Preferred Stock, duly endorsed, at the office of the Corporation or of
any transfer agent for the Series B Preferred Stock, and shall give written
notice to the Corporation at such office of the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued, if different from the name shown on the books and records of the
Corporation. Said conversion notice shall also contain such representations as
may reasonably be required by the Corporation to the effect that the shares to
be received upon conversion are not being acquired and will not be transferred
in any way that might violate the then applicable securities laws. The
Corporation shall, as soon as practicable thereafter and in no event later than
thirty (30) days after the delivery of said certificates, issue and deliver
at such office to such holder of Series B Preferred Stock, or to the nominee or
nominees of such holder as provided in such notice, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled. The person or persons entitled to receive the shares of Common
Stock issuable upon a conversion pursuant to Sections
(d)(2) or
(d)(3) shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock as of the effective date of conversion specified in such section.
All certificates issued upon the exercise or occurrence of the conversion shall
contain a legend governing restrictions upon such shares imposed by law or
agreement of the holder or his or its predecessors.

 

9

(6)  Adjustment
for Subdivisions or Combinations of Common Stock; Stock
Dividends.
In the event the Corporation at any time or from time to time after the Series
B-1 Issue Date effects a subdivision or split of its Common Stock into a greater
number of shares of Common Stock or shall issue a stock dividend on the
outstanding Common Stock without an equivalent subdivision or split of, or
dividend on, the Series B Preferred Stock, then in such event the Applicable
Conversion Price for each of the issued and outstanding series of Series B
Preferred Stock in effect immediately prior to such subdivision or split or the
issuance of such dividend shall be proportionately decreased (and the Applicable
Conversion Rate for each of the issued and outstanding series of Series B
Preferred Stock thus proportionately increased), effective at the close of
business on the date of such subdivision, split or dividend. In the event the
Corporation at any time or from time to time after the Series B-1 Issue Date
effects a combination of the outstanding Common Stock into a lesser number of
shares without an equivalent combination of the outstanding Series B Preferred
Stock, then in such event the Applicable Conversion Price for each of the issued
and outstanding series of Series B Preferred Stock in effect immediately prior
to such combination, shall be proportionately increased (and the Applicable
Conversion Rate for each of the issued and outstanding series of Series B
Preferred Stock thus proportionately decreased), effective at the close of
business on the date of such combination.

 

(7)  Adjustment
of Conversion Price for Diluting Issues.

 

(i)  Series
B-1 Conversion Price.
In the event the Corporation issues any Additional Shares of Common Stock (as
defined below) following the Series B-1 Issue Date, at a per share
consideration less than the Series B-1 Conversion Price then in effect, then the
Series B-1 Conversion Price shall be reduced, concurrently with such issuance,
to the price (calculated to the nearest cent) determined to be the per share
consideration, if any, received, or deemed to have been received, pursuant to
Section (d)(7)(vi),
by the Corporation upon such issuance of Additional Shares of Common
Stock.

 

(ii)  Series
B-2 Conversion Price.
In the event the Corporation issues any Additional Shares of Common Stock (as
defined below) following the Series B-2 Issue Date, at a per share
consideration less than the Series B-2 Conversion Price then in effect, then the
Series B-2 Conversion Price shall be reduced, concurrently with such issuance,
to the price (calculated to the nearest cent) determined to be the per share
consideration, if any, received, or deemed to have been received, pursuant to
Section (d)(7)(vi),
by the Corporation upon such issuance of Additional Shares of Common
Stock.

 

10

(iii)  Series
B-3 Conversion Price.
In the event the Corporation issues any Additional Shares of Common Stock
following the Series B-3 Issue date, at a per share consideration less than the
Series B-3 Conversion Price then in effect, then the Series B-3 Conversion Price
shall be reduced, concurrently with such issuance, to the price (calculated to
the nearest cent) which is the sum of:

 

(a)  the
product of (X) .25 multiplied by (Y) the Series B-3 Conversion Price multiplied
by (Z) a fraction:

 

(A)  the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus
the number of shares of Common Stock issuable upon conversion of all the
outstanding Common Stock Equivalents outstanding immediately prior to such
issuance plus
the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common Stock in
such issuance would purchase at the Series B-3 Conversion Price in effect
immediately prior to such issuance; and 

 

(B)  the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus
the
number of shares of Common Stock issuable upon conversion of all outstanding
Common Stock Equivalents outstanding immediately prior to such issuance
plus
the number of such Additional Shares of Common Stock so issued; and

 

(b)  the
product of (X) .75 multiplied by (Y) the price (calculated to the nearest cent)
determined to be the per share consideration, if any, received, or deemed to
have been received, pursuant to Section (d)(7)(vi),
by the Corporation upon such issuance of Additional Shares of Common
Stock

 

(iv)  Series
B-4 Conversion Price.
In the event the Corporation issues any Additional Shares of Common Stock
following the Series B-4 Issue date, at a per share consideration less than the
Series B-4 Conversion Price then in effect, then the Series B-4 Conversion Price
shall be reduced, concurrently with such issuance, to the price (calculated to
the nearest cent) which is the sum of:

 

(a)  the
product of (X) .5 multiplied by (Y) the Series B-4 Conversion Price multiplied
by (Z) a fraction:

 

(C)  the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus
the number of shares of Common Stock issuable upon conversion of all outstanding
Common Stock Equivalents outstanding immediately prior to such issuance
plus
the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common Stock in
such issuance would purchase at the Series B-4 Conversion Price in effect
immediately prior to such issuance; and 

 

11

(D)  the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus
the
number of shares of Common Stock issuable upon conversion of all outstanding
Common Stock Equivalents outstanding immediately prior to such issuance
plus
the number of such Additional Shares of Common Stock so issued; and

 

(b)  the
product of (X) .5 multiplied by (Y) the price (calculated to the nearest cent)
determined to be the per share consideration, if any, received, or deemed to
have been received, pursuant to Section (d)(7)(vi),
by the Corporation upon such issuance of Additional Shares of Common
Stock.

 

(v)  As
used herein, “Additional
Shares of Common Stock”
shall mean either (x) shares of Common Stock, or (y) the maximum
number of shares of Common Stock issuable upon conversion, exchange or exercise
of Common Stock Equivalents; provided,
however,
that Additional Shares of Common Stock shall not include:

 

(A)  any
securities to be issued to employees, officers or directors of, or consultants
or advisors to, the Corporation pursuant to stock purchase or stock option plans
or other arrangements that are for purposes of compensation to such persons in
their capacity as employees, officers, directors, consultants or advisors and
are approved by the Board of Directors, subject to an aggregate maximum of the
lower of (x) 4,000,000 shares of Common Stock (as adjusted by stock dividends,
splits, subdivisions or combinations of shares and on an as-converted basis) and
(y) 10% of the outstanding shares of Common Stock (determined on a Fully Diluted
Basis); 

 

(B)  any
securities of any class or series issued or to be issued pursuant to any options
or warrants (but not convertible debentures) outstanding as of the date of the
Purchase Agreement; 

 

(C)  any
securities of any class or series issued or to be issued pursuant to the
conversion or exercise of any securities issued in connection with the Purchase
Agreement; 

 

(D)  any
securities of any class or series issued or to be issued pursuant to the
Purchase Agreement;

 

(E)  Common
Stock for which an adjustment has been made pursuant to Section (d)(6);

 

12

(F)  any
securities issued for consideration other than cash pursuant to a merger,
consolidation, acquisition or similar business combination, subject to an
aggregate maximum of the lower of (x) 2,000,000 shares of Common Stock (as
adjusted by stock dividends, splits, subdivisions or combinations of shares and
on an as-converted basis) and (y) 5% of the outstanding shares of Common Stock
(determined on a Fully Diluted Basis);

 

(G)  any
securities issued in connection with any stock split, stock dividend,
recapitalization or similar transaction by the Corporation; 

 

(H)  any
securities issued as consideration, whether in whole or in part, to any person
or entity for providing services or supplying goods to the Corporation, subject
to an aggregate maximum of the lower of (x) 2,000,000 shares of Common Stock (as
adjusted by stock dividends, splits, subdivisions or combinations of shares and
on an as-converted basis) and (y) 5% of the outstanding shares of Common Stock
(determined on a Fully Diluted Basis); 

 

(I)  any
securities issued to any entity which is or will be, itself or through its
subsidiaries or affiliates, an operating company in a business related to or
complementary with the business of the Corporation and in which the Corporation
receives reasonably material benefits in addition to the investment of funds,
subject to an aggregate maximum of the lower of (x) 2,000,000 shares of Common
Stock (as adjusted by stock dividends, splits, subdivisions or combinations of
shares and on an as-converted basis) and (y) 5% of the outstanding shares of
Common Stock (determined on a Fully Diluted Basis);

 

(J)  any
securities issued pursuant to any equipment leasing arrangement, subject to an
aggregate maximum of the lower of (x) 2,000,000 shares of Common Stock (as
adjusted by stock dividends, splits, subdivisions or combinations of shares and
on an as-converted basis) and (y) 5% of the outstanding shares of Common Stock
(determined on a Fully Diluted Basis);

 

(K)  any
securities issued to pay all or a portion of any investment banking, finders or
similar fee or commission, which entitles the holders thereof to acquire shares
of Common Stock at a price not less than the market price of the Common Stock on
the date of such issuance and which is not subject to any adjustments other than
on account of stock splits and reverse stock splits, subject to an aggregate
maximum of the lower of (x) 2,000,000 shares of Common Stock (as adjusted by
stock dividends, splits, subdivisions or combinations of shares and on an
as-converted basis) and (y) 5% of the outstanding shares of Common Stock
(determined on a Fully Diluted Basis); and 

 

(L)  other
securities as may be mutually agreed in writing prior to their issuance by the
Corporation and the holders of at least a majority of
the outstanding shares of Series B Preferred Stock; 

 

13

provided,
however,
the exemptions from adjustment for the issuance of securities described in
clauses (A), (F), (H), (I), (J) and (K), in the aggregate, will be subject to an
aggregate maximum of the lower of (x) 5,000,000 shares of Common Stock (as
adjusted by stock dividends, splits, subdivisions or combinations of shares and
on an as-converted basis) and (y) 12.5% of the outstanding shares of Common
Stock (determined on a Fully Diluted Basis).

 

(vi)  The
per share consideration with respect to the sale or issuance of a share of
Common Stock shall be the price per share received by the Corporation, prior to
the payment of any expenses, commissions, underwriting discounts and other
applicable costs. With respect to the sale or issuance of Common Stock
Equivalents that are convertible into or exchangeable for Common Stock without
further consideration, the per share consideration shall be determined by
dividing the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for subsequent
adjustment of such number) of Common Stock issuable with respect to such
Common Stock Equivalents into the aggregate consideration received by the
Corporation upon the sale or issuance of such Common Stock Equivalents. With
respect to the issuance of other Common Stock Equivalents, the per share
consideration shall be determined by dividing the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for subsequent adjustment of such number) of Common Stock
issuable with respect to such Common Stock Equivalents into the aggregate
consideration received by the Corporation upon the sale or issuance of such
Common Stock Equivalents plus the total consideration receivable by the
Corporation upon the conversion or exercise of such Common Stock Equivalents. In
connection with the sale or issuance of Common Stock and/or Common Stock
Equivalents for non-cash consideration, the amount of consideration shall be
determined by the Board of Directors in good faith.

 

(vii)  Once
any Additional Shares of Common Stock have been treated as having been issued
for the purpose of this Section (d)(7),
they shall be treated as issued and outstanding shares of Common Stock whenever
any subsequent calculations must be made pursuant hereto.

 

(8)  Recapitalizations,
Reorganizations, etc. In
the event of any recapitalization, reorganization, consolidation or merger of
the Corporation with or into another Person or the sale, transfer or other
disposition of all or substantially all of the assets of the Corporation and its
subsidiaries (viewed as a whole) to another Person (other than a
consolidation, merger or sale treated as a Liquidation or Sale or Merger
pursuant to Section (b)),
each share of Series B Preferred Stock shall thereafter be convertible into the
kind and amount of shares of stock or other securities or property that a holder
of the number of shares of Common Stock deliverable upon conversion of Series B
Preferred Stock would have been entitled to receive upon such recapitalization,
reorganization, consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be
made in the application of the provisions set forth in this Section (d) with
respect to the rights and interests thereafter of the holders of Series B
Preferred Stock, to the end that the provisions set forth in this Section (d) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon conversion of
Series B Preferred Stock. The Corporation shall not enter into any such
recapitalization, reorganization, consolidation, merger or sale (other than a
consolidation, merger or sale treated as a Liquidation or Sale or Merger
pursuant to Section (b),
for which Section (b) shall control) without
giving effect to the conversion provisions contained in this Section
(d)
or any other governing documents and requiring any successor to the Corporation
resulting from such recapitalization, reorganization, consolidation, merger or
sale to agree in writing to be bound by such provisions.

 

14

(9)  De
Minimis Adjustments.
No adjustment to the Applicable Conversion Price (and, thereby, the Applicable
Conversion Rate) shall be made if such adjustment would result in a change
in the Applicable Conversion Price of less than $0.01. Any adjustment of less
than $0.01 that is not made shall be carried forward and taken into account in
any subsequent adjustment to the Applicable Conversion Price and shall be made
at the time of and together with any subsequent adjustment that, on a cumulative
basis, amounts to an adjustment of $0.01 or more in the Applicable Conversion
Price.

 

(10)  No
Impairment.
Except as provided in Section (e),
the Corporation shall not, by amendment of its Certificate of Incorporation or
bylaws or through any reorganization, transfer of assets, consolidation, merger,
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 to be observed
or performed hereunder by the Corporation, but shall at all times in good faith
assist in the carrying out of all the provisions of this Section (d) and
in the taking of all such action as may be necessary or appropriate in order to
protect the Series B Conversion Rights of the holders of the Series B Preferred
Stock against impairment.

 

(11)  Certificate
as to Adjustments.
Upon the occurrence of each adjustment or readjustment of any Applicable
Conversion Price pursuant to this Section (d),
the chief financial officer of the Corporation, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof; provided however
that upon the reasonable request of The Dow Chemical Company as holder of the
Series B Preferred Stock, the Corporation shall cause independent public
accountants selected by the Corporation to verify such computation in a written
instrument furnished to The Dow Chemical Company, as holder of the Series B
Preferred Stock. The chief financial officer of the Corporation shall also
prepare and furnish to each holder of Series B Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series B Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Applicable Conversion
Price(s) and the Applicable Conversion Rate(s) at that time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property that at that time would be received upon the conversion of Series B
Preferred Stock.

 

(12)  Notices
of Record Date.
In the event of any taking by the Corporation of a record of the holders of any
class of securities other than Series B Preferred Stock for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any Common Stock Equivalents or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
mail to each holder of Series B Preferred Stock, at least twenty (20) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
rights, and the amount and character of such dividend, distribution or
rights.

 

15

(13)  Reservation
of Stock Issuable Upon Conversion.
The Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Series B Preferred Stock such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all shares of the Series B Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock would be
insufficient to effect the conversion of all then outstanding shares of the
Series B Preferred Stock, the Corporation shall take such corporate action prior
to taking any action that would result in any such insufficiency as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.

 

(e)  Protective
Provisions.

 

(1)  Actions
Requiring Majority Approval of Series B Preferred Stock.
So long as TDCC holds not less than twenty-five percent (25%) of the shares of
Series B Preferred Stock that have been issued under the Purchase Agreement as
of such time, in addition to any other rights provided by law, except where the
vote or written consent of the holders of a greater number of shares is required
by law or by another provision of the Certificate of Incorporation, without
first obtaining the affirmative vote or written consent of the holders of a
majority of the total number of shares of Series B Preferred Stock outstanding,
voting together as a single class, the Corporation shall not:

 

(A)  amend
or repeal any provision of, or add any provision to, the Certificate of
Incorporation or bylaws, or file any certificate of designations, preferences,
limitations and relative rights of any series of preferred stock, if such action
would adversely alter or change the preferences, rights, privileges or powers
of, or restrictions provided for the benefit of the Series B Preferred Stock,
regardless of whether any such action shall be by means of amendment to the
Certificate of Incorporation or by merger, consolidation or
otherwise;

 

(B)  increase
or decrease (other than by conversion) the authorized number of shares of
the Series B Preferred Stock;

 

(C)  create
or authorize (by reclassification or otherwise) any new class or series of
shares that has a preference over or is on a parity with the Series B Preferred
Stock with respect to dividends or the distribution of assets on the
liquidation, dissolution or winding up of the Corporation; 

 

16

(D)  purchase,
repurchase or redeem any shares of Common Stock (other than pursuant to equity
incentive agreements with employees giving the Corporation the right to
repurchase shares upon the termination of services);

 

(E)  pay
dividends or make any other distribution on the Common Stock; or

 

(F)  whether
or not prohibited by the terms of the Series B Preferred Stock, circumvent a
right of the Series B Preferred.

 

(f)  Put
Option.
At any time during the Put Option Period any holder of Series B Preferred Stock
has the option to require the Corporation to purchase any portion or all of the
shares of Series B Preferred Stock held by such holder by notifying the
Corporation by delivery of written notice (the “Put
Notice”) to
the Corporation of its desire to have the Corporation purchase any portion or
all outstanding shares of Series B Preferred Stock held by such holder. Upon
receipt of the Put Notice, the Corporation shall, to the extent that it is
legally permitted to do so, purchase any portion or all of the then-outstanding
shares of Series B Preferred Stock by paying cash to the holder thereof in
respect of each share of Series B Preferred Stock equal to the Put Price (as
hereinafter defined) within two (2) days receipt of the Put Notice (the
“Put
Date”).
The “Put
Price”
shall be equal to the product of $0.50 (as adjusted for any stock dividends,
combinations, stock splits or similar recapitalization events) multiplied by the
current Applicable Conversion Rate for each share of the series of Series B
Preferred Stock the Corporation is purchasing. On or before the Put Date, the
holders of Series B Preferred Stock exercising the Put Option shall surrender to
the Corporation the certificate or certificates representing such shares of
Series B Preferred Stock that the holder is requiring the Corporation to
purchase. After the close of business on the Put Date, unless there shall have
been a default in payment of the Put Price, all rights of the holders of shares
of Series B Preferred Stock (except the right to receive the Put Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. 

 

(g)  Holding
Period.
For any Series B Preferred Stock, the holder of such series of Series B
Preferred Stock shall hold such shares of Series B Preferred Stock or the shares
of Common Stock underlying such Series B Preferred Stock, for a minimum of six
(6) months after the Applicable Issue Date.

 

(h)  Notices.
Any notice required by the provisions hereof to be given to the holders of
shares of Series B Preferred Stock shall be deemed given on (i) the third
business day following (and not including) the date on which such notice is
deposited in the United States mail, first-class, postage prepaid, and addressed
to each holder of record at his address appearing on the books of the
Corporation or (ii) the business day following the date on which such notice is
sent via overnight delivery by nationally recognized overnight courier. Notice
by any other means shall not be deemed effective until actually
received.

 

17

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