EXECUTION VERSION

 

CONVERSION/EXCHANGE AGREEMENT

 

This CONVERSION/EXCHANGE AGREEMENT (this "Agreement"), is entered into as of
March 29, 2013, by and between LC CAPITAL MASTER FUND LTD, a Cayman Islands
Corporation (“LC Capital”) and VUZIX CORPORATION, a Delaware corporation
(“Borrower”).

 

WHEREAS, pursuant to a Convertible Loan and Security Agreement dated as of
December 23, 2010 (the “Original Convertible Loan Agreement”), LC Capital made a
loan to the Borrower in the principal amount of $4,000,000 (the “Convertible
Loan”), and in connection therewith, the Borrower issued and sold to LC Capital
and LC Capital purchased from the Borrower, its promissory note due December 23,
2014 (the “Original Convertible Note”), upon the terms and subject to the
conditions set forth in the Original Convertible Loan Agreement; and

 

WHEREAS, on May 19, 2012 the Borrower and the Lender entered into a Promissory
Note and Security Agreement (the “Bridge Loan Agreement”) pursuant to which the
Lender extended to the Borrower a line of credit of up to $500,000 (the “Bridge
Loan,” and together with the Convertible Loan, the “Loans”); and

 

WHEREAS, pursuant to the Asset Purchase Agreement, dated as of June 15, 2012,
between the Borrower and TDG Acquisition Company, LLC (the “Purchaser,” and such
agreement, the “Purchase Agreement”), the Borrower has, with the consent of LC
Capital, sold the Acquired Assets (as defined in the Purchase Agreement) to the
Purchaser (such disposition of assets, the “TDG Disposition”) and paid LC
Capital the amount of $4,299,096 in reduction of the Loans; and

 

WHEREAS, as a result of such payment, the Bridge Loan was repaid in full;

 

WHEREAS, on June 15, 2012, in connection with the Purchase Agreement and as a
condition to LC Capital consenting to the TDG Disposition, the Borrower and LC
Capital entered into a letter agreement outlining the modifications to the
Original Convertible Loan Agreement that would be required for LC Capital to be
willing to consent to the TDG Disposition.

 

WHEREAS, to effect such modified terms, the Borrower and LC Capital (i) amended
and restated the Original Convertible Loan Agreement as to the Amended and
Restated Loan and Security Agreement, dated as of June 15, 2012, between LC
Capital and the Borrower and (ii) amended and restated the Original Convertible
Note as to the Convertible Promissory Note, dated as of June 15, 2012, in the
amount of $619,122 (the “Convertible Note”);

 

WHEREAS, the current outstanding balance of the Convertible Loan is $619,122
plus $22,907 of Accrued but unpaid Interest.

 

WHEREAS, pursuant to the [Warrant Agreement], dated December 23, 2010, the
Borrower issued certain warrants to LC Capital and, following certain
restructurings of the Borrower and agreements with LC Capital, LC Capital
currently owns 533,333 warrants to purchase Common Stock (defined below)
exercisable at $7.44 per share (the “Warrants”);

 

WHEREAS, in order to attract new investors and make financing opportunities more
attractive to potential investors, the Borrower has requested that LC Capital
convert the Convertible Note into shares of the Borrower’s common stock, par
value $.001 per share ("Common Stock"), and exchange the Warrants for shares of
Common Stock, in each case pursuant to the terms set forth herein.

 

NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements of the parties hereinafter set forth, the parties hereto hereby agree
as follows:

 

Page 1 of 10

EXECUTION VERSION

 

1. DEBT CONVERSION; WARRANT EXCHANGE.

 

(a) (1) LC Capital agrees, subject to the conditions set forth herein, to
convert the principal and accrued but unpaid interest on the Convertible Note
(“Debt Conversion”) into shares of Common Stock (such shares to be owned by LC
Capital, the "Conversion Shares") either, as LC Capital may decide in its sole
discretion, (i) pursuant to the terms of the Convertible Note or (ii) at a
conversion price equal to the per share offering price of the Company’s shares
in its proposed secondary offering with Aegis Capital, as further described in
Section 4(a)(v),.

 

(2) The Borrower shall comply with all legal requirements applicable and take
such other actions as may be necessary to effectuate the Debt Conversion,
including, but not limited to, providing notices to, and responding to queries
from, all applicable regulatory authorities and stock exchanges and obtaining
all necessary regulatory and third party consents.

 

(b) (1) LC Capital and the Borrower agree, subject to the conditions set forth
herein, to exchange the Warrants (the “Warrant Exchange”) for the greater of (A)
200,000 shares of Common Stock, or (B) the Black Scholes Value of each Warrant
(calculated using the Bloomberg OV function) as of the date of the pricing of
the proposed secondary offering with Aegis Capital ( the “Reference Date”) based
upon the per share offering price of the Company’s shares in its proposed
secondary offering with Aegis Capital, as further described in Section 4(a)(V),
using a 65% volatility and a 0.5% interest rate, multiplied by the number of
Warrant Shares divided by the offering price [(Black Scholes Value of each
Warrant * # of Warrant Shares)/Aegis Offering Price] (such shares to be owned by
LC Capital in exchange for the Warrants, the "Exchange Shares").

 

(2) The Borrower shall comply with all legal requirements applicable and take
such other actions as may be necessary to effectuate the Warrant Exchange,
including, but not limited to, providing notices to, and responding to queries
from, all applicable regulatory authorities and stock exchanges and obtaining
all necessary regulatory and third party consents.

 

(c) Subject to the terms and conditions of this Agreement, the consummation of
the Debt Conversion and the Warrant Exchange shall take place at a closing
("Closing" and the date of the Closing, the “Closing Date”) to be held at 10:00
a.m., local time, on the fourth business day after the date on which the last of
the conditions set forth in Section 4(a) and (b) below is fulfilled, at the
offices of Sichenzia Ross Friedman Ference LLP, 32 Floor, 61 Broadway, New York,
New York 10006, or at such other time, date or place as the parties may agree
upon in writing. The Borrower shall send to LC Capital at least two business
days prior to the Closing a notice indicating (i) the amount of unpaid interest
accrued on the Convertible Note through the date of the Closing and the number
of shares of Common Stock LC Capital will be issued upon the Debt Conversion,
and (ii) the Black Scholes value of the Warrants as of the Reference Date
(calculated in accordance with Section 1(b)) and the number of shares that will
be issued upon the Warrant Exchange. At the Closing, LC Capital shall deliver
the Convertible Note and the Warrants for cancellation and the Borrower shall
deliver to LC Capital certificates representing the Conversion Shares and the
Exchange Shares to which LC Capital is entitled as a result of such Debt
Conversion and Warrant Exchange. From and after the Closing, the Convertible
Note and the Warrants shall represent solely the right to receive Conversion
Shares and Exchange Shares, as applicable. If LC Capital has lost the
Convertible Note and/or the Warrant and is unable to deliver the Convertible
Note and/or the Warrant at the Closing, it shall submit an affidavit of loss and
indemnity agreement so that the Convertible Note and/or Warrant may be replaced
and deemed cancelled in accordance with the terms hereof. In the event that as a
result of the Debt Conversion or Warrant Exchange, fractions of shares would be
required to be issued, such fractional shares shall be rounded up to the nearest
whole share. The Borrower shall pay any documentary, stamp or similar issue or
transfer tax due on such Debt Conversion or Warrant Exchange.

 

(d) Upon and after Closing and following the issuance of the Conversion Shares
and Exchange Shares, any and all obligations of the Borrower under the
Convertible Note and the Warrants shall automatically, and without further
action, terminate and be null and void, and, with respect to the Convertible
Note, LC Capital hereby authorizes the Borrower to file a UCC-3 or other
appropriate form to terminate any and all liens against the assets and property
of the Borrower, including the Borrower's intellectual property, software code,
trademarks and trade names, or other security interest of LC Capital.

 

Page 2 of 10

EXECUTION VERSION

 

2. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower hereby
represents and warrants to LC Capital as follows:

 

(a) As of the date hereof, the Borrower has 700,000,000 shares of Common Stock
authorized, of which 3,536,865 shares of Common Stock are issued and
outstanding, and 5,000,000 shares of preferred stock authorized, of which no
shares are issued and outstanding. As of the date hereof, the Borrower has
reserved for issuance 1,055,850shares of Common Stock (as may be adjusted for
reclassifications, stock dividends, spin-offs or distributions, share
combinations or other similar changes affecting the Common Stock as a whole)
upon exercise of all outstanding options and warrants (including the Warrants).
A further 332,287 shares of Common Stock (as may be adjusted for
reclassifications, stock dividends, spin-offs or distributions, share
combinations or other similar changes affecting the Common Stock as a whole)
upon the conversion of outstanding convertible debt (including the Convertible
Note) and deferred compensation, but does not include the issuance of further
shares related to other existing debt conversion agreements the Borrower is
currently entering into with its other secured creditors. All of the issued and
outstanding shares of the Borrower's Common Stock are, and all shares reserved
for issuance will be, upon issuance in accordance with the terms specified in
the instruments or agreements pursuant to which they are issuable, duly
authorized, validly issued, fully paid and nonassessable. The Conversion Shares
and Exchange Shares to be issued and delivered to LC Capital upon conversion of
the Convertible Note and the exchange of the Warrants have been duly authorized
and when issued upon such Debt Conversion or Warrant Exchange and in accordance
with this Agreement, will be validly issued, fully-paid and non-assessable. The
Conversion Shares and the Exchange Shares will be "restricted securities" as
defined under Rule 144 promulgated under the Securities Act of 1933, as amended
(the “Securities Act”).

 

(b) The Borrower has full legal power to execute and deliver this Agreement and
to perform its obligations hereunder. All acts required to be taken by the
Borrower to enter into this Agreement and to carry out the transactions
contemplated hereby have been properly taken (including obtaining the consent of
any security holder of the Borrower), and this Agreement constitutes a legal,
valid and binding obligation of the Borrower, enforceable in accordance with its
terms and does not conflict with, result in a breach or violation of or
constitute (or with notice of lapse of time or both constitute) a default under
any instrument, contract or other agreement to which the Borrower or its
subsidiaries is a party.

 

(c) None of the Borrower's Certificate of Incorporation, as amended, or Bylaws,
any agreement to which the Borrower is a party, or the laws of Delaware, or New
York, restrict the Borrower's ability to enter into this Agreement or consummate
the transactions contemplated by this Agreement or would limit any of LC
Capital's rights following consummation of the transactions contemplated by this
Agreement.

 

(d) The Borrower has delivered or made available through EDGAR and SEDAR to LC
Capital prior to the execution of this Agreement true and complete copies of all
periodic reports, registration statements and proxy statements filed by it with
the U.S Securities and Exchange Commission (“Commission” or “SEC”) since
December 10, 2009. Each of such filings with the Commission (collectively, the
"SEC Filings"), as of its filing date, complied in all material respects with
the requirements of the rules and regulations promulgated by the Commission with
respect thereto and did not contain any untrue statement of a material fact or
omit a material fact necessary in order to make the statements contained therein
not misleading in light of the circumstances in which such statements were made,
and the Borrower has made all required SEC Filings.

 

(e) Since January 1, 2012 and except as disclosed in the SEC Filings, the
Borrower has conducted its business in compliance in all material respects with
all applicable laws, rules, regulations, court or administrative orders and
processes and rules, directives and orders of regulatory and self-regulatory
agencies and bodies, except as could not reasonably be expected, singly or in
the aggregate, to be materially adverse to the business, assets or financial
condition of the Borrower.

 

(f) The Borrower has, or will have as of prior to the Closing Date registered
its Common Stock to trade on NASDAQ Capital Markets and, any consents or
approvals necessary to consummate the transactions contemplated hereby
(including from any government, self-regulatory organization, exchanges,
contractual counterparty or security holder of the Borrower) have been obtained
(or will be obtained prior to the Closing).

 

Page 3 of 10

EXECUTION VERSION

 

(g) No representation or warranty by the Borrower contained in this Agreement
contains any untrue statement of a material fact or omits a material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which such statements were made.

 

3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LC CAPITAL. LC Capital
represents, warrants and covenants to the Borrower as follows:

 

(a) LC Capital has full legal power to execute and deliver this Agreement and to
perform its obligations hereunder. LC Capital represents and warrants that it is
the sole legal and beneficial holder of the Convertible Note being converted and
the Warrants being exchanged by LC Capital hereunder. On the Closing Date, LC
Capital shall deliver good, valid and marketable title to the Convertible Note
and the Warrants transferred to the Borrower hereunder for cancellation, free
and clear of any liens, charges, and encumbrances. All acts required to be taken
by LC Capital to enter into this Agreement and to carry out the transactions
contemplated hereby have been properly taken; and this Agreement constitutes a
legal, valid and binding obligation of LC Capital enforceable in accordance with
its terms.

 

(b) LC Capital has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment in
the Borrower's securities and has obtained, in its judgment, sufficient
information about the Borrower to evaluate the merits and risks of an investment
in the Borrower.

 

(c) LC Capital is relying solely on the representations and warranties contained
in Section 2 hereof, the information contained in the SEC Filings and in
certificates delivered hereunder in making its decision to enter into this
Agreement and consummate the transactions contemplated hereby and no oral
representations or warranties of any kind have been made by the Borrower or its
officers, directors, employees or agents to LC Capital.

 

(d) LC Capital represents, warrants and agrees that (i) the Conversion Shares
and the Exchange Shares it receives will be acquired for investment purposes
only for their own account or for the account of controlled affiliates, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that they have no present intention of selling, granting any
participation in or otherwise distributing the same, (ii) it is not party to any
undisclosed contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person
with respect to any of Conversion Shares or the Exchange Shares, (iii) it has
not been formed for the specific purpose of acquiring the Conversion Shares or
the Exchange Shares, (iv) it has received or has had full access to all the
information it considers necessary or appropriate for deciding whether to
receive the Conversion Shares and the Exchange Shares on the terms set forth
herein and has had an opportunity to ask questions and receive answers regarding
the terms and conditions of the Conversion Shares and the Exchange Shares, and
the Borrower’s business, properties, prospects and financial condition, (v) that
it is financially sophisticated and is able to fend for itself, can bear the
economic risk of the investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Conversion Shares and the Exchange Shares, (vi)
it is an "accredited investor" or a "qualified institutional buyer" within the
meaning of current SEC rules.

 

(e) LC Capital understands that the Conversion Shares and Exchange Shares it is
receiving hereunder are "restricted securities" under U.S. federal securities
laws inasmuch as they will be acquired by it from the Borrower in a transaction
not involving a public offering and that under such laws and applicable
regulations such Conversion Shares and Exchange Shares may be resold without
registration only in certain limited circumstances. LC Capital further
understands that the Conversion Shares and Exchange Shares may not be sold,
transferred, hypothecated or otherwise traded on or through the facilities of
the TSX Venture Exchange until the date that is four months plus a day after the
Closing Date. The certificates evidencing the Conversion Shares and Exchange
Shares will bear an appropriate legend regarding these restrictions:

 

Page 4 of 10

EXECUTION VERSION

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT
AND UNDER APPLICABLE STATE SECURITIES LAWS OR VUZIX CORPORATION SHALL HAVE
RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER
THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED.

 

(h) In the absence of an effective registration statement covering the
Conversion Shares and the Exchange Shares, the Conversion Shares and the
Exchange Shares may only be resold only in accordance with Regulation S, or in a
transaction otherwise exempt from registration. LC Capital will not make any
direct or indirect disposition, sale, transfer, pledge, hedge (including by way
of short selling) or otherwise encumber ("Transfer") all or any portion of the
Conversion Shares or the Exchange Shares unless (a) there is a registration
statement declared effective by the SEC under the Securities Act with respect to
the Conversion Shares and/or the Exchange Shares to be Transferred and no stop
order suspending the effectiveness of such registration statement is then in
effect under the Securities Act and no proceedings for that purpose have then
been instituted or (b) the Transfer is made under a valid exemption to
registration under the Securities Act.

 

4. CONDITIONS.

 

(a) The obligations of the Borrower to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment of the following
conditions:

 

(i) The representations and warranties of LC Capital set forth in Section 3
hereof shall be true and correct on and as of the Closing Date and a certificate
certifying such shall be delivered.

 

(ii) All proceedings, corporate or otherwise, to be taken by LC Capital in
connection with the consummation of the transactions contemplated by this
Agreement shall have been duly and validly taken and all necessary consents,
approvals or authorizations of any governmental or regulatory authority,
exchanges or other third party required to be obtained by the Borrower or LC
Capital shall have been obtained in form and substance reasonably satisfactory
to the Borrower.

 

(iii) LC capital shall have delivered to the Borrower for cancellation the
Convertible Note or and the Warrants or affidavits of loss and indemnity.

 

(iv) all governmental or regulatory authorizations, approvals or permits that
are required for the issuance of the Conversion Shares and the Exchange Shares
have been obtained

 

(v) The Borrower shall have obtained the necessary approvals for the listing of
the Common Stock on the NASDAQ Capital Market and shall have consummated a
public offering of its securities as described in its Registration Statement on
Form S-1, filed with the SEC on December 21, 2012.

 

(b) The obligations of LC Capital to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment of the following conditions:

 

(i) The representations and warranties of the Borrower set forth in Section 2
hereof shall be true and correct on and as of the Closing Date and a certificate
certifying such shall be delivered.

 

(ii) All proceedings, corporate or otherwise, to be taken by the Borrower in
connection with the consummation of the transactions contemplated by this
Agreement shall have been duly and validly taken and all necessary consents,
approvals or authorizations of any governmental or regulatory authority,
exchanges or other third party required to be obtained by the Borrower or LC
Capital shall have been obtained in form and substance reasonably satisfactory
to LC Capital.

 

Page 5 of 10

EXECUTION VERSION

 

(iii) The Borrower shall have obtained the necessary approvals for the listing
of the Common Stock on the NASDAQ Capital Market and shall have consummated a
public offering of its securities as described in its Registration Statement on
Form S-1, filed with the SEC on December 21, 2012.

 

(iv) LC Capital shall have delivered to the Borrower for cancellation its
Convertible Note and the Warrants or affidavits of loss and indemnity.

 

5. REGISTRATION.

 

(a) Registration Upon Conversion/Exchange. (i) promptly and in any event not
later than forty-five (45) days following the Closing Date (the “Filing
Deadline”), the Borrower shall prepare and file with the U.S. Securities and
Exchange Commission (the “SEC”), a Registration Statement on Form S-1 (or such
other form as the Borrower is then eligible to use) registering the resale from
time to time by LC Capital of the Conversion Shares and the Exchange Shares
pursuant to a plan of distribution reasonably acceptable to LC Capital (the
“Registration Statement”). The Borrower shall deliver to LC Capital a copy of
the Registration Statement and give LC Capital and its counsel the reasonable
opportunity to review and comment on the Registration Statement. The Borrower
shall notify LC Capital promptly and no later than three (3) business days of
the receipt of the comments of the SEC, if any, and of any request by the SEC
for amendments or supplements to the Registration Statement or for additional
information with respect thereto and if required, provide LC Capital with copies
of all correspondence between the Borrower or its representatives, on the one
hand, and the SEC or members of its staff, on the other hand, with respect to
the Registration Statement. The Borrower shall cause the Registration Statement,
including any prospectus contained therein, and any post-effective amendments
thereto to comply in all material respects with the requirements of the SEC and,
as of their respective dates, to not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Borrower shall cause the Registration Statement to be declared
effective by the SEC on the earlier of (a) ninety (90) days after the Closing
Date, or (b) the third business day following the date on which the Borrower is
notified by the SEC that the Registration Statement will not be reviewed or is
no longer subject to further review and comments (the “Effectiveness Deadline”),
and to keep such Registration Statement continuously effective under the
Securities Act until the earlier of (i) the date on which all Conversion Shares
and the Exchange Shares registered on such Registration Statement have been sold
by LC Capital (the “Registration Termination Date”); or (ii) the date on which
all Conversion Shares and the Exchange Shares may be sold pursuant to the Rule
144 without restriction or limitation.

 

(ii)         The Borrower shall supplement and amend the Registration Statement
if required by the rules, regulations or instructions applicable to the
registration form used by the Borrower for such Registration Statement, if
required by the Securities Act and the rules and regulations of the SEC
thereunder, or to the extent to which the Borrower does not reasonably object,
as requested by LC Capital;

 

(iii)         The Borrower shall furnish to LC Capital such number of copies of
the Registration Statement, prospectus supplements and such other documents as
LC Capital may reasonably request, in order to facilitate the public sale or
other disposition of all or any of the Conversion Shares and the Exchange
Shares;

 

(iv)         (a) To prepare and file in such jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until the Registration Termination Date and otherwise comply with
applicable law, and (b) take all such other lawful actions as may be necessary
to maintain such registrations, qualifications and exemptions in effect at all
times until the Registration Termination Date.

 

Page 6 of 10

EXECUTION VERSION

 

(v)         As promptly as practicable after becoming aware of such event,
notify LC Capital of the occurrence of any event, as a result of which the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare a supplement to the
Registration Statement to correct such untrue statement or omission, and deliver
a number of copies of such supplement to LC Capital as it may reasonably
request. As promptly as practicable after becoming aware of such event, notify
LC Capital of the issuance by the SEC of any stop order or other suspension of
the effectiveness of the Registration Statement and take all lawful action to
effect the withdrawal, rescission or removal of such stop order or other
suspension;

 

(vi)         With a view to making available to LC Capital the benefits of
certain rules and regulations of the SEC which may permit the sale of the
Conversion Shares and the Exchange Shares to the public without registration,
the Borrower shall use commercially reasonable efforts to make and keep public
information available, as those terms are understood and defined in Rule
144(c)(1) or any similar or analogous rule promulgated under the Securities Act,
at all times after the Closing Date;

 

(vii)         The Borrower shall take all commercially reasonably action to
cause the Conversion Shares and the Exchange Shares to be listed on the NASDAQ
Capital Market within 15 days of their issuance;

 

(viii)         All Registration Expenses (as defined below) incurred in
connection with the registrations pursuant to this Section 5 shall be borne by
the Borrower. “Registration Expenses” shall mean all expenses incurred by the
Borrower in complying with this Section 5 hereof including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Borrower, and the expense of any special audits incident to or
required by any such registration;

 

(ix)         In the event that the Borrower has not filed the Registration
Statement on or prior to the Filing Deadline, the Borrower shall, as liquidated
damages for such failure, immediately distribute to LC Capital 15,000 warrants
to purchase the Borrower’s common stock with an exercise price equal to the
closing Market Price of the Borrower’s common stock on the day of such
distribution (the “Damages Warrants”), and shall further distribute to LC
Capital an additional 15,000 Damages Warrants at each subsequent 30 day interval
during which the Borrower has failed to file the Registration Statement (or
ratable portion thereof if the Registration Statement is filed prior to the
subsequent 30 day interval). In the event that the Registration Statement has
not been declared effective on or prior to the Effectiveness Deadline, the
Borrower shall, as liquidated damages for such failure (but without duplication
of any concurrent Damages Warrants awarded for failure to file the Registration
Statement by the Filing Deadline), immediately distribute to LC Capital 15,000
Damages Warrants and shall further distribute to LC Capital an additional 15,000
Damages Warrants at each subsequent 30 day interval during which the
Registration Statement is not effective (or ratable portion thereof if the
Registration Statement becomes effective prior to the subsequent 30 day
interval).

 

(b)         Piggyback Registration. (i) For a period of twelve (12) months
following the Closing Date, if the Borrower shall decide to prepare and file
with the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than (i) in connection with the Registration Statement on Form
S-1 and any existing or future amendments thereto (File No. 333-185661) as
originally filed with the SEC on December 21, 2012 or (ii) on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with the stock option or other employee benefit plans, then the
Borrower shall send to LC Capital a written notice of such determination and, if
within fifteen days after the date of such notice, LC Capital shall so request
in writing, the Borrower shall include in such registration statement, all or
any part of LC Capital’s Conversion Shares and Exchange Shares (collectively,
the “Registrable Securities”) LC Capital requests to be registered; provided,
however, that, the Borrower shall not be required to register any Registrable
Securities that are the subject of a then effective registration statement;
provided, further, however,

 

Page 7 of 10

EXECUTION VERSION

 

(ii) if the registration statement is an offering to be made on a continuous
basis pursuant to Rule 415 and is not on a Form S-3, and the SEC advises the
Borrower that all of the Registrable Securities which LC Capital has requested
to be registered may not be included under Rule 415(a)(i), then the number of
Registrable Securities to be registered for LC Capital shall be reduced pro-rata
among all the holders of conversion shares that received such conversion shares
upon a debt conversion similar to the Debt Conversion (such shares, “Similar
Conversion Shares,” and any such debt conversion, a “Similar Debt Conversion”),
to an amount to which is permitted by the Commission for resale under Rule
415(a)(i) and LC Capital shall have the right to designate which of its
Registrable Securities shall be omitted from the Registration Statement; and

 

(iii) if the registration so proposed by the Borrower involves an underwritten
offering of the securities so being registered for the account of the Borrower,
to be distributed by or through one or more underwriters of recognized standing,
and the managing underwriter of such underwritten offering shall advise the
Borrower in writing that, in its opinion, the distribution of all or a specified
portion of the Registrable Securities which LC Capital has requested the
Borrower to register and otherwise concurrently with the securities being
distributed by such underwriters will materially and adversely affect the
distribution of such securities by such underwriters (such opinion to state the
reasons therefor), then the Borrower will promptly furnish LC Capital of
Registrable Securities with a copy of such opinion, and by providing such
written notice to LC Capital, LC Capital may be denied the registration of all
or a specified portion of such Registrable Securities (in case of such a denial
as to a portion of such Registrable Securities, such portion to be allocated pro
rata among LC Capital and other holders of Similar Conversion Shares); provided,
however, that shares to be registered by the Borrower for issuance by the
Borrower shall have first priority, registration of LC Capital’s Registrable
Securities hereunder shall have second priority (pro-rata along with all holders
of Similar Conversion Shares), and any other shares being registered on account
of other third parties shall have third priority.

 

(c) The rights granted under this Section 5 shall terminate upon delivery to LC
Capital of an opinion of counsel to the Borrower reasonably satisfactory to LC
Capital to the effect that such rights are no longer necessary for the public
sale of the Conversion Shares and Exchange Shares without restriction as to the
number of securities that may be sold at any one time or the manner of sale.

 

(d) The rights granted under this Section 5 shall not be transferable.

 

6. [RESERVED]

 

7. TERMINATION. This Agreement may be terminated no later than the Closing:

 

(a) At the option of any party in the event that the Debt Conversion and Warrant
Exchange have not occurred by June 30, 2013 and such delay was not as a result
of any breach of this Agreement by the terminating party;

 

(b) By LC Capital if the Borrower's Board of Directors fails to recommend by
April 12, 2013 or withdraws its approval or recommendation of the Debt
Conversion and the Warrant Exchange;

 

(c) At the option of any party if any other party has materially breached a term
of this Agreement and has not cured such breach within 30 days; or

 

(d) At the option of any party if any competent regulatory authority or exchange
shall have issued an order making illegal or otherwise restricting, preventing,
prohibiting or refusing to approve the transactions contemplated hereby.

 

Page 8 of 10

EXECUTION VERSION

 

(e) By the Borrower in the event that its make a final determination in its sole
discretion, considering whatever factors it deems relevant, not to consummate
the Debt Conversion or the Warrant Exchange.

 

8. MISCELLANEOUS.

 

(a) Section headings used in this Agreement are for convenience of reference
only and shall not affect the construction of this Agreement.

 

(b) This Agreement may be executed in any number of counterparts and by the
different parties on separate counterparts and each such counterpart shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same agreement.

 

(c) This Agreement shall be a contract made under and governed by the laws of
the State of New York.

 

(d) All obligations of the Borrower and rights of LC Capital expressed herein
shall be in addition to and not in limitation of those provided by applicable
law.

 

(e) This Agreement shall be binding upon the Borrower, LC Capital and their
respective successors and assigns, and shall inure to the benefit of the
Borrower, LC Capital and their respective successors and permitted assigns.

 

(f) The terms and provisions of this Agreement are intended solely for the
benefit of each party hereto and their respective successors or permitted
assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other person or entity.

 

(g) If one or more provisions of this letter agreement are held to be
unenforceable under applicable law, it shall be excluded from this letter
agreement and the balance of the letter agreement shall be interpreted as if it
were so excluded and shall be enforceable in accordance with its terms.

 

(h) This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

 

(i) All amendments or modifications of this Agreement and all consents, waivers
and notices delivered hereunder or in connection herewith shall be in writing
and executed by both parties hereto.

 

(j) This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior agreements and
undertakings, both written and oral, among the parties with respect thereto.

 

(k) Each of the Borrower and LC Capital hereby irrevocably waives all right to a
trial by jury in any action, proceeding or counterclaim arising out of or
relating to this Agreement and the transactions contemplated hereby.

 

(l) Whether or not the Closing occurs, the Borrower shall pay all costs and
expenses, including reasonable attorneys' fees, incurred by it or LC Capital
with respect to the negotiation, execution, delivery and performance of this
Agreement, including any expenses of enforcing this provision. This provision
shall survive termination of the Agreement.

 

Page 9 of 10

EXECUTION VERSION

 

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

 

LC CAPITAL MASTER FUND LTD:

 

By: /s/ Richard F. Conway

 

Name: Richard F. Conway

 

Title: Director

 

Date: 3-29-13

 

VUZIX CORPORATION

 

By: /s/ Paul Travers

 

Name: Paul Travers

 

Title: President

 

Date: March 29, 2013

 

Page 10 of 10