Exhibit 10.1


 






**Note:                             Confidential Information has been
omitted pursuant to a request for confidential treatment and has been filed
separately with the Securities and Exchange Commission


 


 


DEVELOPMENT &
LICENSING AGREEMENT


 


 


between


 


 


LUCENT
TECHNOLOGIES INC.


 


 


and


 


 


ISONICS
CORPORATION


 


 


 


Effective
as of September 28, 2005


 


 


Relating
to Infrared Imaging (IR Imaging) Technology


 

















 


TABLE OF
CONTENTS


 


	
  TABLE OF CONTENTS

  	
  2

  
	
  ARTICLE I

  	
  4

  
	
  DEVELOPMENT PROJECT

  	
  4

  
	
  1.01 Development Project

  	
  4

  
	
  ARTICLE II

  	
  5

  
	
  INTELLECTUAL PROPERTY

  	
  5

  
	
  2.01 Existing Intellectual Property

  	
  5

  
	
  2.02 Rights in Foreground Technology

  	
  5

  
	
  2.03 Rights in Inventions

  	
  6

  
	
  2.04 Licensed Patents

  	
  6

  
	
  2.05 Licensed Technical Information

  	
  7

  
	
  2.06 Lucent’s Reservation of Rights and Permitted Activities

  	
  9

  
	
  2.07 No Other Licenses

  	
  10

  
	
  ARTICLE III

  	
  11

  
	
  DEVELOPMENT AND LICENSE
  FEES AND ROYALTIES

  	
  11

  
	
  3.01 Development Fee

  	
  11

  
	
  3.02 Royalties

  	
  12

  
	
  3.03 Exclusivity Fee

  	
  12

  
	
  3.04 Sales Referral Fee

  	
  13

  
	
  3.05 Payments and Records

  	
  13

  
	
  3.06 Taxes

  	
  14

  
	
  ARTICLE IV - TERM AND
  TERMINATION

  	
  15

  
	
  4.01 Term

  	
  15

  
	
  4.02 Termination for Convenience

  	
  15

  
	
  4.03 Termination for Cause

  	
  16

  
	
  4.04 Survival

  	
  17

  
	
  ARTICLE V

  	
  17

  
	
  PROTECTION OF INFORMATION

  	
  17

  
	
  5.01 Lucent and Company Confidential Information

  	
  17

  
	
  5.02 Exceptions to Confidentiality

  	
  19

  
	
  5.03 Export Control

  	
  19

  
	
  ARTICLE VI

  	
  20

  
	
  MISCELLANEOUS PROVISIONS

  	
  20

  
	
  6.01 Compliance with Rules and Regulations and Indemnification

  	
  20

  
	
  6.02 Agreement Prevails

  	
  21

  
	
  6.03 Warranty and Disclaimer

  	
  22

  
	
  6.04 Addresses

  	
  23

  
	
  6.05 Integration

  	
  23

  
	
  6.06 Assignability

  	
  23

  
	
  6.07 Choice of Law

  	
  24

  
	
  6.08 Escalation and Dispute Resolution

  	
  24

  
	
  6.09 Relationship Between Parties

  	
  26

  
	
  6.10 Force Majeure

  	
  26

  
	
  6.11 Headings

  	
  26

  



 


2

















 


	
  6.12 Waiver

  	
  26

  
	
  6.13 Severability

  	
  26

  
	
  6.14 Non-Solicitation

  	
  27

  
	
  6.15 Foundry Services

  	
  27

  
	
  6.16 Publicity

  	
  27

  
	
  6.17 Execution in Counterparts

  	
  27

  
	
  APPENDIX A

  	
  29

  
	
  DEFINITIONS

  	
  29

  
	
  APPENDIX B

  	
  33

  
	
  Statement of Work

  	
  33

  
	
  APPENDIX C

  	
  37

  
	
  Lucent Patent and Patent Applications

  	
  37

  



 


3

















 


DEVELOPMENT &
LICENSING AGREEMENT


 


THIS DEVELOPMENT & LICENSING
AGREEMENT (“Agreement”), effective as of the date the
last Party signs this Agreement (“Effective Date”), is made by and between
Lucent Technologies Inc., a Delaware corporation, with offices located at 600
Mountain Avenue, Murray Hill, New Jersey 07974-0636 (“Lucent”) and ISONICS
CORPORATION, a corporation organized under the laws of California, with offices
located at 5906 McIntyre Street, Golden, Colorado 80403 (“Company”).  Lucent and Company are sometimes referred to
herein individually as a “Party” and collectively as the “Parties”.  The Parties agree as follows:*


 


WHEREAS,
Lucent has knowledge and expertise in technology known as a infrared imaging,
and


 


WHEREAS,
Company desires to engage Lucent in a Development Project in order to assess
the commercial feasibility of and to develop a Licensed Product (defined below)
useful in the field of infrared imaging; and


 


WHEREAS,
as part of the Development Project, the Parties intend to define specific
tasks, deliverables, schedules and payments in mutually agreed upon Statements
of Work (SOW’s), the first of which is set forth in the Appendix B, and


 


WHEREAS,
the Parties wish to define their roles and responsibilities in connection with
the Development Project, and the fees and royalties to be paid by Company to
Lucent,


 


NOW THEREFORE, it is
hereby agreed as follows:


 


ARTICLE I

DEVELOPMENT PROJECT


 


1.01
Development Project


 


Lucent
shall, during the Development Period, supply staff, facilities and equipment
sufficient, in its sole discretion, to perform the Development Project
described in the Statement of Work in Appendix B, and to provide the
Deliverables to Company.  Representatives
for Lucent and Company shall meet as needed, either in person or by telephone,
to evaluate and discuss the progress of the Development Project.


 






*                 Any term in capital letters which is
defined in Appendix A - Definitions shall have the meaning specified therein.


 


4

















 


The
parties may, from time to time, agree upon additional statements of work (SOW’s)
that will likewise be appended to and become a part of this Agreement.  Such additional SOW’s will require payment to
Lucent of additional development fees, and may be executed on behalf of Company only by the Chief
Executive Officer or a designated
representative appointed by the CEO of Isonics Corporation, and on behalf of
Lucent only by the President of the New Jersey Nanotechnology Consortium.  Each additional SOW will be governed by and
construed in accordance with the terms and conditions of this Agreement, but to
the extent there is any inconsistency between the terms and conditions of an
additional SOW and those of this Agreement, the terms and conditions of the
additional SOW shall take precedence and control the rights and obligations of
the Parties.  Notwithstanding the
foregoing, to the extent that any intellectual property terms and conditions of
this Agreement are to be modified or superseded by the terms and conditions of
an additional SOW, such intellectual property terms shall be specifically
identified in the additional SOW and must be executed on behalf of Lucent only
by the President – Intellectual Property Business and on behalf of Company by
the Chief Executive Officer or a
designated representative appointed by the CEO of Isonics Corporation.


 


In
the event that either party requests access to facilities, sites, data
processing and learning centers of the other Party, such access will be granted
at the option of the Parties, subject to the provisions of Section 6.01.


 


ARTICLE II


INTELLECTUAL
PROPERTY


 


2.01
Existing Intellectual Property


 


Except as provided in
Sections 2.04 and 2.05 below, all right, title and interest in and to
inventions, patents, works of authorship, trade secrets, know-how or any other
intellectual property (a) existing prior to the Effective Date of this
Agreement, or (b) developed independently by a Party outside of work
performed under SOW’s attached to this Agreement, shall remain vested in the
Party which owns it immediately prior to the Effective Date.  For the avoidance of doubt, existing
intellectual property owned by Lucent that may be provided to Company pursuant
to this Agreement shall be considered to be a part of Lucent Background
Technology.


 


2.02
Rights in Foreground Technology


 


(a)                                  Except as
specifically provided otherwise in this Agreement, all works of authorship,
trade secrets, know-how or any other intellectual property first created and
reduced to tangible, recordable or permanent form, by employees, contractors,
consultants or agents of either Party during the Development Period and as a
direct result of work performed under this


 


5

















 


Agreement, shall be termed “Lucent Foreground
Technology” and shall be owned solely by Lucent.  Nothing contained the Agreement shall require
Lucent to enforce its rights in such Lucent Foreground Technology against any
third party.


 


(b)                                 For the
avoidance of doubt, “Lucent Foreground Technology” shall not include existing
intellectual property owned by Company that may be provided to Lucent pursuant
to this Agreement.


 


2.03
Rights in Inventions


 


(a) All right,
title and interest in and to inventions created during the Development Period
and arising out of the Development Project either (i) solely by one Party,
or (ii) jointly by one or more of Lucent’s employees, contractors,
consultants or agents working together with one or more of Company’s employees,
contractors, consultants or agents, shall be owned by Lucent.  Notwithstanding any other provision of this
Agreement, there is no intention in this Agreement to transfer to Lucent any
inventions, patents, patent applications, trade secrets, know-how, or other intellectual
property owned by Company at the commencement of the Development Project or
developed by Company outside of the Development Project during the term of this
Agreement.


 


(b) Lucent may, at
its expense, file patent applications on inventions described in Section 2.03(a) in
one or more countries.  Company agrees to
cooperate in such filings, and to furnish all documents, information, or other
assistance that may be necessary for the preparation, filing and prosecution of
each such application.  For the avoidance
of doubt, Lucent shall not be required to file, prosecute or maintain any
patent application on inventions described in Section 2.03(a). Nothing
contained the Agreement shall require Lucent to enforce its rights in such
inventions or any resulting patents thereon, against any third party.


 


2.04
Licensed Patents


 


(a) Provided that
Company has paid development fees as set forth in Section 3.01 and the
license fees and royalties as set forth in Section 3.02, and subject to
the provisions of this Agreement, Lucent hereby grants to Company a personal,
non-transferable (except as permitted in Section 6.06), worldwide and
non-exclusive license (without any right to sublicense) under (i) Lucent
Patents and (ii) patents that issue to Lucent from inventions owned by
Lucent pursuant to Section 2.03. The patents in subsections (i) and (ii) in
the preceding sentence shall be referred to collectively as “Licensed Patents”.  The aforesaid license shall be limited to (1) performing
the Development Project, (2) to allow Company to make, have made, use and
sell Licensed Products manufactured with the use of the Licensed Technical
Information pursuant to this Agreement. 
Lucent does not grant the right to sublicense the Licensed Patents, it
being understood,


 


6

















 


however, that the “have made” right
granted to Company in this Section 2.04(a) shall apply in connection
with the second source supplier contemplated by Appendix B.


 


(b) Subject
to the provisions of this Agreement, Company hereby grants to Lucent a worldwide,
non-exclusive, perpetual, royalty free, personal, non-transferable (except as
permitted in Section 6.06) license (without any right to sublicense) under
patents and/or patent applications owned or controlled by Company at any time
during the Term of this Agreement to (i) perform the Development Project
during the Development Period, and (ii) to make, have made, use, sell and
import Licensed Products that Lucent is permitted to make, use, sell or import
pursuant to Section 2.06. The patent and/or patent applications
referred to above do not include any patents or patent applications owned or
controlled by Company that are primarily related to: (i) isotopically
enriched semiconductor wafer material technology, (ii) isotopically
enriched luminescent materials technology, or (iii) isotopically enriched
optical materials technology.


 


(c) Licenses
granted pursuant to Sections 2.04(a) and 2.04(b) are not to be
construed either (i) as consent by the licensor to any act which may be
performed by the licensee, except to the extent impacted by a patent licensed
herein to the licensee, or (ii) to include licenses to contributorily
infringe or induce infringement under U.S. law or a foreign equivalent thereof.


 


2.05
Licensed Technical Information


 


(a) Provided that
Company has paid development fees as set forth in Section 3.01 and the
royalties as set forth in Section 3.02, and subject to the provisions of
this Agreement, Lucent hereby grants to Company a personal, nontransferable
(except as permitted in Section 6.06) worldwide right to use, copy,
perform or display Licensed Technical Information, and create, use, copy,
perform or display Derivative Works of the Licensed Technical Information,
under any and all copyrights and trade secret rights specific to the Licensed
Technical Information (patent rights are specifically set forth in Section 2.04)
that Lucent has the right to license, and that exists as of the Effective Date
or that is created as a result of a Development Project during the term of this
Agreement.  The aforesaid license shall
be limited to (1) performing the Development Project, (2) to allow
Company to make, have made, use and sell Licensed Products manufactured with
the use of the Licensed Technical Information pursuant to this Agreement.  The license under copyrights and trade secret
rights specific to the Lucent Foreground Technology shall be exclusive (except
as under Lucent’s Reservation of Rights and Permitted Activities below, while
the license under copyrights and trade secret rights specific to the Lucent
Background Technology shall be non-exclusive. 
For the avoidance of doubt, the license to create, use, copy, perform or
display Derivative Works of the Licensed Technical Information shall be limited
to use of such Derivative Works solely in connection with


 


7

















 


Licensed Products, and shall exclude any
right to create, use, copy, perform or display devices that (a) are not
based upon a micro-electro-mechanical system (“MEMS”) [**see
cover page note] or [**see cover page note]
structure implemented to be sensitive to changes in emissive or reflective
infrared radiation that illuminates at least a portion of the surface of the
structure, or (b) are for applications that do not produce an image.


 


Lucent does not grant
Company the right to sublicense Licensed Technical Information except for the
right to procure components for their own use. 
Company agrees that Software included in the Licensed Technical Information
will be provided to customers only in object code form, in accordance with the
provisions of Section 2.05(c).


 


(b) Subject to the
provisions of this Agreement and during the term of this Agreement, Company
hereby grants to Lucent a personal, nontransferable (except as permitted in Section 6.06)
and nonexclusive, royalty-free, worldwide license to use and/or copy Company
Information for the purpose of conducting the Development Project.  Company does not grant the right to
sublicense the any of the rights granted to Lucent in this Section 2.05(b).


 


(c) Provided that
Company has paid development fees as set forth in Section 3.01 and the
royalties as set forth in Section 3.02, and subject to the provisions of
this Agreement, Lucent hereby grants to Company a personal, nontransferable and
nonexclusive right to sublicense object code Software that is part of the
Licensed Technical Information (but not, in any event, Lucent Patents) to third
parties solely for the purpose of using Licensed Products, provided that
Company obtains agreement in writing from such third party, before or at the
time of furnishing any portion of such object code Software, that:


 


(1)                                  only a
personal, nontransferable and nonexclusive right to use such object code
Software is granted to such third party;


 


(2)                                  no ownership
interest in such object code Software is transferred to such third party;


 


(3)                                  such third
party will not copy such object code Software except as necessary to use such
object code Software in connection with Licensed Products and for backup and
archive purposes in connection with such use;


 


(4)                                  if a third
party’s right-to-use is terminated for any reason, such third party will either
destroy or return all copies of such object code Software in its possession;


 


(5)                                  such third
party will not transfer such object code Software to any other party except as
authorized by Company;


 


8

















 


(6)                                  such third
party will not export or re-export such object code Software without the
appropriate United States and/or foreign government licenses;


 


(7)                                  such third
party will not reverse compile or disassemble such object code Software; and


 


(8)                                  Lucent does
not warrant such object code Software to the third party, does not assume any
liability to the third party regarding such object code Software and does not
undertake to furnish any support or information regarding such object code
Software to the third party.


 


(d)                                 Company
shall use its reasonable commercial efforts to enforce the agreements with
customers specified in Section 2.05(c).  Such agreement shall provide that Lucent shall
be a third party beneficiary of any such agreements.  On request, Company will provide Lucent with
copies of all such agreements, and provide Lucent with results of any audits
conducted to assure compliance with such agreements.


 


(e)                                  Each portion
of object code Software sublicensed by Company pursuant to this Agreement shall
include an appropriate copyright notice. 
Such copyright notice may be the copyright notice or notices appearing
in or on the corresponding portions of the object code Software as provided by
Lucent to Company or, if Company makes copyrightable changes in developing
object code Software, Company’s copyright notice.


 


2.06
Lucent’s Reservation of Rights and Permitted Activities


 


(a)                                  Notwithstanding
the exclusivity provisions set forth in Section 2.05, Lucent reserves the
right to use the Lucent Foreground Technology:


 


(1)                                  for
non-commercial purposes, such as for education and research;


 


(2)                                  to
perform the Permitted Activities, as described in Section 2.06(b);


 


(3)                                  for
its own internal business purposes;


 


(4)                                  for
all applications that do not produce an image; and


 


(5)                                  to
make, have made, use, lease and sell Licensed Products, provided they are
combined with and offered as a part of Lucent Communications Products.


 


(b) For the
purposes of this Agreement, “Lucent’s Permitted Activities” shall mean all or
any of the following activities:


 


9

















 


(1)                                  Licensing
the Lucent Foreground Technology to others to make use, lease and sell products
other than Licensed Products;


 


(2)                                  Intentionally omitted;


 


(3)                                  Engaging in any activity with and
granting licenses relating to the Lucent Foreground Technology to a state,
local or federal governmental entity, for the purposes of any governmental
grant.  Lucent may perform such
activities alone or in conjunction with one or more third parties, provided
however, that the preceding sentence shall not be construed to permit Lucent to
grant licenses relating to the Lucent Foreground Technology to any such third
party with respect to the sale of Licensed Products by the third party directly
to the government;


 


(4)                                  Publishing
papers, making presentations, and filing patent applications that include
portions of the Lucent Foreground Technology;


 


(5)                                  Providing
semiconductor foundry services through Lucent Bell Labs Research’s New Jersey
Nanotechnology Consortium provided that such services do not include using a
substantial portion of the Lucent Foreground Technology to make Licensed Products;
and


 


(6)                                  Fulfilling
any commitment made by a Lucent entity other than the Bell Laboratories’ New
Jersey Nanotechnology Consortium (a wholly-owned subsidiary of Lucent), which
commitment was made directly or indirectly for the benefit of a 3rd party and
which arose (1) prior to the Effective Date of this Agreement or (2) in
connection with a development project commenced prior to the Effective Date of
this Agreement.


 


2.07   No Other Licenses


 


(a) No
right is granted herein to either Party to use any identification (such as, but
not limited to, trade names, trademarks, service marks or symbols, and
abbreviations, contractions or simulations thereof) owned by or used to
identify the other Party or any of its Subsidiaries or any of its or their products,
services or organizations, and that, with respect to the subject matter of this
Agreement, each Party agrees it will not without the express written permission
of the other Party (i) use any such identification in advertising,
publicity, packaging, labeling or in any other manner to identify itself or any
of its products, services or organizations; or (ii) represent directly or
indirectly that any product, service or organization of the receiving Party is
a product, service or organization of the other Party or any of its
Subsidiaries, or that any product or service of such Party


 


10

















 


is made in
accordance with or utilizes any information of the other Party or any of its
Subsidiaries.


 


(b) Except as
expressly set forth in Article II, no other right or license is either
granted or implied by either party to the other with respect to any technical
or business information, or with respect to rights in any patents, trademarks,
copyrights, trade secrets, mask work protection rights, and other intellectual
property.


 


ARTICLE III


DEVELOPMENT AND
LICENSE FEES AND ROYALTIES


 


3.01
Development Fee


 


Company shall pay to
Lucent a development fee in respect to its development obligations hereunder in
the total amount of Twelve Million (U.S.$12,000,000) U.S. Dollars, to be paid
by Company to Lucent as follows:


 


(a) An initial fee of Two Million
(U.S.$2,000,000) U.S. Dollars, payable as follows:


 


(i) One Million (U.S.$1,000,000)
U.S. Dollars upon execution of this Agreement by Company and delivery of this
Agreement to Lucent; and


 


(ii) One Million (U.S.$1,000,000)
U.S. Dollars within ten (10) days after the date Company provides Lucent
with written acceptance of the first development plan prepared by Lucent, in
accordance with the provisions set forth in the Statement of Work, Appendix B, Section 3(c).  The cure period set forth in Section 4.03(a) shall
apply with respect to the payment set forth in this subsection.


 


(b) The balance of
Ten Million (U.S.$10,000,000) U.S. Dollars shall be payable to Lucent in ten (10) equal
installments of One Million (U.S.$1,000,000) U.S. Dollars, the first such
installment being due (90 days) after the date the Company accepts the first
development plan, and each subsequent installment being due three (3) months
thereafter.  The final installment, if
not sooner paid, shall be due and payable no later than two and one-half (2-1/2)
years after the first payment made under this Section 3.01(b).


 


(c) Lucent shall
render invoices, but payment is due whether or not an invoice is sent.


 


(d)  If additional
development work is added to the Development Project by mutual agreement of the
Parties, pursuant to additional SOW’s appended to Appendix B, additional
development fees may be charged.


 


11

















 


(e) All
payments made in respect of the development fee shall be non-refundable.


 


(f) Notwithstanding
3.01(e), in the event that Company notifies
Lucent that the first development plan is not accepted in
accordance with the provisions set forth in the Statement of Work, Section 3(d) or,
within the ten day period for accepting or rejecting the first development
plan, Company notifies Lucent that 
Company board approval has not been obtained, Lucent shall refund to
Company Nine Hundred Thousand (U.S.$900,000) U.S. Dollars, and
thereupon Company shall have no further payment obligations to Lucent, and
Lucent shall have no further development obligations to Company.


 


3.02
Royalties


 


(a) In
consideration for the patent licenses granted to Company in accordance with Section 2.04
and the license to Licensed Technical Information in accordance with Section 2.05,
and subject to the minimum royalties set forth in Section 3.02(b) Company
agrees to pay Lucent a royalty in an amount equal to [**see
cover page note] ([**see cover page note]
%) percent of the Fair Market Value of Licensed Products that are sold, leased
or otherwise put into use by Company or any of its Subsidiaries anywhere in the
world.  The Parties agree that the royalty
provided in this Section shall be apportioned equally between technology
licenses and patent licenses.


 


(b) In
consideration for the patent licenses granted to Company in accordance with Section 2.04
and the license to Licensed Technical Information in accordance with Section 2.05,
beginning on the October 1 next following the earlier of (1) first
commercial sale (other than commercial samples) of the Licensed Product; or, (2) the
end of the Development Project, and on each subsequent October 1
thereafter, Company agrees to pay Lucent a minimum semi-annual royalty,
creditable against the royalties otherwise due to Lucent for such semi-annual
period pursuant to Section 3.02(a) in the amount of [**see cover page note] ($US[**see cover page note])
Dollars. The Parties agree that the minimum royalty provided in this Section shall
be apportioned equally between technology licenses and patent licenses.


 


(c) Amounts paid by
Company to Lucent under this Agreement shall not be creditable toward any fees (i) payable
under any agreement between Lucent and any purchaser from Isonics or user of
Licensed Products purchased from Isonics, or (ii) otherwise due to Lucent
as a result to the sale or use of Licensed Products by any third party.


 


3.03
Exclusivity Fee


 


For the
Development Project set forth in the Statement of Work in Appendix B, the
licenses granted by Lucent to Company under Lucent


 


12

















 


Foreground Technology shall
remain exclusive, provided that Company is not in breach of this Agreement, and
provided further that beginning on the October 1 next following the
earlier of (1) first commercial sale (other than commercial samples) of
the Licensed Product; or, (2) the end of the Development Project, and on
each subsequent October 1 thereafter, Company pays to Lucent, in addition
to the Development Fees and Royalties set forth above, an Exclusivity Fee in
accordance with the table below:


 


	
  Annual

  	
   

  	
   

  
	
  Exclusivity

  	
   

  	
   

  
	
  Payment #

  	
   

  	
  Exclusivity
  Fee (in U.S. Dollars)

  
	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  $[**see cover page note]

  
	
  2

  	
   

  	
  $[**see cover page note]

  
	
  3

  	
   

  	
  $[**see cover page note]

  
	
  4 and each year thereafter

  	
   

  	
  $[**see
  cover page note]

  



 


The amount paid by Company in respect of the annual
Exclusivity Fee shall be credited to the Lucent fiscal year (October 1 through
September 30) that the Royalties with respect to Licensed Technical
Information and Licensed Patents are otherwise due to Lucent pursuant to Section 3.02.  There shall be no carry-over of any credit
from one fiscal year to any subsequent fiscal year.


 


3.04
Sales Referral Fee


 


In addition to the fees, royalties and other
payments set forth in this Agreement, Company agrees to pay Lucent a commission in the amount of [**see
cover page note] ([**see cover page note]
%) percent of revenue received directly or indirectly by
Company or any of its Subsidiaries with respect to sales of Licensed Products
made to customers as a result of substantial sales effort provided by Lucent or
its Subsidiaries.  Prior to Lucent making such sales referral,
the Parties shall agree, in writing, on a written process applicable to same.


 


3.05
Payments and Records


 


(a) Payments to
Lucent shall be made in United States dollars to the address specified in Section 6.04.


 


(b) The Development
Fee set forth in Section 3.01 shall be paid in accordance with the schedule set
forth in that Section.


 


(c) The royalty
payments set forth in Section 3.02 shall be reportable and payable within
thirty (30) days at the end of each semi-annual period ending on March 31st
and September 30th.  Company shall
furnish to Lucent a statement,


 


13

















 


certified by an authorized representative
of Company, identifying in a reasonable manner the number of units of Licensed
Products that were subject to Royalty during such semi-annual period, and the
amount payable to Lucent pursuant to Section 3.02.  If the statement indicates that a royalty
pursuant to Section 3.02(a) less than the minimum royalty is payable,
then the minimum royalty shall be paid in accordance with Section 3.02(b).


 


(d) The exclusivity
fee payments set forth in Section 3.03 and the Sales Referral fee set
forth in Section 3.04 shall be payable at the end of each semi-annual
period ending on March 31st and September 30th.


 


(e) Company shall
keep full, clear and accurate records of units of Licensed Products. Company
shall furnish whatever additional information Lucent may reasonably request
from time to time to enable Lucent to ascertain the amounts of royalty fees
payable pursuant hereto.


 


(f) Lucent shall
have the right to make an examination and audit during normal business hours,
not more frequently than annually and subject to prior clearance and
coordination with the Company, of all records kept pursuant to this Section 3.05
by Company and such other records and accounts as may under recognized
accounting practices contain information bearing upon the amounts of fees
payable to Lucent under this Agreement. 
Prompt adjustment shall be made by the proper party to compensate for
any errors or omissions disclosed by such examination or audit.  Neither such right to examine and audit nor
the right to receive such adjustment shall be affected by any statement to the
contrary appearing on checks or otherwise unless such statement appears in a
letter signed by the party having such right expressly waiving such right and
such letter is delivered to the other party. If such audit discloses a reported
error of five percent (5%) or greater with respect to the reported sums paid to
Lucent by Company during the applicable period subject to such audit, Company
shall fully reimburse Lucent, promptly upon demand, for the reasonable fees and
disbursements for completing such audit. 
Otherwise, Lucent shall be responsible for the cost of each such audit.


 


Overdue
payments shall be subject to a late payment charge calculated at an annual rate
of one percent (1%) over the prime rate (as posted in New York City during
delinquency).  If the amount of such late
payment charge exceeds the maximum permitted by law, such charge shall be
reduced to such maximum amount.


 


3.06
Taxes


 


(a) Company shall bear all taxes, duties, levies and similar charges (and any
related interest and penalties), however designated, imposed as a result of the
existence or operation of this Agreement, except (i) any net income tax
imposed upon Lucent in a jurisdiction other than the United States if such tax
is


 


14

















 


allowable as a credit against the United
States income taxes of Lucent; and (ii) any net income tax imposed upon
Lucent by the United States or any governmental entity within the United States
(the fifty (50) states and the District of Columbia).


 


(b) If Company is required to bear a tax, duty, levy
or similar charge pursuant to (a) above, Company shall pay such tax, duty,
levy or similar charge and any additional amounts as are necessary to ensure
that the net amounts received by Lucent hereunder after all such payments or
withholdings equal the amounts to which Lucent is otherwise entitled under this
Agreement as if such tax, duty, levy or similar charge did not apply.


 


ARTICLE IV - TERM
AND TERMINATION


 


4.01
Term


 


The development activities for the initial
Development Project contemplated by this Agreement shall be completed
approximately thirty six (36) months after the Effective Date.  The Term for the license rights granted in
this Agreement shall continue unless terminated in accordance with this
Agreement.


 


4.02
Termination for Convenience


 


(a) The Parties will conduct quarterly
progress meetings to review the status of the Development Project, the then
current Statement of Work and any proposed changes, modifications, or
clarifications thereto, expected future activities under this Agreement, and
such other matters related to the Development Project as either Party may
desire to discuss. Company may terminate the Development Project for
convenience, by written notice to Lucent given within ten (10) days after
a quarterly progress meeting, so long as such termination is prior to the first
commercial (other than commercial samples) of a Licensed Product by Company.


 


(b) Upon
termination pursuant to Section 4.02(a), Lucent will cease all further
work on the Development Project, and Company shall be relieved of its
obligation to make further installments of the Development Fee otherwise due to
Lucent in accordance with Section 3.02(b). 
Lucent shall be entitled to retain (or be paid) all installments that
were paid (or became due) prior to termination.


 


(c) If
Company terminates the Development Project, all licenses granted by Lucent to
Company pursuant to Sections 2.04(a), 2.05(a) and 2.05(c) shall
terminate.  All licenses granted by
Company to Lucent pursuant to Sections 2.04(b) and 2.05(b) shall
survive.  For the purposes of clarity, in
the event that Company does not give Lucent such notice of termination at or
after a quarterly


 


15

















 


meeting as set forth above, then Company will
be deemed to have agreed that it is satisfied with the progress of the Development
Project.


 


(d) Lucent
may terminate this Development Project by virtue of Lucent’s divestiture of the
portion of Bell Labs Research working on the Development Project.  In the event of such termination, Lucent’s
liability shall be limited to a refund of the development fees actually paid by
Company to Lucent specified pursuant to Section 3.01, for the three (3) year
period immediately preceding the termination.   
In such event, Lucent will deliver to Company copies of all of the then
existing Licensed Technical Information in the possession of Lucent, within two
(2) months following such termination.  
Further, the licenses granted by Lucent shall continue, subject to
Company paying the royalties set forth in Section 3.02, the exclusivity
fee set forth in Section 3.03, and the sales referral fee set forth in Section 3.04.


 


4.03
Termination for Cause


 


Subject
to termination provisions otherwise set forth in this Agreement:


 


(a) In
the event of non-payment by Company of any Development Fee as set forth in Section 3.01,
if such non-payment continues for more than ten (10) days after notice
thereof, Lucent may immediately suspend work on the Development Project.  Lucent may charge a start-up fee in an amount
not to exceed the development fees payable for one calendar quarter, if the
Development Project is thereafter resumed at Lucent’s option.  In the event of non-payment by Company of any
Royalties as set forth in Section 3.02, or other payments due under this
Agreement, if such non-payment continues for more than ten (10) days after
notice thereof, or if non-payment has occurred three (3) or more times
within Lucent’s fiscal year, Lucent may terminate this Agreement and all
licenses granted to Company hereunder.


 


(b) In
the event of any other breach of this Agreement by Company, or in the event of voluntary or involuntary
bankruptcy or insolvency of Company, or the appointment, with or without Seller’s consent, of
a receiver or an assignee for the benefit of creditors,
Lucent may, in addition to any other remedies that it may have, at any time
terminate this Agreement by not less than two (2) months written notice to
Company specifying any such breach, unless within the period of such notice all
breaches specified therein shall have been remedied.


 


(c) In the event of
any material breach of this Agreement by Lucent or its Subsidiaries, Company
may, in addition to any other remedies that Company may have, at any time
terminate this Agreement by not less than two (2) months written notice to
Lucent specifying any such breach, unless within the period of such notice all
breaches specified therein shall have been remedied.  Except for Sections 4.02(d) and 6.03(e),
notwithstanding any other provision of this Agreement, Lucent’s entire
liability for any material breach of the Agreement or


 


16

















 


failure to perform the Development
Project shall be limited to the lesser of (i) the actual value of the
injury or loss to Company or (ii) a refund in the amount equal to the amounts
received by Lucent pursuant to Sections 3.02 and 3.03 during the one year
period prior to Lucent receiving notice of the breach from Company as well as
any payments that are made by Company subsequent to the giving of the notice
and termination of this Agreement.


 


4.04
Survival


 


(a) The rights and obligations of Lucent
and Company in Sections 5.01, 5.02, 5.03 and Article VI (except Section 6.06)
shall survive and continue after any such termination of this Agreement.


 


(b) In the event of termination pursuant
to Section 4.02(d), in addition to the provisions enumerated in Section 4.04(a),
the rights of Company and the obligations of Lucent enumerated in Section 4.02(d) shall
also survive.


 


(c) In the event of termination pursuant
to Section 6.03(e), in addition to the provisions enumerated in Section 4.04(a),
the rights of Lucent and the obligations of Company enumerated in Section 6.03(e) shall
also survive.


 


ARTICLE V


PROTECTION
OF INFORMATION


 


5.01
Lucent and Company Confidential Information


 


(a) Company and Lucent agree that:


 


(1)                                  Company
will not use any of Lucent Information, and that Lucent will not use any of
Company Information except as authorized herein;


 


(2)                                  Company
shall hold all of Lucent Information and Lucent shall hold all of Company Information
in confidence, and neither Party shall make any disclosure of any or all of
such other Party’s information to anyone, except to its employees, contractors,
consultants and agents who have a need to know, and to any others to whom such
disclosure may be expressly authorized hereunder and is necessary to implement
the use authorized hereunder, and that each Party shall appropriately notify
each person to whom any such disclosure is made that such disclosure is made in
confidence and shall be kept in confidence by such person,


 


17

















 


and each Party shall keep a list of each
person to who any such disclosure is made;


 


(3)                                  the
receiving Party will not, without the disclosing Party’s express written
permission, reverse engineer any of the furnished Lucent Information or Company
Information;


 


(4)                                  the
receiving Party will not, without the disclosing Party’s express written
permission, make or have made, or permit to be made, more copies of any of the
furnished Lucent Information or Company Information than are necessary for its
use hereunder, and that each such copy shall contain the same proprietary
notices or legends that appear on the furnished Lucent Information or Company
Information being copied;


 


(5)                                  all
of Lucent Information shall remain the property of Lucent, and upon termination
of this Agreement, Company shall, at Lucent’s written request, immediately
cease all use of Lucent Information and shall, as directed by Lucent, promptly
destroy or deliver to Lucent each and every part specified by Lucent of Lucent
Information then under Company or its Subsidiaries’ control;


 


(6)                                  all
of Company Information shall remain the property of Company, and upon
termination of this Agreement , Lucent shall, at Company written request,
immediately cease all use of Company Information and shall, as directed by
Company, promptly destroy or deliver to Company each and every part specified
by Company of Company Information then under Lucent’s or its Subsidiaries’
control; and


 


(7)                                  if this
Agreement is terminated by a Party for breach, the breaching Party shall, at
the terminating Party’s written request, immediately cease all use Company
Information or Lucent Information, as appropriate, and shall, as directed by
the terminating Party, promptly destroy or deliver to the terminating Party
each and every part specified by the terminating Party of Company Information
or Lucent Information, as appropriate, then under the breaching Party’s or its
Subsidiaries’ control.


 


18

















 


5.02
Exceptions to Confidentiality


 


Notwithstanding the provisions of Section 5.01,
neither Party shall be required to restrict use and/or disclosure with respect
to portions of Lucent Information, Company Information or Developed
Information, if any:


 


(a)                                  that
are independently developed by the receiving Party, solely by personnel with no
access to such portions furnished under this Agreement to the receiving Party;


 


(b)                                 that
are lawfully received from another source having the right to so furnish such
portions without breach of this Agreement;


 


(c)                                  that
have become generally known to the public, provided that such public knowledge
was not the result of any breach of this Agreement attributable to the
receiving Party;


 


(d)                                 that
at the time of furnishing to the receiving Party was known to the receiving
Party as evidenced by documentation or other evidence available to the
receiving Party;


 


(e)                                  that
the disclosing Party otherwise explicitly agrees in writing need not be kept
confidential; or


 


(f)                                    that
is disclosed pursuant to governmental or judicial order or request provided
that the Party receiving such request or order shall, whenever practicable,
promptly notify the other Party and shall reasonably cooperate with the other
Party in contesting such disclosure or in obtaining confidential treatment of
any disclosed information (at the other Party’s sole cost and expense).


 


5.03
Export Control


 


The Parties acknowledge that certain
products, software, and technical information (collectively “Information”)
provided pursuant to this Agreement may be subject to United States export laws
and regulations and agree that any use or transfer of such items must be
authorized by the appropriate United States government agency.  Neither Party shall directly or indirectly
use, distribute, transfer, or transmit any item of Information (even if
incorporated into other products, software, and technical information), except
in compliance with United States export laws and regulations.  This obligation will be honored even after
the expiration or termination of this Agreement.


 


19

















 


ARTICLE VI

MISCELLANEOUS PROVISIONS


 


6.01 Compliance
with Rules and Regulations and Indemnification


 


(a)                                  Company personnel
shall, while on any location of Lucent in connection with the Development
Project, comply with Lucent’s rules and regulations with regard to safety
and security.  Lucent shall inform such
personnel of such rules and regulations. 
Company shall have full control over such personnel and shall be
entirely responsible for their complying with Lucent’s rules and
regulations.  Company agrees to indemnify
and save Lucent harmless from any claims or demands, including the costs,
expenses and reasonable attorneys’ fees incurred on account thereof, that may
be made by (i) anyone for injuries to persons or damage to property to the
extent they arise in connection with this Agreement and result from the willful
misconduct or negligence of Company personnel; or (ii) Company personnel
under Worker’s Compensation or similar laws. 
Company agrees to defend Lucent, at Lucent’s request, against any such
claim or demand.


 


(b)                                 Lucent’s personnel
shall, while on any location of Company, in connection with the Development Project,
comply with Company rules and regulations with regard to safety and
security.  Company shall inform such
personnel of such rules and regulations. 
Lucent shall have full control over such personnel and shall be entirely
responsible for their complying with Company rules and regulations.  Lucent agrees to indemnify and save Company
harmless from any claims or demands, including the costs, expenses and
reasonable attorneys’ fees incurred on account thereof, that may be made by (i) anyone
for injuries to persons or damage to property to the extent they arise in
connection with this Agreement and result from the willful misconduct or
negligence of Lucent’s personnel; or (ii) Lucent’s personnel under Worker’s
Compensation or similar laws.  Lucent
agrees to defend Company, at Company request, against any such claim or demand.


 


(c)                                  Each Party shall be
solely responsible for (i) its personnel’s remuneration, travel, living
and other local expenses, and (ii) payment of all federal, state, social
security and other payroll taxes in respect of its personnel, including
contributions from them when required by the law of the country or any
political subdivisions thereof in which such personnel is employed by such
Party.


 


(d)                                 Lucent and Company
shall, at all times, each retain the administrative supervision of their
respective personnel.


 


(e)                                  Company shall
indemnify Lucent for any claims, demands, damages, liabilities and costs that
directly or indirectly result from, or arise in connection with, or are related
to, the sale, lease or putting into use of Licensed Products (including
Licensee Licensed Products) by or for Company.


 


(f)                                    Notwithstanding Section 6.01(e),
subject to the conditions and exceptions stated below, Lucent, at its expense,
will defend or settle at its option and expense, any claim or suit brought by any
third party against Company


 


20

















 


alleging that a Licensee Licensed Product infringes any valid United
States patent, and pay all damages and costs (including reasonable attorneys’
fees) that by final judgment may be assessed against Company due to such
infringement. Lucent will keep Company reasonably informed of the status of any
such claim or suit.


 


Lucent’s obligation as set forth in this Section 6.01(f) is
expressly conditioned upon the following: (a) that Lucent shall be
notified promptly in writing by Company of any claim or suit; (b) that,
unless Lucent gives the notice as set forth in Section 6.01(g), Lucent
shall have sole control of the defense or settlement of any claim or suit; (c) that
Company shall cooperate with Lucent in a reasonable way to facilitate the
settlement or defense of any claim or suit; and (d) that the claim or suit
does not arise from Company modification of a Licensee Licensed Product, any
use of a Licensed Product not contemplated by this Agreement, or from
combinations of a Licensee Licensed Product with other products provided by
Company or by third parties.


 


(g) If any Licensee Licensed Products
become, or in Lucent’s opinion are likely to become, the subject of a claim of
infringement, Lucent will have the option to: (1) procure for Company the
right to continue using the applicable Licensee Licensed Product; (2) replace
the Licensee Licensed Product with a non-infringing Licensed Product
substantially complying with the products specifications; (3) modify the
Licensee Licensed Product so it becomes non-infringing and performs in a
substantially similar manner to the Licensee Licensed Product; or (4) notify
Company of its election to reduce the royalty set forth in Section 3.02(a) from
[**see cover page note] ([**see cover page note] %)
percent to [**see cover page note] ([**see cover page note] %)
percent.  Any such reduction in royalty
shall apply to future royalty payments to be made by Company to Lucent pursuant
to this Agreement, and shall continue in effect until such time as the amount
of the reduction (i.e., [**see cover page note]
([**see cover page note] %)
percent of the Fair Market Value of Licensed Products sold, leased or otherwise
put into use by Company) equals the out of pocket costs incurred by Company in
the defense or settlement of the claim(s) of infringement.   While the royalty reduction is in effect,
Lucent shall have no further obligation to Company with respect to Section 6.01(f).


 


THIS SECTION 6.01 STATES LUCENT’S ENTIRE LIABILITY WITH RESPECT TO
THIRD PARTY PATENT INFRINGEMENT.


 


6.02 Agreement
Prevails


 


This Agreement shall prevail in the event of
any conflicting terms or legends that may appear on Lucent Information or
Company Information.


 


21

















 


6.03 Warranty and
Disclaimer


 


(a)                                  Lucent
represents that it owns or has a right to license, the Licensed Technical
Information.


 


(b)                                 Except
as otherwise contained in this Agreement, neither Party and its Subsidiaries
make any other representations or warranties, express or implied.  By way of example but not of limitation,
Lucent and its Subsidiaries make no representations or warranties of
merchantability or fitness for a particular purpose, or that the use of
Licensed Technical Information, Lucent Information or other information will
not infringe any patent or other intellectual property right.  Lucent and its Subsidiaries shall not be held
to any liability with respect to any claim by Company or any third party on
account of, or arising from, the use of Licensed Technical Information, Lucent
Information or other information furnished hereunder.


 


(c)                                  The
Parties acknowledge that the Development Project is a research-related activity
and may not lead to a commercially viable Licensed Product.  All Licensed Technical Information, Lucent
Information and other information furnished by Lucent under this Agreement is
furnished “AS IS” with all faults, latent and patent, and without any warranty
of any type.


 


(d)                                 Except
as herein otherwise provided, neither Party or its Subsidiaries will under any
circumstance, whether as a result of breach of contract, breach of warranty,
delay, negligence, tort or otherwise, be liable to the other Party or to any
third party for any consequential, incidental, special, punitive or exemplary
damages and/or loss of profits or revenues of the other Party or any third
party arising out of this Agreement, whether or not the applicable Party has
been advised of the possibility of such damages.


 


(e)                                  If
Lucent willfully violates the exclusivity provision set forth in Section 2.05(a) at
a time when such exclusivity is in full force and effect (and if Lucent’s
actions are not otherwise permitted pursuant to Lucent’s Reservation of Rights
and Permitted Activities), and such violation has not been enjoined or cured by
Lucent, then Lucent’s liability shall be limited to a refund of the Development
Fees actually paid by Company to Lucent specified in Section 3.01 for the
three (3) year period immediately preceding the violation in addition to
the damages permitted by Section 4.03(c). 
Thereafter, Royalties specified in Section 3.02(a) (as such
royalties may have been reduced by virtue of Section 6.01(g)) shall be
reduced (or if Section 6.01(g) applies, further reduced) by [**see cover page note] %, and
the obligation to pay the Exclusivity Fee set forth in Section 3.03 shall
terminate.    Lucent licensing an
insubstantial part of the Lucent Foreground Technology to a third party will
not be considered a willful violation of the exclusivity provision of this
Agreement (although it will be considered a breach of this Agreement under Section 4.02(d)).  For the purposes of clarity, an “insubstantial
part of the Lucent Foreground Technology” are matters involving some small portion of Lucent Foreground Technology
utilized for minor


 


22

















 


aspects or applications  (e.g. simulation testing techniques and
associated results), but does not include any portion of the Lucent Foreground
Technology that materially affects the exclusivity provided for under this
Agreement.  Any disputes arising from or
related to this issue shall be addressed by the dispute resolution procedures
set forth in 6.08(b).


 


6.04 Addresses


 


All notices required or permitted under this
Agreement will be in writing, will reference this Agreement and will be deemed
given:  (i) when personally
delivered, (ii) when sent by confirmed facsimile; (iii) five (5) working
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (iv) one (1) working day after deposit
with a commercial overnight carrier, with written verification of receipt.


 


To Company:


Attn:  Chief Executive Officer


ISONICS CORPORATION


5906 McIntyre Street, Golden, Colorado 80403


Fax number: 303-279-7300


 


To Lucent: Lucent Technologies Inc.,
Intellectual Property Business, Attention: Contract Administrator, 2400 SW 145
Avenue, Miramar, Florida 33027, United States of America Fax No. (954) 885-3858,
with a copy to Barry H. Freedman, Esq., Lucent Technologies Inc., 101
Crawfords Corner Rd., Room 3K-202, Holmdel, NJ 07733 Fax: 732-949-0102.


 


Changes in such addresses may be specified by
written notice.


 


Payments by the Company shall be made to
Lucent by wire to such account as Lucent shall advise.


 


6.05 Integration


 


This Agreement sets
forth the entire Agreement and understanding between the Parties as to the
subject matter hereof and merges all prior discussions and agreements between
them.  Neither of the Parties shall be
bound by any warranties, understandings, modifications or representations with
respect to the subject matter hereof other than as expressly provided herein or
in a writing signed with or subsequent to the execution hereof by an authorized
representative of the Party to be bound thereby.


 


6.06 Assignability


 


(a) During the term of the Agreement and
before completion of all SOW’s under the Development Project, Company shall not
assign this Agreement nor


 


23

















 


any rights granted to Company hereunder without the consent of Lucent,
which consent may be granted or withheld, in Lucent’s sole discretion. After
completion of all SOW’s under the Development Project, (i) Company may
assign this Agreement to Isonics Homeland Security and Defense Corporation (a
Delaware Corporation) (“HSDC”), a wholly-owned subsidiary of Company, and (ii),
Company may have a Company Change of Control, in either event provided that
Company has received Lucent’s consent, which consent shall not be unreasonably
withheld.


 


(b) During the term of the Agreement,
and before completion of all SOW’s under the Development Project, Lucent may
not assign its rights or duties under the Agreement except to (i) a
Subsidiary; or (ii) any direct or indirect successor to all or any portion
of the business of the assigning Party or its Subsidiaries.  After the Development Project is terminated
or completed, Lucent is not restricted in assigning its rights or obligations
under this Agreement.


 


6.07 Choice of
Law


 


The Parties agree that the law of the State
of New York, exclusive of its conflict of laws provisions, shall apply in any
dispute or controversy arising with respect to this Agreement.


 


6.08 Escalation
and Dispute
Resolution


 


(a) If a dispute
that arises out of or relates to preparing a List of Lucent Foreground
Technology applicable to work performed in connection with a Statement of Work
(as set forth in Appendix B, Item 4) or with respect to the acceptability of
any development plan (as set forth in Appendix B, Item 3(e)), or with respect
to progress of the Development Plan as set forth in Appendix B, Item 2, the
following escalation procedure shall be initiated:  The Party raising the dispute shall provide
the other Party with written notice stating in detail the nature of the
dispute.  Within fifteen (15) business
days of the date of such notice, the Parties will designate individuals in
senior management positions who have not previously been involved in day-to-day
operations in the Development Project (such as the President of Lucent’s New
Jersey Nanotechnology Consortium), who shall thereafter meet and negotiate in
good faith to resolve such dispute within the ten day period set forth in Section 4.02(a).  If the parties are unable to resolve the
disagreement within such period, Isonics alone shall have the right to
terminate this Agreement for convenience pursuant to Section 4.02(a).


 


For purposes of clarity,
this escalation procedure and termination for convenience shall be the sole
remedy available to Isonics with respect to the dispute.  In the event that Isonics does not exercise
its right to terminate for convenience, the dispute will be deemed to have been
resolved in the manner sought by Lucent, and the Agreement shall continue in
full force and effect.


 


24

















 


(b)(1) Except
for a dispute of the type described in Section 6.08(a) if any other
dispute arises out of or relates to this Agreement, or the breach, termination
or validity thereof, the Parties agree to submit the dispute to a sole mediator
selected by the Parties or, at any time at the option of a Party, to mediation
by the American Arbitration Association (“AAA”). If not thus resolved, it shall
be referred to a panel of three arbitrators selected by the Parties within
thirty (30) days of the mediation, or in the absence of such selection, to AAA
arbitration before a panel of three arbitrators which shall be governed by the
United States Arbitration Act.


 


(b)(2)                   Any award made (i) shall be a
bare award limited to a holding for or against a Party and affording such
remedy as is deemed equitable, just and within the scope of the agreement; (ii) shall
be without findings as to issues (including but not limited to patent validity
and/or infringement) or a statement of the reasoning on which the award rests; (iii) may
in appropriate circumstances (other than patent disputes) include injunctive
relief;  (iv) shall be made within
four (4) months of the appointment of the arbitrator; and (v) may be
entered in any court.


 


(b)(3)                   The requirement for mediation and
arbitration shall not be deemed a waiver of any right of termination under this
Agreement and the arbitrator is not empowered to act or make any award other
than based solely on the rights and obligations of the Parties prior to any
such termination.


 


(b)(4)                   The
arbitrators shall be knowledgeable in the legal and technical aspects of this
Agreement and shall determine issues of arbitrability but may not limit, expand
or otherwise modify the terms of this Agreement.


 


(b)(5)                   The
place of mediation and arbitration shall be New York City.


 


(b)(6)                   Each Party shall bear its own
expenses but those related to the compensation and expenses of the mediator and
arbitrator shall be borne equally.


 


(b)(7)                   A
request by a Party to a court for interim measures shall not be deemed a waiver
of the obligation to mediate and arbitrate.


 


(b)(8)                   The
arbitrators shall have authority to award compensatory damages only.  The arbitrators shall have no authority to
award punitive or other damages, and each Party irrevocably waives any claim
thereto.


 


(b)(9)                   Except as required by law, the
Parties, their representatives, other participants and the mediator and arbitrators
shall hold the existence, content and result of mediation and arbitration in
confidence.


 


25

















 


6.09 Relationship
Between Parties


 


Neither
Party to this Agreement shall have the power to accept purchase orders on
behalf of the other, bind the other by any guarantee or representation that it
may give, or to incur any debts or liabilities in the name of or on behalf of
the other Party.  The Parties acknowledge
and agree that nothing contained in this Agreement shall be deemed or construed
to constitute or create between the Parties hereto a partnership, association,
joint venture or other agency.


 


6.10 Force
Majeure


 


Except
as otherwise provided herein, Neither Lucent nor Company shall be liable for
any loss, damage, delay or failure of performance resulting directly or
indirectly from any cause which is beyond its reasonable control, including but
not limited to acts of God, extraordinary traffic conditions, riots, civil
disturbances, wars, states of belligerency or acts of the public enemy,
strikes, work stoppages, or the laws, regulations, acts or failure to act of
any governmental authority.  In the event
that performance under this Agreement is prevented for a continuous period of
two (2) months or longer by any of the foregoing causes, either Party
shall have the right to terminate this Agreement by giving written notice to
the other Party.


 


6.11 Headings


 


Section and subsection headings
contained in this Agreement are inserted for convenience of reference only,
shall not be deemed to be a part of this Agreement for any purpose, and shall
not in any way define or affect the meaning, construction or scope of any of
the provisions hereof.


 


6.12 Waiver


 


Except as specifically provided for herein,
the waiver from time to time by a Party of any of their rights or their failure
to exercise any remedy shall not operate or be construed as a continuing waiver
of the same or of any other of such Party’s rights or remedies provided in this
Agreement.


 


6.13 Severability


 


If
any term, covenant or condition of this Agreement or the application thereof to
any Party or circumstances shall, to any extent, be held to be invalid or
unenforceable, then the remainder of this Agreement, or the application of such
term, covenant or condition to parties or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant or condition of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.


 


26

















 


6.14
Non-Solicitation


 


During
the Development Period   and a period of
one (1) year thereafter, neither Party will, directly or indirectly,
employ, or solicit to employ or initiate contact with any employees of the
other Party that are performing or may reasonably be expected to perform work
in furtherance of the Development Project, for the purpose of inducing them to
terminate their employment with the current employing Party, or to become employed
by the other (non-employing) Party.  This
restriction shall not apply to any employee whose employment with a Party is
involuntarily terminated or who has retired in good standing from such Party.  The term “solicit to employ” shall not be
deemed to include generalized searches for employees through media
advertisements, employment firms or otherwise, that are not focused on persons
employed by a Party.  For purposes
hereof, “employ” shall include any employment, consultant, independent
contractor, agent or similar relationship.


 


6.15
Foundry Services


 


After
the conclusion of the Development Period and not including any contractual
relationship that Company may have or obtain with a second source supplier as
contemplated in Appendix B, Company agrees that it will not, during the Term of
this Agreement, enter into any agreement or arrangement with any third party to
provide foundry services to Company in connection with the production of
Licensed Products, without first offering to Lucent’s NJNC the right of last
refusal to provide such foundry services, i.e., the right to match the last
best bona fide third-party offer received by Company.


 


6.16
Publicity


 


Company acknowledges and agrees that no
publicity related to the relationship between Company and Lucent shall be
released, directly or indirectly, without the prior written approval by Lucent.
The provisions of the preceding sentence shall not apply to any disclosure that
Company is required to make under The Securities Exchange Act of 1934, as amended,
and regulations promulgated thereunder, or as otherwise required under law.   As used herein, “publicity”
includes, but is not limited to, public statements about the existence or terms
of an Agreement, this term sheet, postings on the Internet, press releases, or
other disclosures.


 


6.17
Execution in Counterparts


 


This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original (including facsimile copies), but all of which together
shall constitute one and the same instrument.


 


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IN WITNESS WHEREOF,
the Parties hereto have caused this Agreement to be executed in duplicate
originals by their duly authorized representatives on the respective dates
entered below.


 


 


	
  LUCENT TECHNOLOGIES INC.

  	
  ISONICS CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
										



 


 


 


THIS
AGREEMENT DOES NOT BIND OR OBLIGATE EITHER PARTY IN ANY MANNER UNLESS DULY
EXECUTED BY AUTHORIZED REPRESENTATIVES OF BOTH PARTIES


 


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APPENDIX
A


DEFINITIONS


 


Change of Control
means (a) any “person” (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other
than a trustee or other fiduciary holding securities of the Company under an
employee benefit plan of the Company, becomes the “beneficial owner” (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of (A) the
outstanding shares of common stock of the Company or (B) the combined
voting power of the Company’s then-outstanding securities; (b) the Company
is party to a merger or consolidation, or series of related transactions, which
results in the voting securities of the Company outstanding immediately prior
thereto failing to continue to represent (either by remaining outstanding or by
being converted into voting securities of the surviving or another entity) at
least fifty (50%) percent of the combined voting power of the voting securities
of the Company or such surviving or other entity outstanding immediately after
such merger or consolidation; (c) the sale or disposition of all or
substantially all of the Company’s assets (or consummation of any transaction,
or series of related transactions, having similar effect); (d) there
occurs a change in the composition of the Board of Directors of the Company
within a four-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors; (e) the dissolution or liquidation of
the Company; or (f) any transaction or series of related transactions that
has the substantial effect of any one or more of the foregoing.


 


Code means object code and/or source code, as
the context requires.  Unless otherwise
specifically agreed, only object code is included in Deliverables to be
provided to Company under this Agreement.


 


Communications Product
shall mean any product primarily adapted for connection to or operation with a
telecommunications or any other communications network, and designed to
compute, classify, process, transmit, receive, retrieve, originate, switch,
store, display, manifest, measure, detect, record, reproduce or handle any form
of information, intelligence or data for transmission over such network. The
term includes products or services associated with the administration,
maintenance, development, testing, or use of any such Communications Product.


 


Company Information
means informative material, software, Technical Information or other
information, owned by Company or any of its Subsidiaries, disclosed hereunder
by Company that is marked as “confidential” or “proprietary” at the time of
disclosure to Lucent or, if disclosed orally, is identified at the time of
disclosure as “confidential” or “proprietary” and followed by a summary in
writing provided by Company to Lucent within sixty (60) days of the original
disclosure.


 


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Deliverables means
items that Lucent is obligated to deliver to Company, as identified in a
Statement of Work in Appendix  B.


 


Derivative Work
shall mean (i) any work of authorship that is based, in whole or in part,
upon one or more pre-existing works (e.g., the Lucent Information or the
Licensed Technical Information), such as a revision, modification, translation,
abridgment, condensation, expansion or any other form in which such
pre-existing works may be recast, transformed or adopted and (ii) which,
if prepared without authorization of the owner of the copyright in such
pre-existing work, would constitute a copyright infringement.


 


Development Period
means, unless otherwise mutually agreed in writing, the period commencing on
the Effective Date of this Agreement and extending until completion of the last
milestone of the Development Project unless terminated according to the
provisions of Article IV.


 


Development Project
means performance of the work set forth in the Statement of Work in Appendix B,
and the provision to Company of the Deliverables identified in Appendix B.


 


Documentation means
all information, whether in human and/or machine-readable form, relating to
Code, including but not limited to user manuals and materials useful for design
(for example, logic manuals, flow charts, and principles of operation).


 


Fair
Market Value means, with respect to any Licensed
Product sold, leased or put into use, the greater of (i) the selling price
which a seller would realize from an unaffiliated buyer in an arm’s length sale
of an identical product in the same quantity and at the same time and place as
such sale, lease or putting into use; or (ii) the selling price actually
obtained for such Licensed Product in the form in which it is sold, whether or
not assembled (and without excluding therefrom any components or subassemblies
thereof which are included in such selling price).


 


Licensed Product(s) means a device that processes emissive or
reflective infrared radiation into an image, and which device is based upon a
micro-electro-mechanical system (“MEMS”) [**see
cover page note] or
[**see cover page note]
structure implemented to be sensitive
to changes in emissive or reflective infrared radiation that illuminates at
least a portion of the surface of the structure.  For the purposes of clarification, if an
infrared imaging device that satisfies the definition of Licensed Product is
included in a camera, cell phone or other end-user apparatus, for the purposes
of calculation of royalties due to Lucent under this Agreement, the Fair Market
Value of the Licensed Product shall not include any portion of such camera,
cell phone or other end-user apparatus, other than the Licensed Product itself.


 


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Licensee Licensed Product
is a Licensed Product made, used or sold by Company that (i) is
substantially identical to any prototype furnished by Lucent to Company under
this Agreement, and (b) is designed in accordance with the Licensed
Technical Information furnished to Company pursuant to this Agreement.


 


Lucent Background Technology
means any copyright or trade secret in which Lucent, as of the Effective Date,
owns and has the right to grant any licenses of the type herein granted by
Lucent, first created prior to or outside of the Development Project, but only
to the extent of such right, and which is included in the Deliverables
(including Software in source code form) as furnished hereunder.


 


Lucent Communications Products
are Communications Products that are manufactured by Lucent or manufactured by
a third party for Lucent.


 


Lucent Foreground Technology
means works of authorship, trade secrets, know-how or any other intellectual
property (including Software in source code form) first created and reduced to
tangible, recordable or permanent form during the Development Period and as a
direct result of work performed under this Agreement.


 


Lucent Foreground Technology
does not include Lucent Background Technology.


 


Lucent Information means
informative material, Code, Technical Information or other information, owned
by Lucent or any of its Subsidiaries, disclosed hereunder by Lucent that is
marked as “confidential” or “proprietary” at the time of disclosure to Company
or, if disclosed orally, is identified at the time of disclosure as “confidential”
or “proprietary” and followed by a summary in writing provided by Lucent to
Company within sixty (60) days of the original disclosure.


 


Licensed Technical Information shall
mean, collectively, (a) Lucent
Background Technology and (b) Lucent Foreground Technology.


 


Lucent Patent means the patent and patent applications
listed in Appendix C, and any patent which issues from an application which
claims priority from such named patent or patent applications, which Lucent or
one of its wholly-owned Subsidiaries, as of the Effective Date, has the right
to grant any licenses of the type herein granted by Lucent, but only to the
extent of such right, and (i) which claims an invention disclosed in the
Deliverables as furnished hereunder; and (ii) but for the licenses granted
herein is unavoidably and necessarily infringed by Company’s use of the
Deliverables in the form furnished hereunder to make or have made Licensed
Products.


 


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Subsidiary of a
company means a corporation or other legal entity (i) the majority of
whose shares or other securities entitled to vote for election of directors (or
other managing authority) is now or hereafter controlled by such company either
directly or indirectly; or (ii) that does not have outstanding shares or
securities but the majority of whose ownership interest representing the right
to manage such corporation or other legal entity is now or hereafter owned and
controlled by such company either directly or indirectly; but any such
corporation or other legal entity shall be deemed to be a Subsidiary of such
company only as long as such control or ownership and control exists.


 


Technical Information
means all documented informative material (excluding patents), including
without limitation, Documentation, technical memoranda, technical reports, data
and drawings of whatever kind in whatever tangible medium, specifications,
tangible know-how, processes, manuals, instructions, directories, schematics,
sketches, photographs, graphs, dies, molds, tools, tooling, samples, price lists,
part lists and descriptions, and any and all notes, analysis, compilations,
studies, summaries, and other material containing or based, in whole or in
part, on any information included in the foregoing.


 


32

















 


APPENDIX
B


Statement of Work


 


This Statement of Work (SOW) will be
governed by and construed in accordance with the terms of the Agreement, but to
the extent there is any inconsistency between the terms of this Statement of
Work and those of the Agreement, the terms of the Statement of Work shall take
precedence and control the work tasks identified herein.  Authorized Representatives of each Party
shall execute changes to this SOW.
Notwithstanding the foregoing, to the extent that any intellectual property
terms and conditions of this Agreement are to be modified or superseded by the
terms and conditions of a Statement of Work, such intellectual property terms
shall be specifically identified in the Statement of Work and must be executed
on behalf of Lucent only by the President – Intellectual Property Business and
on behalf of Company by its Chief Executive Officer.


 


1. (a) Lucent will, as the
first task of the Development Project, prepare a development plan that will
include “quarterly progress milestones” for the first three year period, as
well as the information set forth in section 3 below, and that will be
reviewed and approved by Company.  It
is intended that the three year period will provide a general overview about
the Development Project, while the information required by Section 3,
below (and, for each subsequent development plan, also the information required
by Section 4, below), will provide specific activities to be undertaken
and anticipated results expected by Lucent during the ensuing period of time as
well as a summary of activities previously accomplished and results achieved.
Each subsequent development plan will be in a form and contain information as
may be reasonably agreed by the Parties. 
If the development plan is
approved, Lucent will, in accordance with the specific tasks and milestones set
forth in such development plan, (a) develop a MEMS (Micro
Electro-Mechanical Systems) IR imaging array, and (b) deliver a variety of
not less than 12 first article, IR imager samples, designed for use in 8-12
micron wavelength applications, fully packaged and tested, that will attempt to meet target
specifications.  While these samples may
not be suitable for any specific consumer or industrial application, they will
be illustrative of how the Licensed Technical Information may be used for many
such consumer and industrial applications, with further product
development.  High volume manufacturing
issues will we addressed during the course of the Development Project, and
detailed cost estimates will be prepared. 
The duration of the Development Project is expected to be 36 months for
producing an “alpha” prototype.


 


(b) In the event that Company notifies Lucent that
it accepts the development plan in accordance with Section 3(d) below,
the Parties agree to schedule quarterly review meetings to discuss the status of
the Development Project.  Each of such
review meetings shall occur at least two (2) weeks prior to the end the
corresponding calendar quarter.  In
addition, Lucent and the Company will each appoint a representative to act as a
“single point of contact” in order to have


 


33

















 


more
frequent communication to discuss and receive information regarding the
Development Project during the Development Period.


 


(c) In the event that the Development Project
continues for at least two (2) years and Company is not in default of any
of its payment obligations under this Agreement, Lucent agrees to transfer
Licensed Technical Information to a mutually agreed upon third party during the
next succeeding year, and thereafter as may be necessary, in order to enable
such third party to become a second source supplier of Licensed Products to
Company.  Such transfer to a third party
shall be accomplished pursuant to the terms of a mutually agreed upon Statement
of Work, provided that Lucent, in its sole and reasonable discretion, shall
determine the technical qualifications of such third party to become a second
source supplier.   As contemplated by
this Section 1(c), any second source supplier may supply Licensed Products
to Company in a volume not exceeding [**see
cover page note] ([**see
cover page note%) percent of the Company’s requirements for
Licensed Products during any twelve month period.  The [**see
cover page note] ([**see
cover page note%) percent limitation in the preceding
sentence shall not apply to the extent (and only to the extent) that Lucent is
unable to supply the remainder of the Licensed Products to Company in
accordance with Section 6.15 of the Agreement.


 


2.  The
Parties acknowledge that Lucent will, in its sole discretion, supply personnel
it deems in its good faith sufficient to complete the specific tasks and
milestones of the development plan, in order to complete the Development Project.  Company will monitor progress of the
Development Project at quarterly progress meetings.  In the event that Company is not satisfied
with the progress of the Development Project, Company may terminate this
Agreement in accordance with the Termination provisions above (i.e., by giving
written notice within 10 days after the occurrence of any of such quarterly
progress meetings) or seek escalation in accordance with Section 6.08(a) of
this Agreement.  In the event that
Company does not give such notice or seek escalation, then it will be deemed to
have agreed that it is satisfied with the progress of the Development Project.


 


3.   (a) The
development plan shall specify deliverables, due dates, other milestones, and
list the Lucent Background Technology (to be marked as “Lucent Proprietary”)
that Lucent expects to deliver to Company. 
Said development plan shall be updated, from time to time. Notwithstanding anything contained in the SOW
to the contrary, the Parties acknowledge that the Development Project is a
research-related activity and may not lead to a commercially viable Licensed
Product.  All Licensed Technical
Information, Lucent Information and other information furnished by Lucent under
this Agreement is furnished “AS IS” with all faults, latent and patent, and
without any warranty of any type.


 


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(b)(i) The first development plan shall be prepared by Lucent with
the cooperation and participation of the Company, and shall be delivered by
Lucent to Company within sixty (60) days after the Effective Date.  Company shall, by written notice to Lucent,
accept or reject the development plan within ten (10) days after
receipt.  The parties understand that
time is of the essence with respect to the date for acceptance or rejection,
and that the cure periods set forth in Section 4.03 shall not extend such
date. (ii) Lucent will endeavor to deliver proposed changes, modifications
and clarifications to the first development plan and each subsequent
development plan to the Company as soon as reasonably possible, but not later
than five (5) business days before the scheduled commencement of the
quarterly meeting described in Section 4.02(a) of the Agreement. (iii) In
developing any proposed changes, modifications, or clarifications to the first
development plan or any successor development plan, the designated Lucent
Principal Investigator and Company representative working on the Development
Project will communicate on a regular basis to discuss the proposed changes,
modifications, and clarifications.


 


(c) In the event that Company notifies Lucent
that it accepts the first development plan, the Development Project shall
continue in accordance with the first development plan, and Company shall make
the first installment payment set forth in Section 3.01(a)(ii).


 


(d) In the event that Company notifies Lucent
that the first development plan is not accepted, this Agreement shall be deemed
to have been terminated for convenience, pursuant to Section 4.02, and
Lucent will return $900,000 to the Company in accordance with Section 3.01(f).


 


(e) In the event that Company notifies Lucent
that any subsequent development plan is not accepted, the Company must provide
specific objections to such subsequent development plan and proposed curative
measures and, if the parties are not able to resolve the issue, it will be
resolved by escalation as set forth in Section 6.08(a).  The Company may, at any time during the
discussions under Section 6.08(a) relating to the acceptability of a development
plan, terminate this Agreement for convenience pursuant to Section 4.02.


 


(f) The parties intend that during the period
between quarterly meetings, Lucent will keep the representative of Company
designated as its “single point of contact” informed about the progress of the
Development Project and changes, modifications, or clarifications that Lucent contemplates being made to the development plan that may be
proposed at or before the next quarterly meeting.


 


4.   At each quarterly progress meeting, Lucent
shall identify, prepare/update and deliver a list to Company describing
Foreground Technical Information (marked as “Lucent Proprietary – IR Imaging”)
that will be subject to the exclusive


 


35

















 


technology
license provided in Section 2.05. 
In the event that any Technical Information that is delivered to Company
is not listed on any such list and it otherwise is or should be included within
the definition of “Lucent Background Technology”, such Technical Information
shall be deemed to be Lucent Background Technology.  Any disputes whether Technical Information
should be included in such list shall be raised by Company within ten days
after a list is presented to Company, and be resolved by the escalation process
set forth in Section 6.08(a) (and not 6.08(b)).


 


5.  At each quarterly meeting, Lucent will
endeavor to advise Isonics of its intention to publish any portion of the
Lucent Foreground Technology or to include same in one or more patent applications,
which activities are permitted in accordance with Section 2.06(b)(iv).


 


36

















 


APPENDIX
C


Lucent Patent and Patent Applications


 


Patent


 


“Process For Fabricating An
Optical Mirror Array” Greywall, US Patent #6201631, 3/13/2001


 


Patent Applications


 


“Thermal Actuator for a MEMS
Devices”, Greywall, 11/036264, January 14, 2005


 


“Photosensitive MEMS Sensor”,
Aksyuk, Simon, Slusher, 11/036438 January 13, 2005


 


37