Document:

EX-10.8

 Exhibit 10.8

EMPLOYMENT AGREEMENT

     THIS
EMPLOYMENT AGREEMENT (the “Agreement”) is made as of this 1st day of August  ,
2007 between Vuzix Corporation, a Delaware corporation with its principal office at 75 Town Centre
Drive, Rochester, New York, 14623 (the “Company”) and Grant Russell, having an address at 11775
Chateau Wynd, Delta, British Columbia, Canada VYE 3C9 (the “Executive”).

     WHEREAS, the parties hereto wish to enter into an employment agreement to employ the
Executive as the Company’s President and Chief Executive Officer and to set forth certain
additional agreements between the Executive and the Company.

     NOW, THEREFORE, in consideration of the mutual covenants and representations
contained herein, the parties hereto agree as follows:

     1. Employment Period.

     The Company hereby employs the Executive, and the Executive hereby accepts employment with the
Company, on the terms and conditions contained in this Agreement.

     2. Duties and Status.

     (a) Engagement. The Company hereby engages the Executive as the Company’s Chief Financial
Officer, on the terms and conditions set forth in this Agreement; it being understood that
Executive’s service as an officer of the Corporation is subject to his election and reelection as
such by the Company’s Board of Directors (the “Board”); provided, however, that if Executive is not
so reelected, he may terminate his employment with the Company for “good reason” in accordance with
the provisions of Section 4(c) of this Agreement.

     (b) Duties. During the Employment Period, the Executive shall exercise such authority, perform
such executive duties and functions and discharge such responsibilities as are consistent with the
position held by him, including those commensurate duties assigned to him by Board. During the
Employment Period, the Executive shall devote his full business time, skill and efforts to the
business of the Company. Notwithstanding the foregoing, the Executive may make and manage passive
personal business investments and engage in personal business activities, provided that such
activities do not either interfere with the business of the Company or affect his ability to render
the services to the Company required of him under this Agreement. Executive may serve in any
capacity with any civic, educational or charitable organization, or any trade association, without
seeking or obtaining approval by the Board, provided such activities and service do not materially
interfere or conflict with the performance of his duties hereunder. Executive may serve on the
Board of Directors of any entity, whether or not for profit, provided that such service is
permitted by policies and procedures approved by the Board or is specifically approved by the
Board; it being understood that any fees or other

 

 

compensation received for such service shall be retained by the Executive, without any oblation
to account therefor to the Company.

     3. Compensation and Benefits.

     (a) Salary. During the Employment Period, the Company shall pay to the Executive, as
compensation for the performance of his duties and obligations under this Agreement, a base
salary (which shall be paid in accordance with the normal payroll practices of the Company) (the
“Base Salary”), as follows:

     (i) Executive’s Base Salary shall initially be at the rate of $175,000.00 per annum,

     (ii) On or before the date upon which the initial offering of shares of the common
stock of the Company to the public, (the “IPO”), the Executive’s then existing Base
Salary shall be increased by to $275,000 or such greater amount as shall be determined
by the Board, from the Base Salary in effect immediately preceding the effectiveness of
the IPO.

     (iii) Executive’s Base Salary may be increased by the Board at any time. Executives’
Base Salary may not be decreased from the amount in effect at any time without the consent
of the Executive.

     (iv) Executive’s base salary shall be subject to review each year for possible
increase by the Board of Directors in its sole discretion.

     (b) Bonuses.

     (i) During the Employment Period, the Board may, at its sole discretion, but shall
not be obligated to, award Executive such periodic, annual or other bonuses as it shall
determine. The foregoing does not constitute an agreement or representation by the Company
that the Executive will be considered for or awarded any bonus.

     (ii) During the Employment Period, the Executive shall participate in all bonus plans
established by the Board for senior executives, on a basis that is consistent with the
level of participation by other senior executives of the Company. Such bonus plans shall
in all cases have reasonably achievable objectives that are agreed to in advance by the
Executive and the Board, acting in each case in good faith.

     (c) Equity Participation.

          (i) During the Employment Period, the Executive shall retain all rights, in accordance
with the terms of each respective award, under stock options outstanding and held by the
Executive on the date of this Agreement.

 

 

          (ii) In addition to the options described in the foregoing clause (i), the Board in its sole
discretion may determine to grant the Executive additional awards under any other stock option or
equity based incentive compensation plan or arrangement adopted by the Company during the
Employment Period for which the Company’s senior executives are eligible. The level of the
Executive’s participation in any such plan or arrangement, if any, shall be determined by the Board
in its sole discretion.

          (iii) To the greatest extent permissible in accordance with applicable IRS regulations,
options to acquire Company stock which may be granted to the Executive shall be in the form of
qualified options. Any options which cannot be granted in the form of qualified options will be
granted to the Executive as non-qualified options.

     (d) Other Benefits. During the Employment Period, the Executive shall be entitled to
participate in all of the employee benefit plans, programs and arrangements of the Company in
effect during the Employment Period which are generally available to senior executives of the
Company. Such participation shall be subject to and on a basis consistent with the terms,
conditions and overall administration of such plans, programs and arrangements. In addition,
during the Employment Period, the Executive shall be entitled to fringe benefits and perquisites
comparable to those of other senior executives of the Company. Such fringe benefits shall include,
but not be limited to, 4 weeks of vacation pay per year, to be used in accordance with the
Company’s vacation pay policy for senior executives.

     (e) Automobile Allowance. During the Employment Period, the Company will, at the option of Executive, either (i) reimburse the Executive for the costs of an
automobile at the rate of $750.00 per month or (ii) bear all expenses associated with the rental by
Executive of an automobile for his use while in Rochester, New York, for the purpose of providing
the services required of him pursuant to this Agreement.

     (f) Business Expenses. During the Employment Period, the Company shall promptly pay or
reimburse the Executive for all actual, reasonable and customary expenses incurred by the
Executive in the course of his employment including but not limited to travel, entertainment,
subscriptions and dues associated with the Executive’s membership in professional, business and
civic organizations; provided that such expenses are incurred and accounted for in accordance
with the Company’s policies as then in effect.

     (g) Travel Reimbursement. Reimbursement for the cost of travel to and from Rochester, New
York, for the purpose of providing the services required of him pursuant to this Agreement

     4. Term and Termination of Employment.

     (a) Executive’s employment with the Corporation shall continue until terminated by
either Executive or the Company, with the consequences of any such

 

 

termination being as set forth in the following provisions of this Agreement. The period
commencing on the date of this Agreement and ending on the effective date of such termination is
referred to in this Agreement as the “Employment Period”.

     (b) Termination for Cause. The Company may terminate the Executive’s employment hereunder for
cause. For purposes of this Agreement and subject to the Executive’s opportunity to cure as
provided in Section 4(d) hereof, the Company shall have “cause” to terminate the Executive’s
employment hereunder if such termination shall be the result of the Executive’s:

          (i) willfully engaging in conduct which is materially injurious to the Company;

          (ii) willful fraud or material dishonesty in connection with his performance
hereunder;

          (iii) deliberate or intentional failure to substantially perform his duties hereunder that
results in material harm to the Company; or

          (iv) the conviction for, or plea of nolo contendere to a charge of, commission of a
felony.

     (c) Termination for Good Reason. The Executive shall have the right at any time to terminate
his employment with the Company for “good reason”. For purposes of this Agreement and subject to
the Company’s opportunity to cure as provided in Section 4(d) hereof, the Executive shall have
“good reason” to terminate his employment hereunder in the following cases:

          (i) a material diminution during the Employment Period in the Executive’s duties,
responsibilities, position, office or title as set forth in Section 2 hereof;

          (ii) a breach by the Company of the compensation and benefits provisions set forth in
Section 3 hereof;

          (iii) a material breach by the Company of any of the terms of this Agreement, other
than as specifically provided herein; or

          (iv) the relocation of Executive’s principal place of business at the request of the
Company beyond 30 miles from its current location

     (d) Notice and Opportunity to Cure. Notwithstanding the foregoing, the Company may not
terminate the Executive’s employment for “cause” pursuant to Section 4(b)(i), Section 4(b)(ii) or
Section 4(b)(iii),,and the Executive may not terminate his employment for “good reason” unless (1)
the party seeking to terminate the Executive’s employment shall have first provided the other
party with written notice of the intended

 

 

termination and the reason for such termination (“breach”) and (2) if such breach is susceptible of
cure or remedy, a period of thirty (30) days shall have elapsed between the delivery of such notice
and the termination of this Agreement without the breaching party having, in the reasonable opinion
of the party alleging a breach, effectively cured or remedied such breach.

     (e) Termination Upon Death or Permanent and Total Disability. The Employment Period shall be
terminated by the death of the Executive. The Employment Period may be terminated by the Board of
Directors if the Executive shall be rendered incapable of performing his duties to the Company by
reason of any medically determined physical or mental impairment that can be expected to result
in death or that can reasonably be expected to last for a period of either (i) six or more
consecutive months from the first date of the Executive’s absence due to the disability or (ii)
nine months during any twelve-month period (a “Permanent and
Total Disability”). If the
Employment Period is terminated by reason of Permanent and Total Disability of the Executive, the
Company shall give 30 days’ advance written notice to that effect to the Executive.

     5. Consequences of Termination.

     (a) Without Cause or for Good Reason. In the event of a termination of the Executive’s
employment during the Employment Period (i) by the Company other than for “cause” (as provided
for in Section 4(b) hereof), (ii) by the Executive for “good reason” (as provided for in Section
4(c) hereof) or (iii) due to death or disability (as provided for in Section 4(e) hereof) the
Company shall pay the Executive and provide him with the following:

          (i) Payments.

               (A) Salary. The Executive’s then current base salary payable for the Non-Compete Period (as
defined in Section 8 hereof); plus

               (B) Bonuses The entire bonus that would have been payable pursuant to any agreement,
understanding, arrangement or plan (“Bonus Arrangement”) in which Executive is entitled to
participate in accordance with the provisions of Section 3(b) for the year in which the
termination of his employment occurred as if he had been employed for the entire year, provided
that, in the opinion of the Board the Executive is likely to have met any bonus plan goals for the
relevant period had he not been terminated; plus

               (C) Earned but Unpaid Amounts. Any previously earned but unpaid salary through the
Executive’s final date of employment with the Company, and any previously earned but unpaid
bonus amounts pursuant to any Bonus Arrangement for any completed fiscal year prior to the date
of the Executive’s termination of employment.

 

 

     Payments of the amounts described above will be made in accordance with the timetable and
schedule contemplated for such payments, as though such termination had not occurred.

     As a condition to its obligation to make any of the payments required of it under this Section
5(a), the Company, in its sole discretion, may require Executive to execute a release, in such form
as it may reasonably require, releasing the Company and its officers, directors, employees, and
agents, from any and all claims and causes of action, including, but not limited to those arising
form Executive’s employment and the termination of his employment with the Company.

          (ii) Equity. Any existing stock options, restricted stock grants, stock appreciation rights
and other similar awards outstanding at the date of termination shall immediately vest and will, in
all other respects, continue to be governed by, and continued in accordance with, their applicable
plan and grant documents; provided, however, that the period during which any options or right
relating to such grants may be exercised by Executive shall be the longer of the date specified in
such grants or the date that is thirty (30) days after the end of the Non-Compete Period (as
defined in Section 8 of this Agreement). If the extension of any such exercise period shall cause
any Incentive Stock Option (as defined in Section 422 of the Internal Revenue Code of 1954, as
amended) (an “ISO”) to cease be treated as an ISO, then the Executive shall have the right to elect
whether to treat such stock option as a non-qualified stock option having the extended exercise
period provided for in this Section or to continue to treat such stock option as an ISO having the
original expiration date.

          (iii) Other Benefits. Continued coverage under all health, life, disability and similar
employee benefit plans and programs of the Company on the same basis as the Executive was entitled
to participate immediately prior to such termination for the Non-Compete Period; provided that the
Executive’s continued participation is possible under the general terms and provisions of such
plans and programs. In the event that the Executive’s participation in any such plan or program is
barred, the Company shall arrange to provide the Executive with benefits substantially similar to
those which the Executive would otherwise have been entitled to receive under such plans and
programs from which his continued participation is barred. If Executive is covered under
substitute benefit plans of another employer prior to the expiration of the Non-Compete Period,
the Company will no longer be required to continue the respective coverage described in this
Section 5(a)(iii).

     (b) Other Termination of Employment. In the event that the Executive’s employment with the
Company is terminated during the Employment Period (i) by the Company for “cause” (as provided for
in Section 4(b) hereof),or (ii) by the Executive other than for “good reason” (as provided for in
Section 4(c) hereof) (except as otherwise provided in Section 6(c)(i)), the Company shall pay the
Executive (or his legal representative) any earned but unpaid salary and annual bonus amounts for
any completed fiscal year prior to the date of the Executive’s termination of employment, but only
to the extent such amounts are payable in accordance with the terms of any such

 

 

plan, through the Executive’s final date of employment with the Company, and the Company
shall have no further obligations to the Executive.

     (c) Withholding of Taxes. All payments required to be made by the Company to the Executive
under this Agreement shall be subject to the withholding of such amounts, if any, relating to tax,
social security, excise tax and other payroll deductions as the Company may reasonably determine it
should withhold pursuant to any applicable law or regulation.

     (d) No Other Obligations. The benefits payable to the Executive under this Agreement are not
in lieu of any benefits payable under any employee benefit plan, program or arrangement of the
Company, except as provided specifically herein, and upon termination the Executive will receive
such benefits or payments, if any, as he may be entitled to receive pursuant to the terms of such
plans, programs and arrangements. Except for the obligations of the Company provided by the
foregoing and this Section 5, the Company shall have no further obligations to the Executive upon
his termination of employment.

     (e) No Mitigation or Offset. If the Executive’s employment is terminated pursuant to the
provisions of Sections 4(b), 4(c) or 4(e), the Executive shall not be required to mitigate the
damages provided by this Section 5 by seeking substitute employment or otherwise.

     6. Change of Control.

          (a) Definition. For purposes of this agreement, a “Change of Control” shall mean:

               (i) the approval by the stockholders of the Company, and the completion of the transaction
resulting from such approval, of (A) the sale or other disposition of all or substantially all
the assets of the Company or (B) a complete liquidation or dissolution of the Company;

               (ii) The sale, in a single transaction or in a series of related transactions, of all or
substantially all of the outstanding shares of the capital stock of the Company;

               (iii) the
approval by the stockholders of the Company, and the completion of the transaction resulting from
such approval, of a merger, consolidation, reorganization or similar corporate transaction,
whether or not the Company is the surviving corporation in such transaction, in which the
outstanding shares of common stock of the Company are converted into (A) shares of stock of
another company, other than a conversion into shares of voting common stock of the successor
corporation (or a holding company thereof) representing fifty percent (50%) or more of the voting
power of all capital stock thereof outstanding immediately after the merger or consolidation or
(B) other securities (of either the Company of another company) or cash or other property;

 

 

               (iv) pursuant to an affirmative vote of a holder or holders of seventy five percent (75%) of
the capital stock of the Company entitled to vote on such a matter, the removal of a majority of
the individuals who are at that time members of the Board of Directors; or

               (v) the acquisition by any entity or individual of one hundred percent of the capital stock
of the Company.

     Notwithstanding the foregoing, it is understood by the parties to this Agreement that a
“Change of Control” shall not include any transaction the purpose of which is to reorganize the
Company’s corporate structure, reincorporate the Company in another jurisdiction or undertake any
other action which does not materially affect the ownership and control of the Company at the time
of such transaction.

     (b) Vesting of options upon a Change of Control. Notwithstanding anything to the contrary in
any stock option contract between the Company and the Executive or in any stock option plan or
similar plan of the Company, upon the occurrence of a Change of Control, all options held by the
Executive which shall not yet have vested will vest and become immediately exercisable. After such
a Change of Control, the Executive’s options shall remain exercisable for the period remaining
under the relevant stock option contract and shall not have a shortened period of exercisability as
a result of the Change of Control, except for statutory stock options which shall, at the election
of the Executive made at the time of the Change of Control, (i) expire 90 days after his
termination (or 1 year if the Executive’s termination results from his death or permanent and total
disability) or (ii) be converted into non-qualified stock options expiring at the end of the entire
term of such option under the relevant stock option contract.

     (c) Severance upon a Change of Control.

          (i) If the Executive’s employment is terminated within one year of a Change of Control for
any reason other than by the Company for “cause”, or if tbe Executive elects to terminate his
employment by Company (whether or not for “good reason”) after the expiration of 120 days after
and on or before the two-year anniversary date of the Change of Control, the Executive shall be
entitled to the payments described in the preceding Section 5(a), except that the Non-Compete
Period (as defined in Section 8 hereof) applicable for the purposes of Sections 5(a) and 8 hereof
shall be doubled and all payments and benefits that are stated as a function of the Non-Compete
Period shall be adjusted accordingly.

          (ii) If the Executive’s employment is terminated within one year of a Change of Control for
any reason other than by the Company for “cause”, the Executive shall be not be required to
mitigate the damages provided by this Section 6 of this Agreement by seeking substitute employment
or otherwise and there shall be no offset by the Executive with respect to the payments and
benefits set forth in this Section 6 of this Agreement, except as otherwise qualified in Section
5(a)(iii).

 

 

     7. Indemnification and Insurance.

     (a) Indemnification. The Company shall, to the fullest extent permitted by law and by its
Certificate of Incorporation and Bylaws, indemnify Executive and hold him harmless for any acts or
decisions made by him in good faith while performing his duties pursuant to this Agreement. The
Company shall advance to Executive all costs and expenses incurred by him in connection with any
such proceeding or claim within 20 days after receiving written notice requesting such an advance.
Such notice shall include, to the extent required by applicable law, an undertaking by Executive to
repay the amount advanced if he ultimately is determined not to be entitled to indemnification
against such costs and expenses. The indemnification provided for in this Section 7(a) shall be in
addition to, and not in diminution of, any indemnification to which the Executive may be entitled
pursuant any other Agreement between him and the Company and, if this Agreement shall conflict with
any others such agreement, then the provisions that provide the Executive with the greater rights
to indemnification shall control.

     (b) Directors and Officers Liability Insurance. On or before the effective date of the IPO,
the Company (which, for these purposes, shall include any successor company), shall obtain and
maintain in effect during the Employment Period and thereafter for the statute of limitations
applicable to any claim that could be made against the Executive for actions or failure to act
during the Employment Period a policy of directors’ and officers’ liability insurance providing
coverage to Executive to the extent that it provides such coverage for any other senior executive
officer or director.

     8. Restrictive Covenants.

     (a) Obligations of the Parties. In the event that the Executive’s employment with the Company
is terminated for any reason (the effective date of such termination being referred to as the
“Termination Date”), the Executive and the Company shall negotiate in good faith the terms and
conditions under which the Executive may seek future employment. If a good faith agreement thereon
cannot be reached, the terms of this Section 8 shall govern. In any event,

          i. For up to a 4 month period after the Termination Date, Executive will cooperate with and
assist the Company to make a smooth transition in management and, if requested by the Company, will
be available to consult during regular business hours at mutually agreed upon times.

          ii. After the Termination Date, Executive will provide such information as the Company may
reasonably request with respect to any matter that relates to the Company or its business in which
the Executive was involved while employed by Company.

          iii. After the Termination Date, Executive will assist and cooperate with Company in
connection with the defense or prosecution of any claim that may be

 

 

made by or against the Company or any affiliate that relates to any matter in which Executive was
involved or as to which Executive has knowledge, including providing testimony in any proceeding
before any arbitral, administrative, judicial, legislative or other body or agency.

          iv. Executive shall be entitled to reimbursement for all properly documented expenses incurred
in connection with rendering services under this Section, including, but not limited to,
reimbursement for all reasonable travel, lodging, meal expenses, and legal fees, and Executive
shall be entitled to a per diem amount for his services equal to 1.5 times his then most recent
annualized Base Salary under this Agreement, divided by 240 (business days).

     (b) Non-Compete Covenant. Subject to 8(a) herein, the Executive covenants and agrees that for
the period of twenty-four (24) months from the date the Executive is no longer an employee of the
Company (the “Non-Compete Period”) for any reason other than because of a termination by the
Executive for “good reason” or a termination by the Company without cause, the Executive will not,
directly or indirectly, compete with the Company by carrying on anywhere in the United States of
America (the “Territory”) a line of business substantially similar to the business and activities
of the Company as conducted at the time of termination (the “Business”). All of the foregoing of
this Section 8(b) shall be qualified by Section 6(c) of this Agreement. For the avoidance of doubt,
if there has been a Change of Control, the term “Business” shall not include the business of the
acquiring entity involved in such Change of Control, except to the extent that the business of such
entity is the same or substantially the same business as that conducted by the Company immediately
prior to such Change of Control. Executive shall continue to be bound by the restrictions and
obligations arising under this Section 8 for the duration of the Non-Compete Period,
notwithstanding the fact that such Non-Compete Period shall extend beyond the Term of this
Agreement.

     (c) Definition of Compete. For purposes of this Agreement, the term “compete” shall mean (a) calling on, soliciting or taking away, as a client or customer any
individual, partnership, corporation or association that was a client or customer of the Company
during the 12-calendar month period immediately preceding any such act for the purpose of competing
with the Company; (b) hiring, soliciting, taking away or attempting to hire, solicit or take away
any employee of the Company either on behalf of himself or any other person or entity for the
purpose of competing with the Company; or (c) for the period of this Agreement, entering into or
attempting to enter into any business offering goods and services which are substantially similar
to or competing in any way with the goods and services which are then being offered by the Company.

     (d) Direct or Indirect Competition. For purposes of this Agreement, the words “directly or
indirectly” as they modify the word “compete” shall mean: (a) acting as an agent, representative,
consultant, officer, director, independent contractor or employee of any entity or enterprise,
which is competing (as defined in Section 2, above) with the
Business; (b) participating in any such competing entity or enterprise, or the Affiliate of such
entity or enterprise, as an owner, partner, limited partner, joint venturer,

 

 

creditor or stockholder (except as a stockholder holding less than a five percent interest in a
corporation whose shares are actively traded on a regional or a national securities exchanged or in
the over-the-counter market); or (c) communicating to any such competing entity or enterprise the
names or addresses or any other information concerning any past, present or identified prospective
client or customer of the Company or any entity having title to the goodwill of the Company with
respect to the Business..

     (e) Confidential
Data. For purposes of this Agreement,“Trade Secrets” shall mean any
scientific or technical information, design, process, procedure, formula or improvement, or any
portion or phase thereof, whether or not patentable, that is owned by, or that has, at the time of
determination of its status, been used by the Company and that is not generally known to
competitors of the Company, and information concerning proposed new products, software and
marketing processes, market feasibility studies, and proposed or existing marketing techniques or
plans relating to the Business that are not generally known to competitors of the Company. The term
“Confidential Information” shall mean any data or information, other than Trade Secrets, that is
owned by, or that has, at the time of termination of its status, been used by the Company relating
to the Business and is not generally known to competitors of the Company, including, but not
limited to, Proprietary Customer Information (as defined below), information relating to the
Business, the identity of suppliers, customers, subscribers, advertisers, sales methodology,
software and information about the personnel of the Company. The term “Proprietary Customer
Information” shall mean all information concerning the identity and purchasing habits of customers
of the Company with respect to the Business to the extent that such information is a valuable
component of the Business and is not generally ascertainable by parties unaffiliated with the
Company. The terms Trade Secrets, Confidential Information and Proprietary Customer Information are
hereinafter sometimes collectively referred to as “Confidential Data.”

     The Executive agrees that, during the period set forth in 8(b), above, and thereafter for so
long as such information remains Confidential Data, he will keep confidential and not directly or
indirectly divulge, furnish, make accessible to anyone or appropriate for his own use any
Confidential Information, and that at no time will he or it divulge, furnish and make accessible to
anyone or appropriate for his own use any Trade Secrets. Executive further acknowledges and agrees
that the Company has a legitimate interest in protecting Proprietary Customer Information from
misappropriation or diversion by Executive or any competitor. Executive hereby acknowledges and
agrees that the prohibitions against disclosure of Confidential Data recited herein are in addition
to, and not in lieu of, any rights or remedies which the Company may have available pursuant to the
laws of any jurisdiction or at common law to prevent the disclosure of trade secrets and other
confidential proprietary data, and the enforcement by the Company of their rights and remedies
pursuant to this Agreement shall not be construed as a waiver of any other rights or available
remedies which it may possess in law or equity absent this Agreement.

     (f) Reasonableness of Restrictions. Executive recognizes that the territorial and time
limitations set forth in Section 8(b), above, are reasonable, not burdensome and

 

 

are properly required by law for the adequate protection of the Company, and in the event that such
territorial or time limitations are deemed to be unreasonable by a court of competent jurisdiction,
then Executive agrees and submits to the reduction of either said territorial or time limitation,
or both, to such an area or period as said court shall deem reasonable.

     (g) Injunctive Relief. Executive acknowledges that Executive’s expertise in the Business is of
a special, unique, unusual, extraordinary and intellectual character, which gives said expertise a
peculiar value, and that a breach of the provisions of this Agreement cannot be reasonably or
adequately compensated in damages in an action at law and that such breach will cause the Company
irreparable injury and damage. Executive further acknowledges that Executive possesses unique
skills, knowledge and ability and that competition in violation of this Agreement would be
extremely detrimental to the Company. By reason thereof, Executive agrees that the Company shall be
entitled, in addition to any other remedies they may have under this Agreement or otherwise, to
temporary, preliminary and/or permanent injunctive and other equitable relief to prevent or curtail
any breach of this Agreement, without proof of actual damages that have been or may be caused to
the Company by such breach or threatened breach; provided, however, that no specification in this
Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition
against the pursuing of other legal or equitable remedies in the event of a breach.

     (h) Meaning
of “Company”. For purposes of this Section 8, the term “Company” shall mean
the Company and/or any present or future subsidiary, parent or affiliate.

     9. Notices.

          All notices, requests and other communications pursuant to this Agreement shall be in writing and shall be deemed to have been duly given, if delivered in person
or by courier, telegraphed, telexed or by facsimile transmission or sent by express, registered
or certified mail, postage prepaid, addressed as follows:

If to the Executive:

Grant Russell

11775 Chateau Wynd

Delta, British Columbia, Canada VYE 3C9

If to the Company:

Vuzix Corporation

75 Town Centre Drive

Rochester, New York, 14623

Attn: Chief Financial Officer

 

 

     Either party may, by written notice to the other, change the address to which notices
to such party are to be delivered or mailed.

     10. Arbitration.

  Except as specifically provided herein, any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration, conducted before a
single arbitrator in the State of New York, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any
court having jurisdiction. The Company shall bear the expense of any such arbitration proceeding
and shall reimburse the Executive for all of his reasonable costs and expenses relating to such
arbitration proceeding, including, without limitation, reasonable attorneys’ fees and expenses;
provided, however, that if the Company shall prevail in any such proceeding then the Executive
shall reimbursement for all expenses paid by the Company on his behalf in connection with such
proceeding..

     11. Waiver of Breach.

     Any waiver of any breach of this Agreement shall not be construed to be a continuing waiver or
consent to any subsequent breach on the part either of the Executive or of the Company.

     12. Non-Assignment; Successors.

     Neither party hereto may assign his or its rights or delegate his or its duties under this
Agreement without the prior written consent of the other party; provided, however, that the parties
hereto hereby agree in advance that (i) this Agreement may be assigned to, and shall inure to the
benefit of and be binding upon, the successors and assigns of the Company upon any sale of all or
substantially all of the Company’s assets, or upon any merger, consolidation or reorganization of
the Company with or into any other corporation, all as though such successors and assigns of the
Company and their respective successors and assigns were the Company; and (ii) this Agreement shall
inure to the benefit of and be binding upon the heirs, assigns or designees of the Executive to the
extent of any payments which may become due to them hereunder. For avoidance of doubt, all payments
due or to become due from the Company to Executive pursuant to the terms of this Agreement shall
continue to be made after the death of the Executive. As used in this Agreement, the term “Company”
shall be deemed to refer to any such successor or assign of the Company referred to in the
preceding sentence.

     13. Severability.

     To the extent any provision of this Agreement or portion thereof shall be invalid or
unenforceable, it shall be considered deleted therefrom and the remainder of such provision and
of this Agreement shall be unaffected and shall continue in full force and effect.

 

 

     14. Captions. Captions and headings in this Agreement are for convenience of reference only
and do not constitute a part of the Agreement.

     15. Counterparts.

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

     16. Governing Law.

     This Agreement shall be construed, interpreted and enforced in accordance with the laws of
the State of New York, without giving effect to the choice of law principles thereof.

     17. Survivability.

     Any covenant or agreement of the parties which by its term contemplates performance after the
Expiration of this Agreement shall survive and remain in full force and effect notwithstanding the
fact that the Employment Period has lapsed or that this Agreement or Executive’s employment
hereunder, has been terminated.

     18. Entire Agreement.

     This Agreement constitutes the entire agreement by the Company and the Executive with respect
to the subject matter hereof and except as specifically provided herein, supersedes any and all
prior agreements or understandings between the Executive and the Company with respect to the
subject matter hereof, whether written or oral. This Agreement may be amended or modified only by
a written instrument executed by the Executive and the Company.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Grant Russell	 	 
	 	 	 	 	 
	 	 	Grant Russell	 	 
	 
	 	 	 	 	 	 
	 	 	ICUITI CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Paul Travers
 

Paul Travers
	 	 
	 

	 	Title:
	 	President and Chief Executive
OfficerEX-10.9

Exhibit
10.9

SHAREHOLDERS’ AGREEMENT

     THIS SHAREHOLDERS AGREEMENT (this “Agreement”) is made and entered into as of October 11,
2000, by and between Interactive Imaging Systems, Inc., a Delaware corporation (the “Company”) and
certain Shareholders in the Company, each of whom will execute a counterpart signature page of this
Agreement (collectively, the “Shareholders” and each individually, a “Shareholder”).

RECITALS:

     Each of the Shareholders has agreed to certain restrictions on the. transfer of
the Company’s $.001 par value Common Stock and in return, the Company has agreed to grant certain
registration rights with respect to the shares of the Company’s Common Stock that are issued to
each Shareholder, subject to the terms and conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises
hereinafter set forth, the parties hereto agree as follows:

     1. TRANSFER LIMITATION

          1.1 Rationale. The Shareholders and the Company believe it to be in
their best interests to impose certain restrictions on the transfer or other disposition of the
Common Stock in order to provide for continuity in the control and management of the Company and
to prevent the Common Stock from becoming owned by persons or entities whose purposes and
interests would not be in the best interests of the Company, its business and the Shareholders.

          1.2 Dispositions Restricted. Prior to October 11, 2002, no Shareholder
shall make or suffer to be made any sale, gift, pledge, mortgage, encumbrance, distribution,
transfer, assignment, hypothecation or disposition of any kind (a “Disposition”) of any of his or
her shares of Common Stock without first obtaining the consent of the Board of Directors of the
Company; except that no such consent shall be required in the case of a Disposition to another
then-current Shareholder. The Company shall not suffer or permit any Disposition, except as may
be expressly permitted under this Agreement. The foregoing restrictions on Dispositions shall
automatically terminate on the earlier to occur of: (a) October 11, 2002; (b) the closing of the
first public offering by the Company of shares of Common Stock of the Company registered under
the Securities Act of 1933, as amended; or (c) the closing of the sale of the majority of the
Company’s Common Stock or assets to a third party.

          1.3 Legend. During the term of the foregoing restrictions on
Dispositions, there shall be placed upon every certificate representing the Common Stock the
following legend: This certificate and the shares represented hereby are subject to, and
transfer of such shares is restricted by, the provisions of an agreement among the issuing
Company and certain of its shareholders dated October 11, 2000, and any amendments thereto, a
copy of which agreement is on file at the principal office of the Company. Upon expiration of the
foregoing restrictions on Dispositions, each Shareholder may request the Company to issue a new
certificate representing the Common Stock, owned by such

 

 

Shareholder without the foregoing
legend.

     2. REGISTRATION RIGHTS

          2.1 Certain Definitions. For purposes of this Agreement:

                 (a) Registration. The terms “register,” “registered,” and
“registration” refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act of 1933, as amended (the “Securities Act”),
including Regulation S-B thereunder, if available, and the declaration or ordering of
effectiveness of such registration statement.

                 (b) Registrable Securities. The term “Registrable Securities” means: (1) all of the
shares of Common Stock of the Company held by the Shareholders as of October 11, 2000; (2) all
shares of Common Stock of the Company issued following an exercise of a stock option granted
pursuant to the 1997 Stock Option. Plan of the Company; and (3) any shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, all such shares of Common Stock described in clauses (1) and (2) of this
subsection (b); excluding in all cases, however, any Registrable Securities sold by a
person in a transaction which violates Section 1 or in which rights under this Section 2 are not
assigned in accordance with Section 3 of this Agreement.

                 (c) Registrable Securities Then Outstanding. The number of
shares of “Registrable Securities then outstanding” shall mean the number of shares of Common
Stock which are Registrable Securities and are then-issued and outstanding.

                 (d) Holder. The term “Holder” means any person owning of
record Registrable. Securities that have not been sold to the public or sold pursuant to Rule
144 promulgated under the Securities Act or any assignee of record of such Registrable Securities
to whom rights under this Section 2 have been duly assigned in accordance with this Agreement.

                 (e) SEC. The term “SEC” or “Commission” means the U.S. Securities and Exchange
Commission.

 

 

          2..2 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing any registration
statement under the Securities Act for purposes of effecting a public offering of securities of the
Company (including, but not limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating to the Company’s
initial public offering) and will afford each such Holder an opportunity to include in such
registration statement all or any part of the Registrable Securities then held by such Holder. Each
Holder desiring to include in any such registration statement all or any part of the Registrable
Securities held by such Holder shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing, and in such notice shall inform the
Company of the number of Registrable Securities such Holder wishes to include in such registration
statement. If a Holder decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless continue to have the
right to include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings of its securities,
all upon the terms and conditions set forth herein.

     (a) Underwriting. If a registration statement under which the Company gives notice
under this Section 2.2 is for an underwritten offering, then the Company shall so advise the
Holders of Registrable Securities. In such event, the right of any such Holder’s Registrable
Securities to be included in a registration pursuant to this Section 2.2 shall be conditioned upon
such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable
Securities in the underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an underwriting agreement
in customary form with the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing underwriter determine(s) in
good faith that marketing factors require a limitation of the number of shares to be underwritten,
then the managing underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included in the
registration and the underwriting shall be allocated, first, to the Company; second to
holders of the Company’s Preferred Stock (or Registrable Securities issuable upon conversion of
such Preferred Stock), if any; third to the holders of “registrable securities,” as that term is
defined in, and pursuant to, that certain Registration Rights Agreement, dated as of October 11,
2000, by and among the Company and certain investors in the Company; and fourth to the
Holders requesting inclusion of their Registrable Securities in such registration statement
pursuant to this Section 2.2 on a pro rata basis based on the total number of Registrable
Securities held by each such Holder. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn from such underwriting
shall be excluded and withdrawn from the registration, but such Holder shall nevertheless continue
to have the right to include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings of its securities,
all upon the terms and conditions set forth herein. For any Holder which is a partnership or
corporation, the partners, retired partners and shareholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single “Holder”, and any pro rata

 

 

reduction with respect to such “Holder” shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in such “Holder,” as
defined in this sentence.

     (b) Expenses. The Company shall bear and pay all expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or qualifications
pursuant to Sections 2.2 and 2.3, including (without limitation) all registration, filing and
qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the
Company and the reasonable fees and disbursements of one counsel for the selling Holders selected
by those Holders with a majority of the Registrable Securities included in the registration.

          2.3 Obligations of the Company. Whenever required to effect the registration of any
Registrable Securities under this Agreement, the Company shall, as expeditiously as commercially
reasonable:

               (a) Furnish to the Holders and to the underwriters, if any, such
number of copies of the registration statement, prospectus, and preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable Securities owned by
them that are included in such registration.

               (b) Use its commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that
the Company shall not be required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service of process in any such states or
jurisdictions.

               (c) Notify each Holder of Registrable Securities covered by such registration statement at
any time when a prospectus relating thereto is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included in such 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 not
misleading in the light of the circumstances then existing.

               (d) Use its reasonable best efforts either to (i) cause all the Registrable Securities
covered by any registration statement to be listed on a recognized stock market or exchange in the
United States or in Canada, if the listing of such Registrable Securities is then permitted under
the rules of such market or exchange, or (ii) secure the quotation of the Registrable Securities
on the OTC Bulletin Board.

          2.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2 and 2.3 that the
selling Holders shall furnish to the Company such information regarding themselves, the Registrable
Securities held by them, and the intended method of disposition of such securities as shall be
reasonably required to timely effect the registration of their Registrable Securities.

          2.5 Delay of Registration. No Holder shall have any right to obtain or

 

 

seek an injunction restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or implementation of this Section
2.

          2.6 Indemnification. With respect to Registrable Securities that are
included in a registration statement under Section 2.2:

               (a) By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners, officers, directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the “1934 Act”), against any expenses, losses,
claims, damages, or liabilities (joint or several) (or actions in respect thereof) to which they
may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar
as such expenses, losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or violations (collectively a
“Violation”):

                    (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, preliminary prospectus, final
prospectus, offering circular or other document contained therein or any amendments or supplements
thereto;

                    (ii) the omission or alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or

                    (iii) any violation or alleged violation by the Company of
the Securities Act, the 1934 Act, any federal or state securities law or any rule or
regulation promulgated under the Securities Act, the 1934 Act or any federal or state securities
law in connection with the offering covered by such registration statement; and the Company will
reimburse each such Holder, partner, officer, director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them, as incurred, in connection with
investigating, defending or settling any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
2.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which consent shall not
be unreasonably withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder or its agent, partner,
officer, director, underwriter or controlling person of such Holder.

               (b) By Selling Holders. To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder’s partners, directors or officers or

 

 

any person who controls such Holder within the meaning of the Securities Act or the 1934 Act,
against any losses, claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, underwriter or other such Holder, partner or director,
officer or controlling person of such other Holder may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder or its agent expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, controlling person, underwriter or other Holder,
partner, officer, director or controlling person of such other Holder in connection with
investigating, defending or settling any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection 2.6(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent shall not be
unreasonably withheld; and provided, further, that the total amounts payable in
indemnity by a Holder under this Section 2.6(b) in respect of any Violation shall not exceed the
net proceeds received by such Holder in the registered offering out of which such Violation arises.

               (c) Notice. Promptly after receipt by an indemnified party under
this Section 2.6 of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against any indemnifying
party under this Section 2.6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.6, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.6.

               (d) Defect Eliminated in Final Prospectus. The foregoing indemnity agreements of the
Company and Holders are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but which Violation is eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the “Final Prospectus), such
indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished to the indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by the Securities Act.

 

 

               (e) Contribution. In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any Holder exercising rights
under this Agreement, or any controlling person of any such Holder, makes a claim for
indemnification pursuant to this Section 2.6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 2.6 provides for indemnification in such case, or
(ii) contribution under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is provided under this
Section 2.6; then, and in each such case, the Company and such Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in connection with
the statements or omissions that resulted in such expense, loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of each such party in connection
with such statements or omissions as well as .any other relevant considerations; provided,
however, that, in any such case, (A) the total amounts payable in contribution by any
Holder under this Section 2.6(e) shall not exceed the net proceeds received by such Holder in the
registered offering out of which such responsibility arises; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be
entitled to contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.

               (f) Survival. The obligations of the Company and Holders under
this Section 2.6 shall survive the completion of any offering of Registrable Securities in a
registration statement, and otherwise.

          2.7 “Market Stand-Off Agreement. Each Holder hereby agrees that it shall not, to the
extent requested by the Company or an underwriter of securities of the Company, sell or otherwise
transfer or dispose of any Registrable Securities or any shares of capital stock of the Company
then owned by such Holder (other than to donees or partners of the Holder who agree to be similarly
bound) for up to one hundred eighty (180) days following the effective date of any registration
statement (other than a registration statement relating to any employee benefit plan or to any
acquisition, merger, consolidation or other corporate reorganization) of the Company filed under
the Securities Act (whether filed pursuant to the provisions of this Agreement or otherwise);
provided, however, that:

               (a) such agreement shall not apply to shares of capital stock of the Company sold pursuant to
such registration statement;

               (b) all executive officers and directors of the Company then holding Common Stock of the
Company enter into a similar agreement, and any other stockholder of the Company then-owning at
least two percent (2%) of the shares of the Company’s Common Stock on a fully-diluted basis, also
enters into a similar agreement; and

               (c) in an offering other than the Company’s initial public offering, such

 

 

agreement shall apply only for a period of 90 days from the effective date of the
registration statement filed under the Securities Act with respect thereto.

          In order to enforce the foregoing covenant, the Company shall have the right to place
restrictive legends on the certificates representing the shares subject to this Section and to
impose stop transfer instructions with respect to the shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction) until the end of
such period.

          2.8 Rule 144 Reporting. With a view to making available the benefits of certain rules
and regulations of the Commission which may at any time permit the sale of the Registrable
Securities to the public without registration, after such time as a public market exists for the
Common Stock of the Company, the Company agrees to:

               (a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times after the
effective date of the first registration under the Securities Act filed by the Company for an
offering of its securities to the general public;

               (b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the 1934 Act (at any
time after it has become subject to such reporting requirements); and

               (c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the Company for an offering of its
securities to the general public), of the Securities Act and the 1934 Act (at any time after it
has become subject to the reporting requirements of the 1934 Act), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents of the Company as
a Holder may reasonably request in availing itself of any rule or regulation of the Commission
allowing a Holder to sell any such securities without registration (at any time after the Company
has become subject to the reporting requirements of the 1934 Act).

     3. ASSIGNMENT

     Notwithstanding anything herein to the contrary, the registration rights of a Holder under
Section 2 hereof may be assigned by a Holder only to a party who acquires all of the shares of
Registrable Securities of such Holder in a transaction allowed pursuant to the terms of Section 1,
if then applicable; provided, however that no party may be assigned any of the
foregoing rights unless the Company is given written notice by the assigning party at the time of
such assignment stating the name and address of the assignee and identifying the securities of the
Company as to which the rights in question are being assigned; and provided,
further that any such assignee shall receive such assigned rights subject to all the terms
and conditions of this Agreement, including without limitation the provisions of this Section 3.

 

 

     4. GENERAL PROVISIONS

          4.1 Amendment of Rights. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company and Holders of a
majority of all Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 4.1 shall be binding upon each Holder, each permitted successor or
assignee of such Holder and the Company

          4.2 Governing Law. The internal laws of the State of Delaware (irrespective if its
conflict of law principles) will govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the parties hereto.

          4.3 Severability. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable, the remainder of this
Agreement and application of such provision to other persons or circumstances will be interpreted
so as reasonably to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and enforceable provision that
will achieve, to the extent possible, the economic, business and other purposes of the void or
unenforceable provision.

          4.4 Counterparts. This Agreement may be executed in any number of counterparts, each
of which will be an original as regards any party whose signature appears thereon and all of which
together will constitute one and the same instrument. This Agreement will become binding when one
or more counterparts hereof, individually or taken together, will bear the signatures of all
parties reflected hereon as signatories. Facsimile copies of such counterparts are acceptable.

          4.5 Notices. Any notice or other communication required or permitted to be given under
this Agreement will be in writing, will be delivered personally, by registered or certified mail,
postage prepaid, by confirmed facsimile or by nationally recognized courier service, and will be
deemed given upon delivery, if delivered personally, or five days after deposit in the mail, if
mailed, or upon receipt if delivered by confirmed facsimile or nationally recognized courier
service to the following addresses:

	 	 	 	 	 
	 

	 	(i)              If to Company:
	 

	 	 	 	Interactive Imaging Systems, Inc.
	 

	 	 	 	2166 Brighton-Henrietta Townline Road
	 

	 	 	 	Rochester, New York 14623
	 

	 	 	 	Facsimile: (716) 240-8003
	 

	 	 	 	Attention: Paul J. Travers, President
	 
	 	 	 	 
	 

	 	 	 	With a copy to:
	 

	 	 	 	Steven R. Gersz, Esq.
	 

	 	 	 	Underberg & Kessler LLP
	 

	 	 	 	1800. Chase Square
	 

	 	 	 	Rochester, New York 14604

 

 

	 	 	 	 	 
	 

	 	 	 	Facsimile:
(716) 258-2821

	 

	 	(ii)             If to Shareholders:

               To the addresses set forth on the counterpart signature pages hereto or to such other address
as a party may have furnished to the other parties in writing pursuant to this Section 4.5.

          4.6 Absence of Third Party Beneficiary Rights. No provisions of this Agreement are
intended, nor will be interpreted, to provide or create any third party beneficiary rights or any
other rights of any kind in any client, customer, affiliate, stockholder, partner or any party
hereto or any other person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be solely between the parties to this Agreement.

          4.7 Entire Agreement. This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the shares of the Common Stock in the Company, and,
except for the Stock Redemption and Purchase Agreement, dated December 3, 1998, by and among the
Company and certain shareholders of the Company, supersedes all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied, written or oral,
between the parties. Such superseded agreements shall include but not be limited to the Kaotech
Corporation Shareholders Agreement, dated as of November 20, 1997 and, upon the closing of a
private placement offering by the Company in the minimum aggregate amount of $750,000 at a minimum
valuation for the Company of $2,500,000, both the Voting Agreement by and among Paul J. Travers,
Lee Martin and the Company, dated December 3, 1998 and the Cross Purchase Agreement by and between
Kopin Corporation, certain other shareholders in the Company, Lee Martin and the Company, dated
December 3, 1998. If the closing of the private placement offering contemplated in the preceding
sentence does not occur, then the rights and obligations of the parties to both the Voting and
Cross Purchase Agreements dated. December 3, 1998 shall remain in full force and effect. The
express terms hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.

          4.8 Termination. The Company will have no obligations pursuant to Section 2.2 with
respect to any Holder if, (i) in the opinion of counsel to the Company, all Registrable Securities
held by such Holder may be sold in a three-month period without registration under the Securities
Act pursuant to Rule 144 promulgated under the Securities Act or otherwise; or (ii) if all
Registrable Securities held by such Holder have been registered and sold to the public or sold
pursuant to Rule 144 promulgated under the Securities Act and/or have been transferred or sold in
a transaction in which registration rights hereunder have not been assigned in accordance with
this Agreement.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement, unless otherwise
indicated, effective as of the date and year first above written.

 

 

	 	 	 	 	 
	INTERACTIVE IMAGING SYSTEMS, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Paul J. Travers
 

	 	 
	Name:

	 	Paul J. Travers	 	 
	Title:

	 	President	 	 

[Remainder of page intentionally left blank]

 

 

Shareholders Agreement

Counterpart Signature Page

     The undersigned, being a Shareholder of Common Stock in the Company, executes and agrees to be
bound by and obtain the benefits of, the Shareholders Agreement dated as of October 11, 2000.

SHAREHOLDER

	 	 	 	 	 	 	 
	 

	 	Signature:	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Print
	 	 	 	Name:
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	           Address:
	 	 	 	 	 	 
	 

	 	 	 	 
	 
	 

	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 

[Counterpart signature page to the Shareholders Agreement]

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