Document:

matechexh10_1.htm

    
      

    

    Exhibit
10.1

    

    LICENSE
AGREEMENT

    

    THIS
LICENSE AGREEMENT (the “Agreement”) is entered into as of May 21, 2008 (the
“Effective Date”) by and between Material Technologies, Inc., a Delaware
corporation (“Licensor”), and Fatigue Solutions Corp., a California corporation
(“Licensee”) (individually, a “Party”; collectively, the
“Parties”).

     

    RECITALS

    

    WHEREAS, Licensor is the owner
of all right, title, and interest in the (i) Fatigue Fuse, and (ii)
Borescope  intellectual property (collectively, the “Intellectual
Property”); and

    

    WHEREAS, Licensor desires to
grant to Licensee, and Licensee desires to receive from Licensor, a
non-exclusive license to use, distribute, and sell the Intellectual Property in
accordance with the terms and conditions contained in this Agreement (the
“License”).

    

    NOW THEREFORE, in
consideration of the foregoing recitals and mutual covenants contained herein,
the Parties agree as follows:

     

    ARTICLE
1

    GRANT
OF LICENSE

     

    1.1          
Grant of
License.  Subject to the terms and conditions herein, and on
the basis of the representations, warranties and agreements herein contained,
Licensee agrees to receive from Licensor, and Licensor agrees to grant to
Licensee, a non-exclusive License to make, have made, use and sell use,
distribute, and sell the Intellectual Property.

    

    1.2          
Time and
Place.  The closing of the transactions contemplated by this
Agreement shall take place at the offices of Licensor, located at 11661 San
Vicente Boulevard, Suite 707, Los Angeles, California 90049, immediately upon
the full execution of this Agreement, the satisfaction of all conditions, and
the delivery of all required documents, or at such other time and place as the
Parties mutually agree upon (which time and place are hereinafter referred to as
the “Closing”).

    

    1.3         
 Royalty.  In
consideration for the License, Licensee shall pay to Licensor a royalty of 10%
of all “Net Sales.”  Royalties payable under this Agreement shall be
paid within 90 days following the last calendar quarter in which the royalties
accrue.  For purposes of this Agreement, “Net Sales” shall mean
Licensee’s gross receipts for the sale, use and transfer of Intellectual
Property, as well as Licensee’s gross receipts for services performed by using
the Intellectual Property, less the sum of (a) discounts allowed in amounts
customary in the trade; (b) sales, tariff duties, or use taxes directly
imposed and with reference to particular sales; (c) outbound transportation
prepaid or allowed; and (d) amounts allowed or credited on
returns.

    

    1.4          
Sub-License.  Licensee
may sublicense the rights granted pursuant to this Agreement without Licensor’s
prior written consent.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    ARTICLE
2

    LICENSOR’S
REPRESENTATIONS AND WARRANTIES

    

    2.1          
Representations and
Warranties of the Licensor.  The Licensor represents and
warrant to the Licensee, as of the Closing, that:

    

    
      	
               
      

            	
              2.1.1

            	
              Licensor
      has full right, power and authority to enter into this Agreement and to
      perform all of its obligations
hereunder;

            

    

    

    
      	
               
      

            	
              2.1.2

            	
              Licensor
      has full power and authority to license all of the rights, title and
      interests contained in this Agreement;
and

            

    

    

    
      	
               
      

            	
              2.1.3

            	
              no
      provision of law and no contract to which Licensor is a party prevents
      Licensor from performing the obligations
  hereunder.

            

    

    

    2.2         
 Disclosure.  No
representation or warranty made by the Licensor in this Agreement, nor any
document, written information, statement, financial statement, certificate, or
exhibit prepared and furnished or to be prepared and furnished by the Licensor
or its representatives pursuant hereto or in connection with the transactions
contemplated hereby, when taken together, contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements or facts contained herein or therein not misleading in light of the
circumstances under which they were furnished, to the best of Licensor’s
knowledge and belief.

    

    2.3         
 Reliance.  The
foregoing representations and warranties are made by the Licensor with the
knowledge and expectation that the Licensee is placing reliance
thereon.

    

    ARTICLE
3

    LICENSEE’S
REPRESENTATIONS AND WARRANTIES

    

    3.1          
Representations and
Warranties of the Licensee.  The Licensee represents and
warrant to the Licensor, as of the Closing, that:

    

    
      	
               
      

            	
              3.1.1

            	
              Licensee
      has full right, power and authority to enter into this Agreement and to
      perform all of its obligations hereunder;
and

            

    

    

    
      	
               
      

            	
              3.1.2

            	
              no
      provision of law and no contract to which Licensee is a party prevents
      Licensee from performing the obligations
  hereunder.

            

    

    

    3.2          
Disclosure.  No
representation or warranty made by the Licensee in this Agreement, nor any
document, written information, statement, financial statement, certificate, or
exhibit prepared and furnished or to be prepared and furnished by the Licensee
or its representatives pursuant hereto or in connection with the transactions
contemplated hereby, when taken together, contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements or facts contained herein or therein not misleading in light of the
circumstances under which they were furnished, to the best of Licensee’s
knowledge and belief.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.3          
Reliance.  The
foregoing representations and warranties are made by the Licensee with the
knowledge and expectation that the Licensor is placing reliance
thereon.

    

    ARTICLE
4

    CONFIDENTIALITY
& NONDISCLOSURE

     

    4.1          
Obligations.  Each
Party (the “Receiving Party”) acknowledges and agrees that any business and
technical information provided to the Receiving Party by the other Party (the
“Disclosing Party”) hereunder constitutes the confidential and proprietary
information of the Disclosing Party, and that the Receiving Party's protection
thereof is essential to this Agreement and a condition to the Receiving Party's
use and possession thereof.  The Receiving Party shall retain in
strict confidence and not disclose to any third party (except as authorized by
this Agreement) without the Disclosing Party's express written consent, any and
all such information.  Licensee acknowledges and agrees that the
Intellectual Property is confidential and proprietary information of
Licensor.

    

    4.2         
 Exceptions.  The
receiving Party shall be relieved of this obligation of confidentiality to the
extent any such information:

    

                          
 (i)   was in the public domain at the time it was disclosed
or has become in the public domain through no fault of the Receiving
Party;

    

                         
  (ii)  the Receiving Party can prove was known to the
Receiving Party, without restriction, at the time of disclosure as shown by the
files of the Receiving Party in existence at the time of
disclosure;

    

                         
  (iii) is disclosed by the Receiving Party with the prior written
approval of the Disclosing Party;

    

                         
  (iv)  the Receiving Party can prove was independently
developed by the Receiving Party without any use of the Disclosing Party's
confidential information and by employees or other agents of the Receiving Party
who have not had access to any of the Disclosing Party's confidential
information; or

    

                           
(v)   becomes known to the Receiving Party, without restriction,
from a source other than the Disclosing Party without breach of this Agreement
by the Receiving Party and otherwise not in violation of the Disclosing Party's
rights.

    

    4.3         
 Notification of
Security Breach.  The Receiving Party agrees to notify the
Disclosing Party promptly in the event of any breach of its security under
conditions in which it would appear that the trade secrets contained in the
Intellectual Property were prejudiced or exposed to loss.  The
Receiving Party shall, upon request of the Disclosing Party, take all other
reasonable steps necessary to recover any compromised trade secrets disclosed to
or placed in the possession of the Receiving Party by virtue of this
Agreement.  The cost of taking such steps shall be borne solely by the
Receiving Party.

     

    4.4       
   Injunctive
Relief.  Each Receiving Party acknowledges that any breach of
any of

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    its
obligations with respect to confidentiality or use of the Disclosing Party's
confidential information hereunder is likely to cause or threaten irreparable
harm to the Disclosing Party, and, accordingly, the Receiving Party agrees that
in the event of such breach the Disclosing Party shall be entitled to seek
equitable relief to protect its interest therein, including but not limited to
preliminary and permanent injunctive relief, as well as money
damages.

     

    ARTICLE
5

    INDEMNIFICATION

     

    Each Party (the “Indemnifying Party”)
agrees to indemnify, defend, and hold harmless the other Party (the “Indemnified
Party”) from and against any and all claims, damages, and liabilities, including
any and all expense and costs, legal or otherwise, caused by the negligent act
or omission of the Indemnifying Party, its subcontractors, agents, or employees,
incurred by the Indemnified Party in the investigation and defense of any claim,
demand, or action arising out of the work performed under this Agreement;
including breach of the Indemnifying Party of this Agreement.  The
Indemnifying Party shall not be liable for any claims, damages, or liabilities
caused by the sole negligence of the Indemnified Party, its subcontractors,
agents, or employees.

    

    The
Indemnified Party shall notify promptly the Indemnifying Party of the existence
of any claim, demand, or other matter to which the Indemnifying Party’s
indemnification obligations would apply, and shall give them a reasonable
opportunity to settle or defend the same at their own expense and with counsel
of their own selection, provided that the Indemnified Party shall at all times
also have the right to fully participate in the defense.  If the
Indemnifying Party, within a reasonable time after this notice, fails to take
appropriate steps to settle or defend the claim, demand, or the matter, the
Indemnified Party shall, upon written notice, have the right, but not the
obligation, to undertake such settlement or defense and to compromise or settle
the claim, demand, or other matter on behalf, for the account, and at the risk,
of the Indemnifying Party.

    

    The
rights and obligations of the Parties under this Article shall be binding upon
and inure to the benefit of any successors, assigns, and heirs of the
Parties.

    

    ARTICLE
5

    TERM
AND TERMINATION

     

    6.1         
  Term.  Unless
this Agreement is terminated pursuant to Article 6.2 hereof or a Party gives at
least 60 days written notice to the other Party of its intent to terminate, the
License granted hereunder shall remain in effect for a term of three years
beginning on the date hereof.  Moreover, this Agreement shall
automatically renew for succeeding terms of one year each unless either Party
gives notice to the other of its intention not to renew no later than 30 days
prior to the end of the then current term.  Licensee understands that
after the termination of this Agreement for any reason, it shall have no right
whatsoever to continue as a Licensee regardless of any undocumented continuation
of the relationship with Licensor.

    

    6.2        
   Cause.  This
Agreement may be terminated by either Party for cause immediately upon the
occurrence of any of the following events:

     

     (i)  If
the other Party ceases to do business, or otherwise terminates its business
operations;

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (ii)  If
the other Party shall fail to promptly secure or renew any license,
registration, permit, authorization or approval necessary for the conduct of its
business in the manner contemplated by this Agreement, or if any such license,
registration, permit, authorization or approval is revoked or suspended and not
reinstated within 60 days;

    

    (iii)  If
the other Party materially breaches any material provision of this Agreement
(including, but not limited to, Article 2 hereof) and fails to cure such breach
within 30 days (ten days in the case of a failure to pay and immediately in the
case of a breach of Article 3 hereof) of written notice describing the breach;
or

    

    (iv)  If
the other Party shall seek protection under any bankruptcy, receivership, trust
deed, creditors arrangement, composition or comparable proceeding, or if any
such proceeding is instituted against the other (and not dismissed within 120
days).

    

    6.3          
 Absolute Rights
of Termination.  Each Party understands that the rights of
termination hereunder are absolute.  Neither Party shall incur any
liability or compensation obligation whatsoever for any damage (including,
without limitation, damage to or loss of goodwill or investment), loss or
expenses of any kind suffered or incurred by the other (or for any compensation
to the other) arising from or incident to any termination of this Agreement by
such Party that complies with the terms of the Agreement whether or not such
Party is aware of any such damage, loss or expenses.

    

    6.4          
 Disposition of
Property.  Upon termination of this Agreement by either Party
or naturally at the end of the term, all rights of Licensee hereunder shall
terminate, and Licensee shall immediately return to Licensor, or destroy, at
Licensor's option, all confidential information and any other related materials
in its possession, custody or control, in whichever form held (including all
copies or embodiments thereof), and will cease using any trademarks, service
marks and other designations of Licensor.  Licensee shall certify to
Licensor that the return or destruction of information has been completed within
15 days of termination.

    

    6.5        
   Survival.  The
provisions of Articles 4, 5, and 8 shall survive expiration or termination of
this Agreement for any reason.

    

    ARTICLE
7

    INFRINGEMENT
AGAINST THIRD PARTIES

    

    In the
event that either Party learns of imitations or infringements of the
Intellectual Property, that Party shall notify the other in writing of the
infringements or imitations.  Licensor shall have the right to
commence lawsuits against third persons arising from infringement of the
Intellectual Property.  In the event that Licensor does not commence a
lawsuit against an alleged infringer within 60 days of notification by Licensee,
Licensee may commence a lawsuit against the third party.  Before
filing suit, Licensee shall obtain the written consent of Licensor to do so and
such consent shall not be unreasonably withheld.  Licensor will
cooperate fully and in good faith with Licensee for the purpose of securing and
preserving Licensee’s rights to the Intellectual Property.  Any
recovery (including, but not limited to, a judgment, settlement or licensing
agreement included as a resolution of an infringement dispute) shall be divided
equally between

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    the
Parties after deduction and payment of reasonable attorneys’ fees to the party
bringing the lawsuit.

    

    ARTICLE
8

    GENERAL
PROVISIONS

     

    8.1        
  Incorporation by
Reference.  The recitals, schedules, exhibits, and all
documents (including, without limitation, all financial statements) delivered as
part hereof or incident hereto are incorporated as a part of this Agreement by
reference.

    

    8.2        
  Relationship of the
Parties.  The sole relationship between the Parties shall be
that of independent contractors.  Nothing herein shall be construed to
constitute the Parties as legal partners, joint ventures, franchisees, or agents
of each other, or impute any obligations, fiduciary or otherwise, express or
implied, in any way whatsoever, on either of the Parties.  Neither
Party shall make any warranties or representations, or assume or create any
obligations on the other Party's behalf except as may be expressly permitted
hereby and none have been made except as set forth herein.  Each Party
shall be solely responsible for the actions of its respective employees, agents,
and representatives.

    

    8.3        
  Third
Party Beneficiaries.  Nothing expressed or implied herein is
intended to confer, nor shall anything herein confer, upon any entity other than
the Parties and their respective successors and assigns any rights, remedies,
obligations or liabilities whatsoever.

    

    8.4         
 Assignment.  The
benefits and obligations of this Agreement shall inure to and be binding upon
the Parties and their respective successors and permitted
assigns.  Neither Party shall transfer or assign any of its rights or
delegate any of its obligations hereunder, in whole or in part, whether
voluntarily or by operation of law, without the prior written consent of the
other Party.  Any assignment or purported assignment in violation of
this Article shall be null and void.

     

    8.5         
 Choice of
Law.  This Agreement and the rights of the Parties hereunder
shall be governed by and construed in accordance with the laws of the State of
California including all matters of construction, validity, performance, and
enforcement and without giving effect to the principles of conflict of
laws.

    

    8.6       
   Exclusive Jurisdiction and
Venue.  The parties agree that the Courts of the County of
Orange, State of California shall have sole and exclusive jurisdiction and venue
for the resolution of all disputes arising under the terms of this Agreement and
the transactions contemplated herein.

    

    8.7      
    Attorneys’
Fees.  In the event any Party hereto shall commence legal
proceedings against the other to enforce the terms hereof, or to declare rights
hereunder, as the result of a breach of any covenant or condition of this
Agreement, the prevailing Party in any such proceeding shall be entitled to
recover from the losing Party its costs of suit, including reasonable attorneys'
fees, as may be fixed by the court.

     

    8.8       
   Notices.  Any
notice, request, instruction, or other document required by the terms of this
Agreement, or deemed by any of the Parties hereto to be desirable, to be given
to any other Party hereto shall be in writing and shall be given by personal
delivery, overnight delivery, mailed by registered or certified mail, postage
prepaid, with return receipt requested, or sent by facsimile
transmission to the addresses of the Parties as follows:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              i.

            	
              To
      Licensor:

            	
              Material
      Technologies, Inc.

              Attn:
      Robert M. Bernstein, Chief Executive Officer

              11661
      San Vicente Boulevard, Suite 707

              Los
      Angeles, California 90049

              Fax:
      (310) 473-3177

            

    

    

    
      	
               
      

            	
              ii.

            	
              To
      Licensee:

            	
              Fatigue
      Solutions Corp.

              Attn:
      Robert M. Bernstein, President

              11661
      San Vicente Boulevard, Suite 707

              Los
      Angeles, California 90049

              Fax:
      (310) 473-3177

            

    

    

    
      	
               
      

            	
              iii.

            	
              With
      Copy To:

            	
              Oswald
      & Yap

              Attn:
      Zach Reeves, Esq.

              16148
      Sand Canyon Avenue

              Irvine,
      CA  92618

              Fax:
      (949) 788-8980

            

    

    
    

     

    The
persons and addresses set forth above may be changed from time to time by a
notice sent as aforesaid.  If notice is given by personal delivery or
overnight delivery in accordance with the provisions of this Article, such
notice shall be conclusively deemed given at the time of such delivery provided
a receipt is obtained from the recipient.  If notice is given by mail
in accordance with the provisions of this Article, such notice shall be
conclusively deemed given upon receipt and delivery or refusal.  If
notice is given by facsimile transmission in accordance with the provisions of
this Article, such notice shall be conclusively deemed given at the time of
delivery if during business hours and if not during business hours, at the next
business day after delivery, provided a confirmation is obtained by the
sender.

    

    8.9        
  Amendment.  This
Agreement shall not be amended, modified, or supplemented by the Parties in any
manner, by course of conduct or otherwise, except by an instrument in writing
signed on behalf of each Party.

     

    8.10      
  Waiver.  Neither
Party shall be deemed, by any act or omission, course of conduct or otherwise,
to have waived any of its rights or remedies hereunder unless such waiver is in
writing and signed by the waiving Party, and then only to the extent
specifically set forth in such writing.  A waiver with reference to
one event shall not be construed as continuing or as a bar to or waiver of any
right or remedy as to a subsequent event.

     

    8.11       
 Headings.  The
headings and captions used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this
Agreement.

     

    8.12       
 Construction.  This
Agreement has been negotiated by the Parties and their respective legal counsel
at arm’s length and thus shall be interpreted fairly in accordance with its
terms and without any strict construction in favor of or against either
Party.

     

    8.13        
Severability.  In
the event that any of the covenants herein contained shall be held

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    unenforceable
or declared invalid for any reason whatsoever, such unenforceability or
invalidity shall not affect the enforceability or validity of the remaining
provisions of this Agreement and such unenforceable or invalid portion shall be
severable from the remainder of this Agreement.

     

    8.14        
Counterparts;
Facsimile Signatures.  This Agreement may be executed
simul­taneously in one or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.  The Parties agree that facsimile signatures of this
Agreement shall be deemed a valid and binding execution of this
Agreement.

     

    8.15       
 Basis of
Bargain.  EACH PARTY RECOGNIZES AND AGREES THAT THE WARRANTY
DISCLAIMERS AND LIABILITY AND REMEDY LIMITATIONS IN THIS AGREEMENT ARE MATERIAL,
BARGAINED FOR BASES OF THIS AGREEMENT AND THAT THEY HAVE BEEN TAKEN INTO ACCOUNT
AND REFLECTED IN DETERMINING THE CONSIDERATION TO BE GIVEN BY EACH PARTY UNDER
THIS AGREEMENT AND IN THE DECISION BY EACH PARTY TO ENTER INTO THIS
AGREEMENT.

    

    8.16       
 Complete
Agreement.  This Agreement and all exhibits hereto, all of
which are hereby incorporated herein by reference, constitute the entire
Agreement between the Parties with respect to the subject matter hereof, and
hereby supersedes all prior and contemporaneous, written or oral agreements and
understandings between the Parties with respect to such subject
matter.

    

    

    IN WITNESS WHEREOF, the
Parties hereto have executed this Agreement, as of the date first written
hereinabove.

    

    LICENSOR:

    

    MATERIAL
TECHNOLOGIES, INC.,

    a
Delaware corporation

    

    

     /s/ Robert M.
Bernstein                                                                           

    By:
Robert M. Bernstein

    Its:
Chief Executive Officer

    

    LICENSEE:

    

    FATIGUE
SOLUTIONS CORP.,

    a
California corporation

    

    

     /s/ William
Berks                                                                           

    By:
William Berks

    Its:
Secretarymatechexh10_2.htm

    
      
        

      
Exhibit 10.2

    

    MATERIAL
TECHNOLOGIES, INC.

     

    INCENTIVE
STOCK OPTION AGREEMENT

    

    THIS
INCENTIVE STOCK OPTION AGREEMENT is made and entered into as of this 23rd day of
May, 2008, by and between Material Technologies, Inc., a Delaware corporation
(“Company”), and Robert M. Bernstein (referred to herein as the “Optionee”),
with reference to the following recitals of facts:

    

    WHEREAS,
the Board has authorized the granting to Optionee of an incentive stock option
(“Option”) to purchase shares of common stock of the Company (the “Shares”) upon
the terms and conditions hereinafter stated; and

    

    WHEREAS,
the Board and stockholders of the Company have heretofore adopted a 2008
Incentive and Nonstatutory Stock Option Plan, as amended (the “Plan”), pursuant
to which this Option is being granted;

    

    WHEREAS,
it is the intention of the parties that this Option be an Incentive Stock Option
(a “Qualified Stock Option”);

    

    NOW,
THEREFORE, in consideration of the covenants herein set forth, the parties
hereto agree as follows:

    

    1.            
Shares;
Price.  The Company hereby grants to Optionee the right to
purchase, upon and subject to the terms and conditions herein stated,
300,000,000 Shares for cash (or other consideration acceptable to the Board of
Directors of the Company, in their sole and absolute discretion) at the price of
$0.005082 per Share, such price being not less than the fair market value per
share of the Shares covered by these Options as of the date hereof and as
determined by the Board of Directors of the Company.

    

    2.            
Term of Option;
Continuation of Employment.  This Option shall expire, and all
rights hereunder to purchase the Shares shall terminate, ten years from the date
hereof.  This Option shall earlier terminate as set forth in
Paragraphs 5 and 6 hereof.  Nothing contained herein shall be
construed to interfere in any way with the right of the Company to terminate the
employment or engagement, as applicable, of Optionee or to increase or decrease
the compensation of Optionee from the rate in existence at the date
hereof.

    

    3.            
Vesting of
Option.  Subject to the provisions of Paragraphs 5 and 6
hereof, this Option shall vest and become exercisable during the term of
Optionee's employment or engagement in whole or in part beginning on the date of
this Agreement.

    

    4.            
Exercise.  In
order to exercise this Option with respect to all or any part of the Shares for
which this Option is at the time exercisable, Optionee must take the following
actions:

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (a)           Execute
and deliver to the Company a written notice of exercise stating the number of
Shares being purchased (in whole shares only) and such other information set
forth on the form of Notice of Exercise attached hereto as Appendix A;
and

    

    (b)           Pay
the aggregate Exercise Price for the purchased shares in one or more of the
following forms:

     

    
      (i)           
Cash or
check made payable to the Company; or

    (ii)           A
promissory note payable to the Company, but only to the extent authorized by the
Company.

    

    Should
the Common Stock be registered under Section 12 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”) at the time the Option is exercised,
then the Exercise Price may also be paid as follows:

    

    (iii)           In
shares of Common Stock held by Optionee for the requisite period necessary to
avoid a charge to the Company’s earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or

    

    (iv)           To
the extent the Option is exercised for vested Shares, through a special sale and
remittance procedure pursuant to which Optionee shall concurrently provide
irrevocable instructions (a) to a Company-approved brokerage firm to effect the
immediate sale of the purchased shares and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus all applicable
Federal, State and local income and employment taxes required to be withheld by
the Company by reason of such exercise; and (b) to the Company to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale (a “cashless exercise transaction”).

    

    (v)           Notwithstanding
any provisions herein to the contrary, if the Fair Market Value of one share of
the Company’s Common Stock is greater than the Exercise Price (at the date of
calculation as set forth below), in lieu of exercising this Option by payment of
cash, the Optionee may elect to receive shares equal to the value (as determined
below) of this Option (or the portion thereof being canceled) by surrender of
this Option at the principal office of the Company together with the properly
endorsed Notice of Exercise in which event the Company shall issue to the
Optionee a number of shares of Common Stock computed using the following formula
(a “net issuance transaction”):

    

    X = Y (A-B)

    A

     

    Where    X
=          the number of
shares of Common Stock to be issued to the Optionee

    
       

      Y
=          the
number of shares of Common Stock purchasable under the Option or, if only a
portion of the Option is being exercised, the portion of the Option being
canceled (at the date of such calculation)

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    A
=          the Fair
Market Value of one share of the Company’s Common Stock (at the date of such
calculation)

       

      B
=           Exercise
Price (as adjusted to the date of such
calculation)

    

     

    For
purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Option in a net issuance transaction shall be deemed to have been acquired at
the time this Option was issued.  Moreover, it is intended, understood
and acknowledged that the holding period for the Common Stock issuable upon
exercise of this Option in a net issuance transaction shall be deemed to have
commenced on the date this Option was issued.

    

    (c)           Execute
and deliver to the Company such written representations as may be requested by
the Company in order for it to comply with the applicable requirements of
Federal and State securities laws.

    

    (d)           Make
appropriate arrangements with the Company (or Parent or
Subsidiary   employing or retaining Optionee) for the
satisfaction of all Federal, State and local income and employment tax
withholding requirements applicable to the Option exercise, if any.

    
       

      (e)           
If
requested, execute and deliver to the Company a written statement as provided
for in Paragraph 11 hereof.

    

     

    5.           
 Termination
of Employment or Engagement.  If Optionee shall
cease to serve as an employee of the Company for any reason, whether voluntarily
or involuntarily, Optionee shall have the right, during the remaining term of the
Option, to exercise in whole or in part this Option to the extent, but
only to the extent, that this Option was exercisable as of the last day of
employment, and had not previously been exercised. The Option may be exercised only with
respect to installments that the Optionee could have exercised at the date of
termination of employment.

    

     Notwithstanding
anything herein to the contrary, all rights under this Option shall expire in
any event on the date specified in Paragraph 2 hereof.

    

    6.         
   Death of
Optionee.  If the Optionee shall die while an employee of the
Company, Optionee’s personal representative or the person entitled to Optionee’s
rights hereunder may at any time during the remaining term of this Option,
exercise this Option and purchase Shares to the extent, but only to the extent,
that Optionee could have exercised this Option as of the date of Optionee’s
death; provided, in any case, that this Option may be so exercised only to the
extent that this option has not previously been exercised by
Optionee.

    

    7.          
  No Rights
as Stockholder.  Optionee shall have no rights as a stockholder
with respect to the Shares covered by any installment of this Option until the
date of the issuance of a stock certificate to Optionee, and no adjustment will
be made for dividends or other rights for which the record date is prior to the
date such stock certificate or certificates are issued except as provided in
Paragraph 8 hereof.

    

    8.          
  Recapitalization.  Subject
to any required action by the stockholders of the Company, the number of Shares
covered by this Option, and the price per Share thereof, shall
be

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    proportionately
adjusted for any increase in the number of issued Shares resulting from a
forward split of shares or the payment of a stock dividend, or any other
increase in the number of such shares affected without receipt of consideration
by the Company; provided however that the conversion of any convertible
securities of the Company shall not be deemed having been “effected without
receipt of consideration by the Company.”  The number of Shares
covered by this Option, and the price per Share thereof, shall not be affected
or adjusted for any decrease in the number of issued shares of common stock of
the Company resulting from a reverse split of shares, or any other decrease in
the number of such shares affected.

    

    In the
event of a proposed dissolution or liquidation of the Company, a merger or
consolidation in which the Company is not the surviving entity, or a sale of all
or substantially all of the assets of the Company, this Option shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.  The Board may, at its sole and absolute
discretion and without obligation, declare that this Option shall terminate as
of a date fixed by the Board and grant Optionee the right for a period
commencing 30 days prior to and ending immediately prior to such date, or during
the remaining term of this Option, whichever occurs sooner, to exercise this
Option as to all or any part of the Shares, without regard to the installment
provision of Paragraph 3; provided, however, that such exercise shall be subject
to the consummation of such dissolution, liquidation, merger, consolidation or
sale.

    

    Subject
to any required action by the stockholders of the Company, if the Company shall
be the surviving entity in any merger or consolidation, this Option thereafter
shall pertain to and apply to the securities to which a holder of Shares equal
to the Shares subject to this Option would have been entitled by reason of such
merger or consolidation, and the vesting provisions of Section 3 shall continue
to apply.

    

    In the
event of a change in the Shares of the Company as presently constituted, which
is limited to a change of all of its authorized Shares without par value into
the same number of Shares with a par value, the Shares resulting from any such
change shall be deemed to be the Shares within the meaning of this
Agreement.

    

    To the
extent that the foregoing adjustments relate to shares or securities of the
Company, such adjustments shall be made by the Board, whose determination in
that respect shall be final, binding and conclusive.  Except as
hereinbefore expressly provided, Optionee shall have no rights by reason of any
subdivision or consolidation of share of stock of any class or the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class, and the number and price of shares subject to this Option
shall not be affected by, and no adjustments shall be made by reason of, any
dissolution, liquidation, merger or consolidation, or any issue by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class.

    

    The grant
of this Option shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes in its capital
or business structure or to merge, consolidate, dissolve or liquidate or to sell
or transfer all or any part of its business or assets.

    

    9.          
  Taxation
upon Exercise of Option.  Optionee understands that, upon
exercise of this Option, Optionee may recognize income, for federal and state
income tax purposes, in an amount

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    equal to
the amount by which the fair market value of the Shares, determined as of the
date of exercise, exceeds the exercise price.  The acceptance of the
Shares by Optionee shall constitute an agreement by Optionee to report such
income in accordance with then applicable law and to cooperate with Company in
establishing the amount of such income and corresponding deduction to the
Company for its income tax purposes.  Withholding for federal or state
income and employment tax purposes will be made, if and as required by law, from
Optionee's then current compensation, or, if such current compensation is
insufficient to satisfy withholding tax liability, the Company may require
Optionee to make  cash payment to cover such liability as a condition
of the exercise of this Option.

    

    10.           Modification, Extension and
Renewal of Options.  The Board may modify, extend or renew this
Option or accept the surrender thereof (to the extent not theretofore exercised)
and authorize the granting of a new option in substitution therefore (to the
extent not theretofore exercised), subject at all times to the
Plan.  Notwithstanding the foregoing provisions of this Paragraph 10,
no modification shall, without the consent of the Optionee, alter to the
Optionee's detriment or impair any rights of Optionee hereunder.

    

    11.           Investment Intent;
Restrictions on Transfer.  Optionee represents and agrees that
if Optionee exercises this Option in whole or in part, Optionee will in each
case acquire the Shares upon such exercise for the purpose of investment and not
with a view to, or for resale in connection with, any distribution thereof; and
that upon such exercise of this Option in whole or in part, Optionee (or any
person or persons entitled to exercise this Option under the provisions of
Paragraphs 5 and 6 hereof) shall furnish to the Company a written statement to
such effect, satisfactory to the Company in form and substance.  The
Company, at its option, may include a legend on each certificate representing
Shares issued pursuant to any exercise of this Option, stating in effect that
such Shares have not been registered under the Securities Act of 1933, as
amended (the “Act”), and that the transferability thereof is
restricted.  If the Shares represented by this Option are registered
under the Act, either before or after the exercise of this Option in whole or in
part, the Optionee shall be relieved of the foregoing investment representation
and agreement and shall not be required to furnish the Company with the
foregoing written statement.

    

    Optionee
further represents that optionee has had access to the financial statements or
books and records of the Company, has had the opportunity to ask questions of
the Company concerning its business, operations and financial condition, and to
obtain additional information reasonably necessary to verify the accuracy of
such information, and further represents that Optionee has (either such
experience and knowledge in investment, financial and business matters in
investments similar to the stock of the Company that Optionee is capable of
evaluating the merits and risks thereof and has the capacity to protect his or
her own interest in connection therewith.

    

    12.           Notices.  Any
notice required to be given pursuant to this Option or the Plan shall be in
writing and shall be deemed to be delivered upon receipt or, in the case of
notices by the Company, five days after deposit in the US. mail, postage
prepaid, addressed to Optionee at the address last provided to the Company by
Optionee for his or her employee records.

    

    13.           Agreement Subject to Plan;
Applicable Law.  This Agreement is made pursuant to the Plan
and shall be interpreted to comply therewith.  A copy of such Plan is
available to Optionee, at no charge, at the principal office of the
Company.  Any provision of this Agreement
inconsistent

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    with the
Plan shall be considered void and replaced with the applicable provision of the
Plan.  This Agreement has been granted, executed and delivered in the
State of Delaware, and the interpretation and enforcement shall be governed by
the laws thereof and subject to the exclusive jurisdiction of the courts
therein.

    

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

    

    Material Technologies,
Inc.

     

     

     /s/
Robert M.
Bernstein                                                                           

    BY:
Robert M. Bernstein

    ITS:
Chief Executive Officer, President

    and Chief
Financial Officer

     

     

     

    /s/
Robert M.
Bernstein                                                                           

    Robert M.
Bernstein, Optionee

     

    

    Acknowledged
as authorized by the Board of Directors of the Company

     

    

     /s/ Joel R.
Freedman                                                                                     

    BY: Joel
R. Freedman

    ITS:
Secretary

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Appendix
A

     

    NOTICE
OF EXERCISE

    

    Material
Technologies, Inc.

    11661 San
Vicente Boulevard, Suite 707

    Los
Angeles, CA  90049

    

    (1)            ̈           The
undersigned hereby elects to purchase ________ shares of the Common Stock of
Material Technologies, Inc. (the “Company”) pursuant to the terms of the
attached Option and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.

     

     ̈           The
undersigned hereby elects to purchase ________ shares of the Common Stock of the
Company pursuant to the terms of the cashless exercise provisions set forth in
Section 4(b)(iv) of the attached Option, and shall tender payment of all
applicable transfer taxes, if any.

     

    (2)           Please
issue a certificate or certificates representing said shares of Common Stock in
the name of the undersigned or in such other name as is specified
below:

     

    ________________________

    (Name)

     

    ________________________

    ________________________

    (Address)

     

    (3)           The
undersigned represents that (i) the aforesaid shares of Common Stock are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares;
(ii) the undersigned is aware of the Company’s business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision regarding its investment in the Company;
(iii) the undersigned is experienced in making investments of this type and has
such knowledge and background in financial and business matters that the
undersigned is capable of evaluating the merits and risks of this investment and
protecting the undersigned’s own interests; (iv) the undersigned understands
that the shares of Common Stock issuable upon exercise of this Option have not
been registered under the Securities Act of 1933, as amended (the “Act”), by
reason of a specific exemption from the registration provisions of the Act,
which exemption depends upon, among other things, the bona fide nature of the
investment intent as expressed herein, and, because such securities have not
been registered under the Act, they must be held indefinitely unless
subsequently registered under the Act or an exemption from such registration is
available; (v) the undersigned is aware that the aforesaid shares of Common
Stock may not be sold pursuant to Rule 144 adopted under the Act unless certain
conditions are met and until the undersigned has held the shares for the number
of years prescribed by Rule 144, that among the conditions for use of the Rule
is the availability of current information to the public about the Company and
the Company has not made such information available and has no present plans to
do so; and (vi) the undersigned agrees not to make any disposition of all or any
part of the

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    aforesaid
shares of Common Stock unless and until there is then in effect a registration
statement under the Act covering such proposed disposition and such disposition
is made in accordance with said registration statement, or the undersigned has
provided the Company with an opinion of counsel satisfactory to the Company,
stating that such registration is not required.

     

    
      	
              _______________________________________

              (Date)

            	
              _____________________________________

              (Signature)

               

              _____________________________________

              (Print
      name)

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