Document:

EX-10.3

Exhibit 10.3

VUZIX CORPORATION

INCENTIVE STOCK OPTION AGREEMENT

     THIS INCENTIVE STOCK OPTION AGREEMENT (this “Agreement”) is entered into as of
_________, 20_________(the “Date of Grant”) by and between Vuzix Corporation, a Delaware corporation
(the “Company”), and [_________] (the “Optionee”).

     In accordance with the provisions of the Company’s 2009 Stock Option Plan (the “Plan”), the
Company’s Board of Directors (“Board”) has authorized the execution and delivery of this Agreement
on the terms and conditions herein set forth.

     1. Grant. Subject to the terms and conditions of the Plan and this Agreement, the
Company hereby grants to the Optionee an Incentive Stock Option (the “Option”) to purchase an
aggregate of [_________] shares (the “Shares”) of the Company’s common stock, par value $0.001 per
share (“Common Stock”), at an exercise price of $[_________] per share (the “Exercise Price”).

     2. Exercise Price. The Exercise Price shall be not less than 100% of the Fair Market
Value of the Common Stock as of the Date of Grant, as determined in good faith by the Board,
provided that, in the event the Optionee owns more than 10% of the combined voting power of all
classes of stock of the Company or of a parent or subsidiary of the Company (“Ten Percent
Shareholder”) at the Date of Grant, then the Exercise Price shall be not less than 110% of the Fair
Market Value.

     3. Fair Market Value Limitation. The fair market value (determined as of date of
grant) of the shares of Common Stock for which Incentive Stock Options are exercisable for the
first time by the Optionee in any calendar year (under the Plan or any other plan that provides for
the granting of Incentive Stock Options) may not exceed $100,000.

     4. Exercise. The Option shall vest and become exercisable as follows:

[insert exercise schedule]

The Option may not be exercised more than ten years after the Date of Grant.

     5. Method of Exercise and Payment. To exercise the Option, the Optionee shall deliver
to the Company a written notice specifying the number of Shares being purchased accompanied by
payment in full of the Exercise Price for the Shares being purchased. The Exercise Price for the
Shares purchased upon exercise of the Option shall be payable in full on the exercise date. The
method of payment shall be determined by the Administrator at the time of grant from among the
following methods (1) payment by cash or check; (2) payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common
Stock, results in either the receipt of cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate exercise price to the Company from the sales
proceeds; or (3) any combination of the foregoing methods of payment. Such notice shall be given substantially in the form attached hereto as Exhibit A.

 

 

     6. Disqualifying Disposition. The Optionee agrees that at the time of any
“disqualifying disposition” (within the meaning of Section 422 of the Internal Revenue Code) of the
Shares acquired upon exercise of the Option, the Optionee shall pay to the Company (or otherwise
make arrangements satisfactory to the Committee for the payment of) the amount of the Federal,
state and local and foreign income and employment taxes required, in the Company’s sole judgment,
to be collected or withheld with respect to the disqualifying disposition of the Shares acquired
upon exercise of the Option. Such amount shall be paid to the Company in cash or by the surrender
of that number of whole Shares with a Fair Market Value (valued on the date of exercise) as shall
be equal to, but does not exceed, the minimum statutory amounts required to be collected or
withheld by the Company with respect to the exercise of the Option.

     7. Transfer of Option. The Option is not transferable (other than by will or the laws
of descent and distribution) by the Optionee and is exercisable only by the Optionee during
Optionee’s lifetime. The Optionee hereby represents that the Option granted hereunder and the
Shares purchased by him pursuant to the exercise of all or any part of this Option are and will be
acquired by him for investment and not with a view to the distribution thereof. The Option is
granted by the Company in reliance on this representation.

     8. Termination for Cause. In the event that the employment or other relationship
underlying the issuance of the Option to the Optionee is terminated for cause, the Option shall be
forfeited and terminated immediately and may not thereafter be exercised to any extent.

     9. Termination other than for Cause, Death, Retirement or Disability. In the event
that the employment or other relationship underlying the issuance of the Option to the Optionee is
terminated for any reason other than cause, or death, Retirement or Disability of the Optionee at a
time when the Optionee is entitled to exercise the Option, such Optionee shall have the right to
exercise the Option at any time within three months after such termination only as to those Shares
which the Optionee was entitled to purchase immediately prior to such termination, unless the Board
shall otherwise provide. The granting of the Option to the Optionee does not alter in any way the
Company’s right to terminate such person’s employment or other relationship at any time for any
reason, nor does it confer upon such person any rights or privileges except as specifically
provided for in the Plan.

     10. Death of Optionee. If the Optionee shall die while in the employ of the Company
or within a period of three months after the termination, other than for cause, of Optionee’s
duties with the Company, at a time when the Optionee is entitled to exercise the Option and
Optionee shall not have fully exercised the Option, the Option may be exercised (subject to the
condition that no Option shall be exercisable after the expiration of ten years from the date it is
granted) at any time within one year after the Optionee’s death, by the executors of administrators
of the Optionee or by any person or persons who shall have acquired the Option directly from the
Optionee by bequest or inheritance.

     11. Retirement or Disability of Optionee. If the event of an Optionee’s Retirement or
Disability at a time when the Optionee is entitled to exercise the Option, then within three
months after Retirement or one year after Disability the Optionee may exercise such Option
(subject to the condition that no Option shall be exercisable after the expiration of ten years
from the date it is granted) only as to those Shares the Optionee was entitled to purchase
immediately prior to such Retirement or Disability.

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     12. Adjustment upon Changes in Capitalization. In the event of a reorganization,
recapitalization, stock split, stock dividend, stock distribution, combination, merger,
consolidation, rights offering, or any other change in the corporate structure or the Common Stock,
the Board shall make such adjustment, if any, as it may deem appropriate in the number and kind of
Shares covered by the Option and in the Exercise Price. Any such adjustment may provide for the
elimination of any fractional Shares which otherwise might become subject to the Option without
payment therefor.

     13. Modification, Extension and Renewal of Option. Subject to the terms and
conditions and within the limitations of the Plan, the Board may modify, extend or renew the Option
or accept the surrender of the Option (to the extent not theretofore exercised) and authorize the
granting of new options under the Plan in substitution therefor.

     14. General Restriction. If at any time the Board in its discretion shall determine
that the listing, registration or qualification of the Shares on any securities exchange or under
any state or federal law, or the consent or approval of any government regulatory body is necessary
or desirable as a condition of, or in connection with, the granting of the Option or the issuance
or purchase of Shares, the Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors.

     15. Sale or Transfer of Shares. Unless a registration statement covering the sale and
issuance of the Shares is then in effect, when issued upon exercise of the Option, the Shares will
not have been registered for sale under the Securities Act of 1933, as amended (the “Act”), or any
applicable state securities laws. In that case, the Shares may not be sold, offered for sale,
pledged or hypothecated in the absence of an effective registration statement under the Act or, in
the absence thereof, an opinion of counsel obtained, satisfactory to the Company, that an exemption
from such registration is available and the certificate issued to evidence the Shares shall bear an
appropriate legend summarizing these restrictions on the disposition thereof.

     16. Amendment. The Board may modify or amend the Option if it determines, in its sole
discretion, that amendment is necessary or advisable in the light of any addition to or change in
the Internal Revenue Code or in the regulations issued thereunder, or any federal or state
securities laws or other law or regulation, which change occurs after the Date of Grant and by its
terms applies to the Option. No amendment of the Option, however, may, without the consent of the
Optionee, make any changes which would adversely effect the rights of the Optionee.

     17. No Right of Employment. Nothing contained herein shall confer upon the Optionee
any right to be continued in the employment of the Company or interfere in any way with the right
of the Company to terminate his employment at any time for any reason or for no reason.

     18. Miscellaneous.

          (a) Governing Law; Forum. This Agreement shall be governed by the laws of the State
of Delaware, notwithstanding any rules regarding choice of law to the contrary of the law of the
State of Delaware. Jurisdiction over and venue of any suit arising out of or related to this
Agreement shall be exclusively in the state and federal courts sitting in Suffolk County,
Massachusetts, and the parties hereby waive any right to object to personal jurisdiction and venue.

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          (b) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of any successor or assignee of the Company and to any executor, administrator, legal
representative, legatee, or distributee of the Optionee.

          (c) No Third Party Beneficiary. This Agreement is intended solely for the benefit of
the parties hereto and does not create or grant any right in a person or entity who is not party to
this Agreement.

          (d) Severability. If one or more provisions in this Agreement is held or found to be
invalid, illegal or unenforceable in any respect, the provision(s) shall be given effect to the
extent permitted by law and the invalidity, illegality or unenforceability shall not affect the
validity of the remaining provisions of this Agreement.

          (e) Entire Agreement. This Agreement contains the entire understanding between the
parties with respect to the subject matter hereof and supersedes any prior written or oral
agreement between the parties with respect to the subject matter hereof. This Agreement shall be
considered as drafted equally by the parties and any ambiguity shall not be construed against any
party.

          (f) Counterparts. This Agreement may be executed in several counterparts, and all so
executed shall constitute one agreement, binding on all of the parties hereto, notwithstanding that
all of the parties are not signatories to the original or the same counterpart.

          (g) Interpretations of this Agreement. All decisions and interpretations made by the
Board with regard to any question arising hereunder or under the Plan shall be binding and
conclusive on the Company and the Optionee.

          (h) The Plan. The Optionee acknowledges having received a copy of the Plan. The Option is
subject to the provisions of the Plan, all of which are hereby incorporated herein by reference.
In the event there is any inconsistency between the provisions of this Agreement and those of the
Plan, the provisions of the Plan shall govern. Capitalized terms used in this Agreement
and not otherwise defined herein have the meaning ascribed to them in the Plan.

[remainder of this page intentionally left blank]

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     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its behalf by it
duly authorized officer, to be effective on the day and year written above.

	 	 	 	 	 
	 	VUZIX CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

     I, _________, hereby certify that I have read and fully understand the foregoing
Incentive Stock Option Agreement. I acknowledge that I have been apprised that it is the intent of
the Company that I obtain and retain an equity interest in the Company. I hereby execute this
Agreement to indicate my acceptance of the Option and my intent to comply with the terms of this
Agreement.

Optionee

Street Address

City                    
State          
Zip

 

 

Exhibit A

_________ ___, 20_________

Vuzix Corporation

75 Town Centre Drive

Rochester, NY 14623

Attention: Secretary

Dear Sir or Madam:

     This is to notify you that I hereby elect to exercise my option
to purchase _________
shares of the common stock, par value $0.001 per share, of Vuzix Corporation (the “Company”)
granted to me pursuant to the Company’s 2009 Stock Option Plan and the Incentive Stock Option
Agreement (the “Agreement”) dated as of _________, 2009. The Exercise Price pursuant to the
Agreement, as adjusted, is $           per share or $_________in the aggregate.

     In payment of the full purchase price, I enclose my check in the sum of $_________.

	 	 	 	 	 
	 	Very truly yours,EX-10.10

Exhibit 10.10

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT WERE OMITTED AND REPLACED WITH “[***]”. A COMPLETE
VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 406 OF THE
SECURITIES ACT OF 1933.

TECHNOLOGY PURCHASE AND ROYALTY AGREEMENT

     This Technology Purchase and Royalty Agreement (the “Agreement”) is entered into as of
the 23rd day of December, 2005, by and between ICUITI CORPORATION, a Delaware corporation
(“Buyer”), having its principal place of business at 2166 Brighton Henrietta Townline Road,
Suite B, Rochester, New York, 14623, and NEW LIGHT INDUSTRIES, LTD., a Washington State corporation
(“Seller”), having its principal place of business at 9715 West Sunset Highway, Spokane,
Washington, 99224.

RECITALS

     WHEREAS, Seller has developed and is the rightful owner of certain improvements in Video Image
Viewing Devices and Methods, including but not limited to technology, know-how including the
Patents and certain other patents and patent applications, if any, the prototypes, drawings,
designs, diagrams, computer programs and their sources, design assurance data and other tangible
technical information used by Seller in connection with the Patents;

     WHEREAS, Buyer desires to acquire all of Seller’s right, title and interest in and to the
Intellectual Property on the terms and conditions set forth in this Agreement;

     WHEREAS, Seller is willing to sell, exclusively to Buyer, Seller’s right, title and interest
in and to the Intellectual Property on the terms and conditions set forth in this Agreement;

     NOW, THEREFORE, in consideration of the foregoing, the mutual promises and agreements below,
and other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

SECTION 1: DEFINITIONS

	 	1.1	 	“Agreement”. This Technology Purchase and Royalty Agreement, the preamble and
all exhibits and schedules thereto.
	 
	 	1.2	 	“Buyer’s Agents”. The term Buyer’s Agents” means all of Buyer’s officers,
directors, shareholders, partners, employees, independent contractors and other agents.
	 
	 	1.3	 	“Component Cost”. The term “Component Cost” means (a) the manufacturing cost as
manufactured by Buyer or (b) the actual cost to Buyer if sourced from a third party or (c)
in the case of Products manufactured by an Original Equipment Manufacturer (OEM) or
supplier thereof, the manufacturing cost of such OEM or the actual cost to such OEM, if
sourced from third party) of
[***********
**********************************************************************************************************
*******************]. All costs will be calculated in accordance with Generally
Accepted Accounting Principles (GAAP), and are to exclude

 

 

	 	 	 	any overhead or other indirect
cost allocations, but shall include all direct costs of manufacture.
	 
	 	1.4	 	“Improvements”. All improvements, enhancements or modifications (including
derivative works) to the Intellectual Property or Related Inventions made by either party
during the term of this Agreement.
	 
	 	1.5	 	“Intellectual Property”. The term “Intellectual Property” is defined in Schedule
A.
	 
	 	1.6	 	The “Patents”. The term “Patents” is defined in Schedule A.
	 
	 	1.7	 	“Payment Date”. The term “Payment Date” means the date that is forty five (45)
days after the close of each Payment Period.
	 
	 	1.8	 	“Payment Period”. The term “Payment Period” means the periods ending on June
30th and December 31st of each year.
	 
	 	1.9	 	“Products”. Head-mounted display products sold by or on behalf of Buyer,
Buyer’s licensees or Buyer’s transferees that incorporate the Intellectual Property and
that are sold by or on behalf of Buyer, its licensee and its transferees.
	 
	 	1.10	 	“Related Inventions”. All Improvements, inventions, formulae, processes, techniques,
know-how and data, whether or not patentable or copyrightable, made or conceived or reduced
to practice or learned by them, either alone or jointly with others, prior to or during the
Term of this Agreement which are directly related to the Intellectual Property, or which
result from or are conceived during the performance of tasks by Seller for Buyer.
	 
	 	1.11	 	“Seller’s Agents”. The term “Seller’s Agents” means all of Seller’s officers,
directors, shareholders, partners, employees, independent contractors and other agents.
	 
	 	1.12	 	“Successful Commercialization”. The term “Successful Commercialization” means
cumulative sales of all products incorporating any of the Intellectual Property exceed
[*******] pieces within [*********].
	 
	 	1.13	 	“Video Image Viewing Devices and Methods”. Methods and techniques that are
used or usable for the viewing of video images, and devices that can be employed to view
such images.

SECTION 2: ACQUISITION OF THE INTELLECTUAL PROPERTY

     2.1 TRANSFER OF PROPERTY

               2.1.1 ACQUISITION. Subject to the terms and conditions hereof, on the Closing Date, Seller
shall sell, transfer, assign and convey exclusively to Buyer, and Buyer shall purchase from Seller,
free and clear of all liens, claims and encumbrances, all of Seller’s right, title and interest

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in and to all of the Intellectual Property in consideration for the performance by Buyer of its
obligations under this Agreement.

     2.1.2 CASH CONSIDERATION.

	 	(a)	 	As partial consideration for the transfer of the Intellectual Property
to Buyer, Buyer will pay to Seller the sum of
[************************************] Dollars ($[******]) (the “Cash
Payment”).
	 
	 	(b)	 	The Cash Payment shall be paid as follows:

	 	i.	 	An amount of [************] Dollars ($[******]), which
shall be paid upon execution and delivery of this Agreement by Seller.
Such payment shall be nonrefundable unless (a) Seller shall fail or refuse
to consummate the Transfer of the Intellectual Property to Buyer, other
than because any of the representations or warranties of the Buyer
contained in this Agreement shall not be true and correct, or (b) Buyer
shall fail to consummate the transactions hereby because any of the
representations or warranties of the Seller contained in this Agreement
shall not be true and correct.
	 
	 	ii.	 	The balance of
[*****************************************] Dollars ($[******]) shall be
paid at Closing or within 30 days of the date of this Agreement, whichever
is later.

     2.1.2 EQUITY CONSIDERATION.

	 	(a)	 	As partial consideration for the sale of the Intellectual Property,
Buyer will issue to Seller a Warrant to purchase 1,000,000 shares of the Buyer’s
Common Stock at an exercise price of $0.01 per share. The Warrant shall be
exercisable at any time through and including December 31, 2015. The number of
shares that can be purchased pursuant to, and the purchase price per share under,
the Warrant shall be subject to equitable adjustment for stock splits, stock
dividends and similar events. The Warrant will vest immediately upon Closing as to
250,000 shares, and as to an additional 250,000 shares on each of December 31,
2006, December 31, 2007 and December 31, 2008. The full terms and conditions of
the Warrant are contained in Schedule C, attached hereto.
	 
	 	(b)	 	If it is determined by the Buyer, in its sole discretion, that Buyer
cannot achieve Successful Commercialization, the Buyer may (at its sole option and
election) give notice to the Seller to that effect and, in such event, the Warrant
will terminate as to any portion thereof that has not vested as of the date of such
notice. In the event such a notice is given by the Buyer, then (a) Seller shall
have a perpetual, fully paid, royalty free, non-exclusive world wide license to the
original Intellectual Property that is transferred to the Buyer pursuant to the terms of this
Agreement, with rights to sublicense the original Intellectual Property and (b)
Seller shall have a perpetual, nonexclusive worldwide license to the 

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	 	 	 	Improvements and to all improvements, enhancements or modifications (including derivative works)
to the Intellectual Property or Related Inventions made by Steven McGrew (the
“McGrew Improvements”) pursuant to a Consulting Agreement between Buyer and
Mr. McGrew dated the same date as the date of this Agreement, provided that Seller
shall pay Buyer a royalty on any head-mounted display products sold by or on behalf
of Buyer, Buyer’s licensees or Buyer’s transferees that incorporate the Improvements
or the McGrew Improvements, at the same rate and in the same manner as royalties are
payable by Buyer with respect to Products as provided in Section 2.1.3 (it being
understood that, for these purposes, the relevant “years” in Section 2.1.3(e) shall
commence on the date that such license to Seller of the Improvements and the McGrew
Improvements commences). Notwithstanding the foregoing, Buyer shall continue to be
required to pay Continuing Royalties as provided in Section 2.1.3 of this Agreement.

     2.1.3 CONTINUING ROYALTIES.

	 	(a)	 	Buyer shall pay Seller royalties (the “Continuing Royalties”) on the
Component Cost of all Products that incorporate or use the Intellectual Property.
	 
	 	(b)	 	Buyer shall have no further obligation to pay Continuing Royalties to
Buyer on Products that are sold after the date on which the last Patents expires or
is finally determined by the United Sates Patent Office or a court of competent
jurisdiction to be invalid.
	 
	 	(c)	 	There will be a cap of $[******] on Continuing Royalties with respect
to sales of Products in [********]. No further Continuing Royalties will accrue
in [********] after a total of $[********] Continuing Royalties is payable
with respect to each [********].
	 
	 	(d)	 	For avoidance of doubt, the Continuing Royalty will payable with
respect to all sales of Products including government sales and sales into
countries where the Intellectual Property has no patent protection.
	 
	 	(e)	 	The Continuing Royalty rates for each of the calendar years following
Successful Commercialization of the Intellectual Property by Buyer are as follows:

•    Year [**]        [***]% of Component Cost of display module

•    Year [**]        [***]% of Component Cost of display module

•    Year [**]        [***]% of Component Cost of display module

•    Year [**]        [***]% of Component Cost of display module

•    Year [**]        [***]% of Component Cost of display module

•    Year [**] to [********] $[***] per display module

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	 	 	 	A display module is considered to be the set of components for displaying an image
to one eye, so binocular eyeglasses would be considered to comprise two display
modules. All Continuing Royalties on sales of products before Successful
Commercialization are to be calculated at a rate of [***]% of Component Costs.

         (f) Continuing Royalties shall be paid by Buyer to Seller for each Payment Period no later
than the Payment Date.

         (g) Buyer shall tender payments of the Continuing Royalties due on each Payment Date by wire
transfer to such account or accounts as Seller may designate in advance.

         (h) Buyer shall pay the Continuing Royalties in US Dollars. Conversion of other currencies to
US Dollars will be made based on conversion rates published in the Wall Street Journal on the last
day of each Payment Period.

         (i) Buyer’s obligation to pay Continuing Royalties to Seller shall terminate upon expiration
of the last Patents or upon it being deemed invalid by the US Patent Office (or the applicable
patent authority in another country).

         (j) Interest shall accrue on the unpaid balance of any Continuing Royalties at the rate of one
percent (1%) per month that the accrued Continuing Royalty remains unpaid.

     2.2 CLOSING.

        (a) The closing (the “Closing”) of the transactions contemplated by this Agreement
will take place at the offices of Buyer, on the date (the “Closing Date”) on which this
Agreement is executed by the parties hereto or at such later date and/or other place as the parties
shall mutually agree upon.

        (b) At the Closing, Seller shall deliver to Buyer duly executed general bill of sale and
assignment of the Intellectual Property and any other documents of transfer reasonably requested by
Buyer necessary to convey all of Seller’s right, title and interest in and to the Intellectual
Property to Buyer, in recordable form, if required.

        (c) At the Closing, the Buyer shall deliver to Seller (i) the balance of the Cash Payment (if
it is then due in accordance with the provisions of Section 2.1.2 (b)(ii) and (ii) the Warrant,
duly executed on behalf of the Buyer.

        (d) At the Closing, the parties shall execute and deliver to each other the Rights Agreement
in the form of Exhibit D to this Agreement and the Consulting Agreement in the form of Exhibit E to
this Agreement.

     2.3 FURTHER ASSURANCES. At any time and from time to time after the Closing Date and after the
delivery of all of the initial documents and necessary information that comprise the Intellectual Property, at Buyer’s request and approved expense, and subject to the
terms of this Agreement, Seller promptly shall execute and deliver, and shall cause its officers,

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directors, shareholders, consultants, affiliates and employees to execute and deliver, such
instruments of sale, transfer, conveyance, assignment and confirmation, and take such other action,
as Buyer may reasonably request to more effectively transfer, convey and assign to Buyer, and to
confirm Buyer’s title to, all of the Intellectual Property, including providing to Buyer an
executed assignment to Buyer, recordable in the appropriate regional or national patent office, for
each patent and patent application within the Intellectual Property (including patent and patent
applications hereafter filed with respect to the inventions included within the Intellectual
Property), to assist Buyer in exercising all rights with respect thereto and to carry out the
purpose and intent of this Agreement.

     2.4 RESTRICTION ON TRANSFER OF THE INTELLECTUAL PROPERTY.

     2.4.1 Buyer may freely license, sublicense assign, sell or otherwise transfer the Intellectual
Property, in whole or in part, and shall be entitled to freely exercise all incidents of ownership
thereof, subject to the provisions of this Agreement.

     2.4.2 If Buyer shall transfer the Intellectual Property to a third party, then

               (a) The proposed transferee must assume in writing all of Buyer’s obligations under this
Agreement, including any of Buyer’s obligations that arose prior to the effective date of Transfer.

               (b) The proposed transferee’s assumption of Buyer’s obligations under this Agreement will not
relieve Buyer of any liability which Buyer has to Seller under this Agreement for the failure of
Buyer to perform all of Buyer’s obligations under this Agreement, unless, at Buyer’s request,
Seller approves of transferee, which approval shall not be unreasonably withheld, and all of
Buyer’s obligations and liabilities are then transferred to transferee.

     2.4.3 Nothing in this Section 2.4 is meant, or shall be construed, to limit Buyer’s right to
exploit the Intellectual Property as described in Section 2.1.1 hereof.

3. TECHNICAL SUPPORT AND PERSONNEL.

     3.1 In order to facilitate the exploitation of the Intellectual Property by the Buyer, from
time to time as shall be coordinated between the Buyer and Seller, at the Buyer ‘s request and
subject to Seller’s available manpower and facilities, Seller shall provide the Buyer with: (i)
technical support, such as Seller’s available lab work space, manpower, (for which the Buyer shall
pay according to Seller’s standard third party hourly rates, it being understood that — Seller’s
standard rates at the time of Closing are $45 to $50 per hour for lab time and $100 to $125 per
hour for engineering/consulting services and that such rates are subject to future adjustments
within reasonable industry limits) laboratories, apparatus and other required equipment; (ii)
consulting services and reasonable assistance in technical guidance and instructions regarding the
Intellectual Property and its ongoing development in order to fully
transfer the Intellectual Property to Buyer and as shall be required for the Buyer’s technical staff

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to fully understand the Intellectual Property so as to enable Buyer to complete Successful
Commercialization of the Intellectual Property.

     3.2 The Buyer is to retain for a twelve (12) month period immediately following the Closing of
this Agreement, the Seller’s President, Steve McGrew, (McGrew) as a sub-contractor for providing
research, development or prototype manufacturing services to the Buyer in connection with the
development of the Intellectual Property for Successful Commercialization, (the
“Services”). McGrew (or the Seller if so specified) is to be paid five thousand dollars
($5,000) per month for these Services. The terms and conditions under which McGrew is to be
retained shall be those contained in the Consulting Agreement attached as Exhibit E.

     3.3 OPTION FOR FURTHER SERVICES. After the first 12 months from Closing, Buyer will have the
option for each of a further 4 years (subject to 90 days advance notice) to retain McGrew as a
consultant at an annual rate of $50,000, to support Buyer’s technical, commercial and strategic
efforts at up to one week per month, with all pre-approved travel and expenses to be paid by Buyer.
The terms and conditions under which McGrew may be so retained shall be those contained in the
Consulting Agreement attached as Exhibit E.

     3.4 DISCLOSURE OF RELATED INVENTIONS. Seller and Seller’s Agents will promptly disclose to
Buyer, or any person designated by Buyer, all Related Inventions or Improvements. Seller’s
obligations under this Section 3.4 shall terminate on the date on which Buyer gives a notice
pursuant to 2.1.2(b). This section 3.4 shall not be interpreted as requiring Seller to disclose
any intellectual properties acquired or developed by Seller on or after such termination date
pursuant to notice under Section 2.1.2(b); nor shall this section 3.4 or any part of this Agreement
be interpreted as requiring Seller to disclose or transfer any inventions, formulae, processes,
techniques, know-how, data or improvements that are not directly related to the original
Intellectual Property, any Improvements, or Related Inventions.

     3.5 OWNERSHIP OF INVENTIONS. All Related Inventions and Improvements shall be the sole
property of Buyer and its successors and assigns; and Buyer and its successors and assigns shall be
the sole owner of all patents, copyrights and other rights in connection therewith. Seller
(including Seller’s Agents), hereby assigns to Buyer any and all rights either of them may have or
acquire in all Related Inventions and Improvements, and agree to cause their respective officers,
directors, affiliates, consultants, agents and employees to assign all Related Inventions and
Improvements made by them in the course of their employment with, or their rendering of services
to, Seller, Seller’s Agents or their affiliates. Seller further agrees, and agree to cause their
respective officers, directors, affiliates, consultants, agents and employees to assist Buyer in a
reasonable manner (but at Buyer’s expense) to obtain, amend, protect and enforce any patents or
copyrights of the Inventions in any and all countries that may be selected by Buyer, in its sole
discretion, and to that end each of them will, and will cause their respective officers, directors,
affiliates, consultants, agents and employees to, execute all documents for use in applying for and
obtaining such patents thereon and enforcing the same, as Buyer may desire, together with any
assignments thereof to Buyer or persons designated by it. Seller’s obligation to assist Buyer in
obtaining and enforcing patents for the Related Inventions and Improvements in any and all
countries shall continue beyond the termination of his engagement or his work on matters related
to Buyer’s operations. However, Buyer shall have no rights in any Related Inventions conceived

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by Seller or Seller’s Agents subsequent to any notice pursuant to 2.1.2(b) or other termination of
this Agreement.

SECTION 4: FINANCIAL CONTROLS AND AUDIT

     4.1 FINANCIAL RECORDS.

               4.1.1 Buyer at Buyer’s expense shall maintain such financial records as may be necessary or
appropriate to evidence the amounts due Seller under this Agreement. To this end, Buyer shall
establish and/or maintain an appropriate financial system for its books and records, to ensure that
the relevant data is gathered and maintained completely and accurately.

               4.1.2 Buyer shall preserve and safeguard its financial records for no less than five (5)
years following the applicable Payment Period.

     4.2 STATEMENT TO ACCOMPANY CONTINUING ROYALTIES. At the time Buyer pays the Continuing
Royalties, it shall provide Seller with a detailed calculation as to the amount being paid. Seller
shall use this information solely for the purpose of determining royalties owed by Buyer to Seller
and shall treat the information, other than that concerning the amount being paid to Seller, as
Buyer’s Confidential Information.

     4.3 AUDIT RIGHTS.

               4.3.1 Subject to the provisions of Section 5, Seller may (either directly or through Seller’s
Agents) inspect Buyer’s books and records during the term of this Agreement and for a period two
(2) years thereafter, to review and analyze the relevant records of Buyer, for purposes of
determining whether Buyer has complied with its financial obligations under this Agreement, and
with its specific duty to pay the Continuing Royalties. Seller will give Buyer at least ten (10)
business days notice prior to any inspection. Seller (either directly or through Seller’s Agents)
will conduct its inspection during normal business hours at such time as the parties may agree.

               4.3.2 Audits under this Section 4 may take place no more frequently than once with respect to
any Payment Period. In the event the annual maximum Continuing Royalty ($[**********]) has been
paid for any Payment Period, then there shall be no audit by the Seller covering that Payment
Period.

               4.3.3 Any such audit shall be conducted at Seller’s expense. In the event it is determined as
a result of such audit that Buyer has underpaid or under-reported the Continuing Royalties due to
Buyer by more than seven point five percent (7.5%) with respect to any Payment Period, Buyer will
be required to reimburse Seller promptly for the costs of the audit, all unpaid and overdue
Continuing Royalties, plus pay accrued interest under Section 2.1.3(j) and a twenty percent (20%)
penalty on any such unpaid Continuing Royalties. If such audit discloses that Buyer overpaid any
Continuing Royalty, Seller shall pay the amount of such overpayment to Buyer promptly.

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               4.3.4 All information obtained in connection with or as a result of such audit shall be
Confidential Information within the meaning of Section 5.

SECTION 5: CONFIDENTIAL INFORMATION

     5.1 CONFIDENTIAL INFORMATION.

               5.1.1 For so long as this Agreement remains in effect and for a period of five (5) years
following the termination hereof, the Seller shall maintain and shall cause Seller’s Agents to
maintain in confidence the Intellectual Property and such other confidential information (including
Improvements and Related Inventions) of the Buyer that is disclosed to it (collectively, the
“Confidential Information”), and shall not disclose, use or grant the use of the
Confidential Information, except on a need-to-know basis to such Seller’s directors, officers,
employees, consultants and collaborators, and to other parties, to the extent such disclosure is
reasonably necessary or required in connection with the providing of services or products to the
Buyer or other of Seller’s activities that are expressly authorized by this Agreement. To the
extent that disclosure by the Seller to any person is authorized by this Agreement, prior to
disclosure, the Seller shall obtain written agreement of such Person to hold in confidence and not
disclose, use or grant the use of the Confidential Information of the Buyer except as expressly
permitted under this Agreement. The Seller shall notify the Buyer promptly upon discovery of any
unauthorized use or disclosure of Confidential Information. Upon the written request of the Buyer,
expiration or earlier termination of this Agreement, the Seller shall return to the Buyer all
tangible items regarding the Confidential Information of the Buyer and all copies thereof.

               5.1.2 Confidential Information shall not include information that

                         (i) can be shown by the receiving party to have been in its possession prior to receipt
thereof from the disclosing party (provided, that such exclusion shall not apply to the knowledge
of Seller or Seller’s agents of any information with respect to the Intellectual Property);

                         (ii) is now or hereafter becomes information in the public domain through no act or failure to
act by the receiving party;

                         (iii) can be shown by the receiving party to have been subsequently lawfully received by the
receiving party on a nonconfidential basis from a third party having the right to disclose it; or

                         (iv) can be shown by the receiving party to have been independently developed by the receiving
party before the receiving party had access to the Confidential Information received from the
disclosing party.

                         (v) is disclosed as required under any applicable law.

               5.1.3 The burden of proof that any disclosure falls within any of the aforesaid exclusions
shall be on the recipient. Where a doubt exists, as to whether any of the aforesaid

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exclusions apply, the party seeking to disclose shall give the other party a written notice
and, if a dispute arises, then such party shall keep such information confidential until the
dispute is settled or resolved in an appropriate court of law, subject to any temporary relief
which the party seeking the disclosure shall be entitled to apply for to such court.

SECTION 6: INDEMNIFICATION

     6.1 INDEMNIFICATION OF SELLER. Buyer shall indemnify, hold harmless and defend Seller and
Seller’s Agents and affiliates from and against any and all liability, loss, damages, claims,
causes of action and expenses associated with them (including reasonable attorneys’ fees) caused or
asserted to have been caused, directly or indirectly by or as a result of any acts or omissions of
Buyer and Buyer’s Agents and affiliates in connection with this Agreement, and with regard to any
and all claims relating or arising from this Agreement or the Intellectual Property.

     6.2 INDEMNIFICATION OF BUYER. Seller shall indemnify, hold harmless and defend Buyer and
Buyer’s Agents and affiliates from and against any and all liability, loss, damages, claims, causes
of action and expenses associated with them (including reasonable attorney’s fees) caused or
asserted to have been caused, directly or indirectly by or as a result of any acts or omissions of
Seller and Seller’s Agents and affiliates in connection with this Agreement, and with regard to any
and all claims relating or arising from this Agreement or the Patent; except that any and all
obligations and liabilities with respect to claims for infringement which occur after Closing shall
be the sole responsibility of Buyer. In the event that it is determined that use of the Patents
infringes third party patents, the Buyer may offset fifty (50%) of any amounts of such third party
royalties Buyer is required to pay, as a credit against the Continuing Royalties it is required to
pay under Section 2 of this Agreement. However, any such offset shall not be retroactive nor
require Seller to refund royalties already paid by Buyer to Seller.

     6.3 LIMITATION OF LIABILITY. It is understood and agreed that neither party to this Agreement
shall be liable for any negligent or wrongful acts, either of commission or omission, chargeable to
the other, unless such liability is imposed by law and that this Agreement shall not be construed
as seeking to either enlarge or diminish any obligation or duty owed by one party against the other
or against a third party.

     6.4 SETTLEMENT OF LIABILITY. Neither the Buyer or Seller be shall required to indemnify the
other unless, (1) the party requesting indemnification promptly notifies the other party in writing
of any such claim (provided, however, that the failure to give prompt notice of any claim shall
relieve the indemnifying party of its indemnification obligation only to the extend that the
failure to give such notice impairs the ability of the indemnifying party to defend against such
claim); (2) cooperates fully with the indemnifying party, and grants the indemnifying party sole
control of the defense or settlement; and (3) is in complete compliance with this Agreement. The
party seeking indemnification shall not adjust, settle or compromise any claim, suit, action or
other proceeding brought against it to which the indemnity set forth herein applies without the
prior written consent of the other party which consent shall not be unreasonably withheld.

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SECTION 7: PATENTS; INFRINGEMENT

     7.1 MAINTENANCE OF PATENTS.

     (a) Buyer shall be responsible, until the termination of this Agreement, for preparing,
filing, prosecuting and maintaining all existing Patents and patent applications having at least
one claim that covers any part of the Intellectual Property. All expenses relating to the
preparation, filing, prosecution and maintenance of such Patents and patent applications will be
paid by Buyer. Seller shall (and shall cause Seller’s agents to) cooperate with Buyer in the
preparing, filing, prosecuting and maintaining all existing Patents and patent applications in all
such respects as Buyer may reasonably request, in which event Buyer shall reimburse Seller for all
out-of-pocket expenses incurred by Seller or Seller’s Agents in connection with such cooperation.

     (b) Buyer shall not be responsible for preparing, filing, prosecuting or maintaining any
Patent or patent application that has no claim that covers the Intellectual Property.

     (c) Buyer shall inform Seller of all activities with respect to prosecution and maintenance of
any Patent or patent application and shall provide to Seller copies of all office actions and other
communications concerning such within thirty (30) days after receipt thereof.

     (d) In the event that Buyer decides to cease maintaining or defending the Patents, or fails to
pay maintenance fees or carry out other actions necessary to maintain the validity and
enforceability of the Patents, then before the abandonment of any Patent, the Buyer shall notify
the Seller of its intent to do so. In such event, Seller may request the immediate transfer of the
ownership of the applicable Patent back to Seller. In the event that ownership reverts back to the
Seller and the applicable Patent is still deemed to be valid and enforceable, the Buyer shall still
retain an irrevocable, worldwide, non-exclusive, perpetual license, subject to the payment of
Continuing Royalties under this Agreement, and the Seller shall execute all such documents as the
Buyer may reasonably request to evidence and perfect such license.

     7.2 PATENT APPLICATIONS ON IMPROVEMENTS.

     Buyer shall have the exclusive right to prepare and file patent applications for Improvements
or Related Inventions developed by Buyer, Seller or Seller’s Agents, in such jurisdictions and in
such manner as it shall determine, and shall prosecute such applications as it deems appropriate,
and the Seller shall provide Buyer, at Buyer’s expense (out of pocket only), with any reasonable
assistance therefore as Buyer may request. All such applications shall be filed and prosecuted in
the name of Buyer and at its expense.

     7.3 THIRD PARTY PATENT INFRINGEMENT.

             (a) BUYER’S RIGHTS. If, at any time during the term hereof, either party shall become aware of
any infringement or threatened infringement of the Patents in a jurisdiction where the patents are
valid, the party having the knowledge thereof shall forthwith give notice to the other party. Buyer
or its designee shall determine within 120 days of notice whether or not to

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prosecute such alleged infringement and to assert its rights in the Patents against such
infringer, in which event Buyer or its designee shall bear all costs and expenses of any actions
and enjoy all benefits of damages, proceeds or awards rendered in any such action; provided,
however, that Buyer will pay Seller a reasonable, and equitable portion of any amount so awarded,
(net of Buyer’s costs and subject to this Agreement’s annual Continuing Royalties caps) which
payment shall be credited against royalties due and that shall become due under this Agreement in
lieu of sublicense royalties. In such event, Seller shall (and shall cause Seller’s Agents to) give
Buyer or its designee all reasonable assistance requested by Buyer. Buyer shall reimburse Seller
and Seller’s agents for all out of pocket expenses incurred by them in rendering such cooperation.
Seller agrees that Seller will be joined in such suit if Seller is determined to be a necessary
party.

         (b) Should Buyer not determine or determine not to initiate any action against the alleged
infringer within the above 120 days, Seller shall have the right to assert, at its own expense, the
Intellectual Property and shall be entitled to any and all recoveries therein. In the event that an
action for infringement may only be asserted in a particular jurisdiction in Buyer’s name, then
Buyer agrees that it will bring such an action at Seller’s or its designee’s request. Seller or its
designee shall pay all of the costs and expenses of such action and enjoy all benefits of damages,
proceeds or awards rendered in any such action: Seller or its designee shall have the right to
control such litigation with counsel reasonably acceptable to Buyer selected by Seller or its
designee. Buyer shall have the right to participate in such litigations with counsel of its own
selection, at Buyer’s expense.

SECTION 8: REPRESENTATIONS AND WARRANTIES

     8.1 OWNERSHIP. Seller represents and warrants that (i) it is the sole, exclusive, true and
lawful owner, inventor, and developer of the Intellectual Property, free and clear of all liens and
encumbrances of any kind; (ii) it has the right to Transfer to Buyer good, clear, record and
marketable title to the Intellectual Property as contemplated herein free and clear of all liens
and encumbrances of any kind; (iii) none of the Intellectual Property has been assigned,
transferred or licensed to or from any third party; and (iv) the validity or enforceability of the
Intellectual Property has not been challenged by others in any proceeding or dispute about which
Seller has received notice or of which the Seller is aware, nor is there any pending or, to the
best of Seller’s knowledge, threatened litigation or proceeding challenging Seller’s right to use,
or to convey to Buyer the right to use, any of such Intellectual Property.

     8.2 BUYER’S RIGHT TO EXPLOIT. Neither the execution and delivery of this Agreement nor, to
Seller’s best knowledge, the use by the Buyer of the Intellectual Property, shall violate or
infringe the rights of any other person, firm or entity, nor will such actions interfere with the
Buyer’s use of the Intellectual Property as contemplated by this Agreement, and the execution,
delivery or performance by Seller of this Agreement will not constitute a breach of any law,
agreement or instrument to which Seller is a party or by which it is bound.

     8.3 MATERIALS TO EFFECT. In order to give full effect to this transaction, Seller shall
deliver to the Buyer, together with this Agreement, the GLOBAL PATENT ASSIGNMENT, duly signed by
Seller. Seller agrees to execute, and to cause Seller’s agents to execute, upon the request of the
Buyer such additional instruments, applications, declarations and forms, as may be

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necessary under any relevant law or as may be required by any official or authority, to
continue, secure, defend, register and otherwise give full effect to, and perfect the rights of the
Buyer under the Global Patent Assignment in the Patents, including to register the assignment of
each Patent in the name of the Buyer.

     8.4 FILES. Seller has used its diligent and reasonable efforts to provide to Buyer all
existing files and records pertaining to the Intellectual Property, including, but not limited to,
all office actions, drafts, receipts, drawings, correspondence, disclosures, models, copies,
prototypes, diagnostic reports, test results, opinions, prior art (including search results,
publications and copies of patents, if any) and analyses (collectively, the “Files”). To
the extent that any Files have not been provided to Buyer as of the Closing Date, Seller shall,
upon the first to occur of the request of Buyer or discovery that such Files have not been
provided, provide such Files to Buyer, at no charge to Buyer.

     8.5 AUTHORITY. Seller and Buyer each represent and warrant that each has the authority to
execute this Agreement and to perform all the functions necessary to effect the transactions
contemplated herein and that this Agreement has been duly authorized and is a valid and binding
obligation of such party enforceable against such party in accordance with its terms, subject to
the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws related to or affecting creditors rights generally.

     8.6 USE OF INTELLECTUAL PROPERTY. Seller warrants that the Intellectual Property constitutes
all technology and knowhow possessed by Seller that is relevant to eventual Successful
Commercialization of the Intellectual Property, and that no further licenses from the Seller are
necessary for Successful Commercialization of the Intellectual Property.

     8.7 AUTHORIZATION OF WARRANT AND WARRANT SHARES. Buyer represents and warrants that Buyer
has all necessary corporate power and authority to issue and sell the Warrant and the shares of its
Common Stock for which the Warrant may be exercised (the “Warrant Shares”) The issuance,
sale and delivery of the Warrant in accordance with this Agreement and the issuance and delivery of
the Warrant Shares upon exercise of the Warrant have been duly authorized by all necessary
corporate action on the part of the Buyer. Sufficient authorized but unissued shares of Common
Stock have been reserved by appropriate corporate action in connection with the prospective
exercise of the Warrant at the applicable exercise price. The Warrant Shares, when issued, sold
and delivered upon exercise of the Warrant will be duly and validly issued, fully paid,
non-assessable and are not subject to preemptive rights or other preferential rights in any present
or future stockholders of the Buyer, will not be subject to any lien, and will not conflict with
any provision of any agreement or instrument to which the Buyer is a party or by which it or its
property is bound.

     8.8 SECURITIES REPRESENTATIONS OF SELLER: In connection with the acquisition of the Warrant
by Seller and the acquisition of the Warrant Shares upon the exercise of the Warrant, the Seller
represents to the Buyer that:

     8.8.1 The Seller is an “accredited investor” as that term is defined in Rule 501 promulgated
by the Securities and Exchange Commission (the “SEC”) pursuant to the Securities Act of 1933, as
amended.

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     8.8.2 The Securities are being acquired for the Seller’s own account, for investment and not
with a view to, or for resale in connection with, any distribution thereof within the meaning of
the Securities Act or the securities laws of any other state applicable to the Seller. The Seller
understands that the Securities have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act pursuant to Section 4(2) thereof, which exemption depends upon, among other
things, the bona fide nature of the Seller’s investment intent expressed herein, that the Company
has no present intention of registering the Securities, and that the Securities must be held by the
Seller indefinitely unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from registration.

     8.8.3 During the negotiation of the transactions contemplated herein, the Seller and its
representatives have been afforded full and free access to corporate books, documents, and other
information concerning the Buyer and to is offices and facilities, have been afforded an
opportunity to ask such questions of the Buyer and its officers, employees, agents, accountants,
and representatives concerning the Buyer’s business, operations, financial condition, assets,
liabilities, and other relevant matters as they have deemed necessary or desirable, and have been
given all such information as has been requested, in order to evaluate the merits and risks of the
prospective investments contemplated herein.

     8.8.4 The Seller and its representatives have been solely responsible for the Seller’s own
“due diligence” investigation of the Buyer and its management and business, for its own analysis of
the merits and risks of this investment, and for its own analysis of the fairness and desirability
of the terms of the investment. The Seller has such knowledge and experience in financial and
business matters that the Seller is capable of evaluating the merits and risks of acquiring the
Securities pursuant to the terms of this Agreement and of protecting Seller’s interests in
connection therewith.

     8.8.5 The Seller is able to bear the economic risk of the purchase of the Securities pursuant
to the terms of this Agreement, including a complete loss of the Seller’s investment in the
Securities.

     8.8.6 The Securities are transferable only pursuant to (a) public offerings registered under
the Securities Act, (b) Rule 144 or Rule 144A of the SEC (or any similar rule or rules then in
force) if such rule is available, (c) upon satisfaction of the conditions specified in Section
8,8.8 or (d) any other legally available means of transfer.

     8.8.7 Legend. Each certificate or instrument representing the Securities shall be imprinted
with a legend in substantially the following form:

The securities represented hereby have not been registered under the
Securities Act of 1933, as amended. The transfer of the securities
represented by this certificate is subject to the conditions
specified in the Rights Agreement, dated as of December 23, 2005, as
amended and modified from time to time, between the issuer

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(the “Company”) and certain investors, as amended and modified from
time to time. A copy of such Agreement will be furnished by the
Company to the holder hereof upon written request and without
charge.

     8.8.8 In connection with the transfer of any the Securities (other than a transfer described
in Section 8.8.6(a) above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with an opinion of
legal counsel which (to the Company’s reasonable satisfaction) is knowledgeable in securities law
matters to the effect that such transfer of the Securities may be effected without registration of
the Securities under the Securities Act. In addition, if the holder of the Securities delivers to
the Company an opinion of such counsel that no subsequent transfer of such Securities shall require
registration under the Securities Act, the Company shall promptly upon such contemplated transfer
deliver new certificates for such Securities which do not bear the Securities Act legend set forth
in Section 8.8.7. If the Company is not required to deliver new certificates for such Securities
not bearing such legend, the holder thereof shall not transfer the same until the prospective
transferee has confirmed to the Company in writing its agreement to be bound by the conditions
contained in this Section 8.8.

SECTION 9: TERM and TERMINATION OF RIGHT TO USE THE INTELLECTUAL PROPERTY

     9.1 TERM. This Agreement shall continue so long as any Continuing Royalty is payable
hereunder, or until earlier terminated as provided herein, except that the licenses granted herein
shall continue in perpetuity.

     9.2 TERMINATION BY SELLER. Notwithstanding anything to the contrary contained herein, Buyer
shall cease to have the right to use the Intellectual Property during such periods as any of the
following events shall occur (and such right shall resume upon cure thereof):

     9.2.1 Buyer’s failure to comply with the requirements of Section 6.1.

     9.2.2 Buyer shall have committed a breach of a material term of this Agreement, which shall
not be cured within thirty (30) days of written notice of such breach.

     9.3 INJUNCTIVE RELIEF. Each party acknowledges that if it should commit a material breach of a
material provision of this Agreement, the other party may suffer irreparable damages and that the
other party’s remedy at law may be inadequate. Therefore, in addition to any remedy of law
otherwise available, each party agrees that the other party may be entitled to a temporary or
permanent injunction restraining each party from any such violations and that each party may be
specifically compelled to perform its material obligations under this Agreement. Each party hereby
consents to the personal jurisdiction of any state or federal court located in the state of
residence of the other party for the purpose of providing such injunctive relief.

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     9.4 PRIOR OBLIGATIONS. Unless otherwise expressly provided for herein, termination of Buyer’s
right to use the Intellectual Property shall be without prejudice to the right of any party who is
not in default hereunder to receive all payments accrued and unpaid at the effective date of such
termination or expiration, to the remedy of either party in respect to any previous breach of any
of the covenants herein contained and to any other provisions herein which expressly or necessarily
call for performance after such termination or expiration.

SECTION 10: GENERAL PROVISIONS

     10.1 AMENDMENT. This Agreement may be amended by the parties. No amendment will be effective
unless in writing, and signed by both parties.

     10.2 ARBITRATION.

     10.2.1 The parties will attempt through good faith negotiation to resolve any disputes. The
term “disputes” includes, without limitation, any disagreements between the parties concerning the
existence, formation, interpretation and implementation of this Agreement.

     10.2.2 If the parties are unable to resolve their disputes by negotiation, either party may
commence arbitration by sending a written notice of arbitration to the other party. The notice will
state the dispute with particularity.

     10.2.3 The arbitration will be by the American Arbitration Association, which will apply its
rules except as stated in this Section 10.2.

     10.2.4 The fee payable to the arbitrator will be based upon the then current fee schedule of
the American Arbitration Association and will be advanced one half by each party, upon the written
request of the arbitrator(s) or the American Arbitration Association.

     10.2.5 Except as set forth in this Section 10.2.5, the arbitrator(s) will conduct the
arbitration according to the rules of the American Arbitration Association. Arbitration will take
place in New York City, unless the parties hereto otherwise agree. The arbitrator(s) will base the
decision on the express language of this Agreement.

     10.2.6 All decisions of the arbitrator(s) will be final, and binding on both parties, and
(except as otherwise provided herein) will constitute the only method of resolving disputes.
Judgment may be entered upon the decision in accordance with applicable law in any court having
jurisdiction. Each party waives the right to challenge the use of arbitration to resolve disputes
as provided for in this Agreement.

     10.2.7 This arbitration section and all decisions of the arbitrator(s) will be specifically
enforceable in a court of law, or in the arbitral tribunal.

     10.2.8 The parties reserve the right to seek a judicial temporary restraining order,
preliminary injunction, or other similar short term equitable relief prior to the appointment of
the

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arbitrator. The arbitral tribunal will have the right to make a final determination of the parties’
rights, including whether to make permanent, modify or dissolve any judicial order.

     10.2.9 Nothing contained in this Section 10.2 shall preclude the Seller or Buyer from
enforcing its rights under this Agreement in accordance with its terms.

     10.3 ATTORNEYS’ FEES. If either party institutes litigation or arbitration to interpret or
enforce this Agreement, or to recover damages for breach of this Agreement, the prevailing party
will be entitled to recover costs of suit or arbitration, and to recover actual attorney fees.

     10.4 CAPTIONS. The titles and captions are included only as a matter of convenience. They will
not affect the interpretation of any provision.

     10.5 WORDING. Words herein denoting the singular number only shall include the plural and vice
versa.

     10.6 CONSENTS AND APPROVALS. A party will not unreasonably withhold or delay a consent
provided for in this Agreement, unless the Agreement specially permits otherwise. Consents will be
effected only by written notice.

     10.7 CONSTRUCTION OF AGREEMENT. Both parties and their counsels have participated fully in the
review and revision of this Agreement. Any rule of construction to the effect that ambiguities are
to be resolved against the drafting party will not apply to the interpretation of this Agreement.

     10.8 COUNTERPARTS. This Agreement may be executed in two counterparts, each of which will be
deemed an original, but taken together will constitute one instrument.

     10.9 BUSINESS DAYS. If the day for performance of any obligation under this Agreement is a
Saturday, Sunday or legal holiday, then the time for performance of any obligation under this
Agreement will be extended to 5:00 p.m. on the first day following which is not a Saturday, Sunday
or legal holiday.

     10.10 CUMULATION OF REMEDIES. The various rights, options, elections, powers, and remedies
under this Agreement, or granted by law (collectively, “Remedies”), will be construed as
cumulative. No single Remedy is exclusive of any of the other Remedies.

     10.11 DOLLARS. All the amounts referred to herein are in United States Dollars.

     10.12 ELECTRONIC FACSIMILE. If a party signs this Agreement and then transmits an electronic
facsimile of the signature page to the other party, the party who receives the transmission may
rely upon the electronic facsimile as a signed original of this Agreement.

     10.13 EXPENSES. Except as may be specifically provided for in this Agreement, both parties
will bear their own expenses incurred in connection with this Agreement and the transactions
contemplated in it including, but not limited to, legal and accounting fees.

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     10.14 FURTHER ASSURANCES. Each party will do such further acts, including executing and
delivering additional agreements or instruments as the other may reasonably require, to consummate,
evidence or confirm the agreements contained in this Agreement or otherwise carry out the intent
and purposes of this Agreement.

     10.15 GOVERNING LAW. This Agreement will be construed and enforced according to the laws of
the State of New York without regard to conflicts of law principles.

     10.16 INCORPORATION OF RECITALS AND THE EXHIBIT. All Recitals and the schedules and exhibit
referred to in this Agreement are an integral part of this Agreement. They are incorporated in this
Agreement by this reference as though at this point set forth in full.

     10.17 INTEGRATION. The making, execution and delivery of this Agreement by the parties has not
been induced by any representations, statements, warranties or agreements other than those
expressed in this Agreement. This Agreement, the Exhibits, and the Schedules hereto embody the
entire understanding of the parties. There are no other agreements or understandings, written or
oral, in effect between the parties relating to the subject matter of this Agreement, unless
expressly referenced in this Agreement, the Exhibits, or the Schedules hereto.

     10.18 NO JOINT VENTURE. Neither party is an employee, agent, partner, or joint venture with or
of the other party.

     10.19 NOTICES.

     10.19.1 WRITTEN NOTICES. All notices, demands or requests (“Notices”) which are required or
permitted to be given pursuant to this Agreement will be in writing. Notices will be delivered
personally, by commercial carrier, by fax with a machine generated confirmation sheet or by
registered or certified mail, postage prepaid, addressed to a party as stated below.

Seller’s address for notices:

9715 West Sunset Highway, Spokane, Washington, 99224

Attention: Steve McGrew, President

Tel: 509-456-8321     Fax: 509-456-8321

With a copy to:

Witherspoon Kelly, 1100 US Bank Bldg, 422 W Riverside Ave, Spokane, WA 99201

Attn: Andrew Schultheis

Phone: 509-624-5265     Fax: 509-458-2728

Buyer’s address for notices:

2166 Brighton Henrietta Townline Road, Suite B, Rochester, New York, 14623

Attn: Paul Travers, President & CEO

Tel: 585-240-8000 Fax: 585-240-8003

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With a copy to:

Boylan, Brown, Code, Vigdor & Wilson, LLP

2400 Chase Square

Rochester, NY 14604

Attn: Robert F. Mechur

Phone: 585-238-3576 Fax: 585-238-9022

     10.19.2 EFFECTIVE DATE. Notice given personally or by commercial carrier is effective upon
delivery. Notice given by fax with a machine generated confirmation sheet is effective upon
sending. Notice given by mail of a national government is effective seven days after the date of
mailing.

     10.19.3 CHANGE OF ADDRESS. Either party may change his/its address for Notices by notice given
pursuant to this section.

     10.20 PARTIAL INVALIDITY. If any provision of this Agreement is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole,
but this Agreement shall be construed as though it did not contain the particular provision held to
be invalid or unenforceable and all other rights and obligations of the parties shall survive to
the maximum extent permitted by law.

     10.21 SOLE DISCRETION. If any party may make a decision or take action or refuse to take
action under this Agreement in that party’s sole discretion, the party may act based on any reason
or no reason, so long as the basis for action is not an illegal reason.

     10.22 TIME OF THE ESSENCE. Time is of the essence throughout the term of this Agreement for
every provision in which time is an element. No extension of time for performance of any act will
be deemed an extension of time for the performance of any other acts.

     10.23 WAIVER OF RIGHTS. No waiver of or failure by either party to enforce a provision,
covenant, condition or right under this Agreement (collectively, “Right”) will be construed as a
subsequent waiver of the same Right, or a waiver of any other Right. No extension of time for
performance of any obligations or acts will be deemed an extension of the time for performance of
any other obligations or acts.

     10.24 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. This Agreement shall inure to the
benefit of the parties to this Agreement and their respective permitted successors and assigns and
shall be binding upon the parties to this Agreement and their respective successors and assigns.
Seller may not assign any of its rights under this Agreement without the prior written consent of
Buyer, such consent not to be unreasonably withheld. There are no third party beneficiaries under
this Agreement and the sole and intended beneficiaries of this Agreement are Buyer and Seller.

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

	 	 	 
	ICUITI CORPORATION

	 	NEW LIGHT INDUSTRIES, LTD.
	 
	 	 
	/s/ Paul J. Travers

	 	/s/ Steve McGrew
	 

	 	 
	Signature

	 	Signature
	 
	 	 
	Paul J. Travers, CEO & President

	 	Steve McGrew, President
	 

	 	 
	Print Name & Title

	 	Print Name & Title
	 
	 	 
	12/23/05

	 	12/23/05
	 

	 	 
	Date Signed

	 	Date Signed

20

 

SCHEDULE A

THE “PATENTS”

The “Patents” are:

1. U.S. Patent No. 6,181,367 (issued 1/30/2001),

2. U.S. Patent No. 5,973,727 (issued 10/26/1999), and

3. China patents derived from U.S. Patents No. 6,181,367 and/or No. 5,973,727, including any
extensions (pending or issued) , divisionals, patents of addition of the United States or any other
country or political subdivision thereof, all registrations and recordings thereof, and all patents
to issue in such applications of the United States or any other country or political subdivision
thereof, including, without limitation, registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or political subdivision thereof, including, without limitation,
improvements, divisions, renewals, reissues, extensions, continuations, and continuations-in-part
or extensions thereof that are used or useable in any respect in connection with or that relate to
Video Image Viewing Devices And Methods.

These patents cover an extremely compact head-mounted virtual reality display using total internal
reflection, a switching means such as a liquid crystal layer, and a holographic optical element
(HOE) or other beam-directing means (together, the “Technology”).

THE “INTELLECTUAL PROPERTY”

Intellectual Property means:

	 	(a)	 	The Patents;
	 
	 	(b)	 	Any and all other intellectual property rights belonging to Seller as of December 23,
2005 that are used or usable in any respect in connection with or that relate to Video
Image Viewing Devices And Methods, said other intellectual property rights including
specifically all of any of the following: copyright rights, copyright applications,
copyright registrations, copyright recordings and like protections in each work of
authorship and derivative work thereof, whether registered or unregistered or published or
unpublished and whether or not the same also constitutes a trade secret, held pursuant to
the laws of the United States, any State thereof or of any other country or political
subdivision thereof;
	 
	 	(c)	 	Any and all income, royalties, damages, claims, and payments now and hereafter due and
payable, including, without limitation, all claims for damages and payments by way of past,
present and future infringement, misappropriation, or dilution of any of the rights
included above, with the right, but not the obligation, to sue for and collect such damages
for said use or infringement of the Patents or other intellectual property rights
identified in a) and b) above;

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	 	(d)	 	All licenses or other rights to use any of the intellectual property rights identified
in a), b) and c) above, all license fees and royalties arising from such use to the extent
permitted by such license or rights and not prohibited by applicable law;
	 
	 	(e)	 	All amendments, continuations, renewals and extensions of any of the Intellectual
Property described above; and
	 
	 	(f)	 	All know-how, show-how, prototypes, drawings, designs, diagrams, computer programs and
their sources, design assurance data and other tangible technical information used by
Seller in connection with the Intellectual Property described above.

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