Document:

WWW.EXFILE.COM -- 15048 -- MATRITECH, INC. -- EXHIBIT 10.3 TO FORM 8-K

    EXHIBIT
      10.3

     

    MATRITECH,
      INC.

    

    MATRITECH,
      INC.

    PERFORMANCE-BASED
      INCENTIVE STOCK OPTION AGREEMENT

    

    Matritech,
      Inc. (the “Company”)
      hereby grants the following stock option pursuant to its 2006 Equity and
      Incentive Plan.  The terms and conditions attached hereto are also a
      part hereof.

    

    
      
        	
                Name
                  of optionee (the “Optionee”):

              	 
	 	 
	
                Date
                  of this option grant:

              	 
	 	 
	
                Number
                  of shares of the Company’s Common Stock subject to this option
                  (“Shares”):

              	 
	 	 
	
                Option
                  exercise price per Share: Closing price the date of the option
                  award

              	 
	 	 
	
                Scheduled
                  expiration date:  One year from date of grant

              	 
	 	 
	
                Performance
                  triggers for vesting:

              	
                See
                  Appendix A, attached hereto and incorporated herein by
                  reference.

              

      

    

    

    
      
        	
                All
                  vesting is dependent on the continuation of a Business Relationship
                  with
                  the Company, as provided
                  herein.

              

      

    

    

    This
      option satisfies in full all commitments that the Company has to the Optionee
      with respect to the issuance of stock, stock options or other equity
      securities.

    

    
      	 	
               

              Matritech,
                Inc.

            
	
              ____________________________________

            	 
	
              Signature
                of Optionee

            	
              By:____________________________

            
	
              ____________________________________

            	
                    Name
                of Officer:

            
	
              Street
                Address

            	
                    Title:

            
	
              ____________________________________

            	 
	
              City/State/Zip
                Code

            	 

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Matritech,
      Inc.

    

    PERFORMANCE-BASED
      INCENTIVE STOCK OPTION AGREEMENT

    INCORPORATED TERMS
      AND CONDITIONS

    

    1.           Grant
      Under Plan.  This option is granted pursuant to and is governed by
      the Company’s 2006 Equity and Incentive Plan, as amended September 15, 2006 (the
“Plan”) and, unless the context otherwise requires, terms used herein
      shall have the same meaning as in the Plan.

    

    2.           Grant
      as Incentive Stock Option.  This option is intended to qualify as
      an incentive stock option under Section 422 of the Internal Revenue Code of
      1986, as amended, and the regulations thereunder (the
“Code”).

    

    3.           Vesting
      of Option. The right to purchase the Shares subject to this Option shall
      vest in the Optionee only in accordance with the terms of this Agreement. The
      vesting criteria, thresholds for vesting, measurement mechanisms and other
      vesting standards are set forth on Appendix A, which is incorporated herein
      by
      reference.  If the vesting criterion for any threshold is fully met,
      and the Employee has continuously maintained a Business Relationship (as defined
      below) with the Company through the measurement date of the criterion, the
      portion of the Option relative to that satisfied criterion shall vest and become
      exercisable by the Employee.  “Business Relationship” means
      service to the Company or its successor in the capacity of an employee, officer,
      director or consultant.

    

    The
      right to purchase Shares may be
      exercised only before the date which is one year from the date of this option
      grant (the scheduled expiration date set forth on the cover page
      hereof).

    

    4.           Termination
      of Business Relationship.

    

    (a)           Termination.  If
      the Optionee’s Business Relationship with the Company ceases, voluntarily or
      involuntarily, with or without cause, no further installments of this option
      shall become exercisable, and this option shall expire (may no longer be
      exercised) after the passage of three months from the date of termination,
      but
      in no event later than the scheduled expiration date set forth on the cover
      page
      hereof.  Any determination under this agreement as to the status of a
      Business Relationship or other matters referred to above shall be made in good
      faith by the Board of Directors of the Company.

    

    (b)           Employment
      Status. For purposes hereof, with respect to employees of the Company,
      employment shall not be considered as having terminated during
      any leave of absence if such leave of absence has been approved in
      writing by the Company and if such written approval contractually obligates
      the
      Company to continue the employment of the Optionee after the approved period
      of
      absence; in the event of such an approved leave of absence, vesting of this
      option shall be suspended (and the period of the leave of absence shall be
      added
      to all vesting dates) unless otherwise provided in the Company’s 

     

    
      
         

      

      
         

        
          
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    written
      approval of the leave of absence. For purposes hereof, a termination of
      employment followed by another Business Relationship shall be deemed a
      termination of the Business Relationship with all vesting to cease unless the
      Company enters into a written agreement related to such other Business
      Relationship in which it is specifically stated that there is no termination
      of
      the Business Relationship under this agreement. This option shall not be
      affected by any change of employment within or among the Company and its
      Subsidiaries so long as the Optionee continuously remains an employee of the
      Company or any Subsidiary.

    

    5.           Death;
      Disability.

    

    (a)           Death.  Upon
      the death of the Optionee while the Optionee is maintaining a Business
      Relationship with the Company, this option may be exercised, to the extent
      of
      the number of Shares with respect to which the Optionee could have exercised
      it
      immediately prior to the Optionee’s death, by the Optionee’s estate, personal
      representative or beneficiary to whom this option has been transferred pursuant
      to Section 10, only at any time within 180 days after the date of
      death, but not later than the scheduled expiration date set forth on the cover
      page hereof.

    

    (b)           Disability.  If
      the Optionee ceases to maintain a Business Relationship with the Company by
      reason of his or her disability, this option may be exercised, to the extent
      of
      the number of Shares with respect to which the Optionee could have exercised
      it
      immediately prior to the termination of the Optionee’s Business Relationship
      with the Company, only at any time within 180 days after such termination,
      but not later than the scheduled expiration date set forth on the cover page
      hereof.  For purposes hereof, “disability” means “permanent
      and total disability” as defined in Section 22(e)(3) of the
      Code.

    

    6.           Partial
      Exercise.  This option may be exercised in part at any time and
      from time to time within the above limits, except that this option may not
      be
      exercised for a fraction of a Share.

    

    7.           Payment
      of Exercise Price.

    

    (a)            Payment
      Options.  The exercise price shall be paid by one or any
      combination of the following forms of payment that are applicable to this
      option, as indicated on the cover page hereof:

    

    
      	
               

            	
              (i)

            	
              by
                cash or check payable to the order of the Company;
                or

            

    

    

    
      	
               

            	
              (ii)

            	
              subject
                to Section 7(b) below, if the Common Stock is then traded on a
                national securities exchange or on the Nasdaq Stock Market (or successor
                trading system), by delivery of shares of Common Stock having a fair
                market value equal as of the date of exercise to the option
                price.

            

    

    

    
      
         

      

      
         

        
          
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    In
      the
      case of (ii) above, fair market value as of the date of exercise shall be
      determined as of the last business day for which such prices or quotes are
      available prior to the date of exercise and shall mean (x) the last
      reported sale price (on that date) of the Common Stock on the principal national
      securities exchange on which the Common Stock is traded, if the Common Stock
      is
      then traded on a national securities exchange; or (y) the last reported
      sale price (on that date) of the Common Stock on the Nasdaq Stock Market (or
      successor trading system), if the Common Stock is not then traded on a national
      securities exchange.

    

    (b)           Limitations
      on Payment by Delivery of Common Stock.  If Section 7(a)(ii) is
      applicable, and if the Optionee delivers Common Stock held by the Optionee
      (“Old Stock”) to the Company in full or partial payment of the exercise
      price and the Old Stock so delivered is subject to restrictions or limitations
      imposed by agreement between the Optionee and the Company, an equivalent number
      of Shares shall be subject to all restrictions and limitations applicable to
      the
      Old Stock to the extent that the Optionee paid for the Shares by delivery of
      Old
      Stock, in addition to any restrictions or limitations imposed by this
      agreement.  Notwithstanding the foregoing, the Optionee may not pay
      any part of the exercise price hereof by transferring Common Stock to the
      Company unless such Common Stock has been owned by the Optionee free of any
      substantial risk of forfeiture for at least six months.

    

    8.           Securities
      Laws Restrictions on Resale. Until registered under the Securities Act of
      1933, as amended, or any successor statute (the “Securities Act”), the
      Shares will be illiquid and will be deemed to be “restricted securities” for
      purposes of the Securities Act.  Accordingly, such Shares must be sold
      in compliance with the registration requirements of the Securities Act or an
      exemption therefrom and may need to be held indefinitely.  Unless the
      Shares have been registered under the Securities Act, each certificate
      evidencing any of the Shares shall bear a restrictive legend specified by the
      Company.

    

    9.           Method
      of Exercising Option.  Subject to the terms and conditions of this
      agreement, this option may be exercised by written notice to the Company at
      its
      principal executive office, or to such transfer agent as the Company shall
      designate.  Such notice shall state the election to exercise this
      option and the number of Shares for which it is being exercised and shall be
      signed by the person or persons so exercising this option.  Such
      notice shall be accompanied by payment of the full purchase price of such
      Shares, and the Company shall deliver a certificate or certificates representing
      such Shares as soon as practicable after the notice shall be
      received.  Such certificate or certificates shall be registered in the
      name of the person or persons so exercising this option (or, if this option
      shall be exercised by the Optionee and if the Optionee shall so request in
      the
      notice exercising this option, shall be registered in the name of the Optionee
      and another person jointly, with right of survivorship). In the event this
      option shall be exercised, pursuant to Section 5 hereof, by any person or
      persons other than the Optionee, such notice shall be accompanied by appropriate
      proof of the right of such person or persons to exercise this
      option.

    

    
      
         

      

      
         

        
          
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    10.           Option
      Not Transferable.  This option is not transferable or assignable
      except by will or by the laws of descent and distribution.  During the
      Optionee’s lifetime only the Optionee can exercise this option.

    

    11.           No
      Obligation to Exercise Option.  The grant and acceptance of this
      option imposes no obligation on the Optionee to exercise it.

    

    12.           No
      Obligation to Continue Business Relationship.  Neither the Plan,
      this agreement, nor the grant of this option imposes any obligation on the
      Company to continue the Optionee in employment or other Business
      Relationship.

    

    13.           No
      Severance or Termination Rights.  With respect to employees of the
      Company, awards under this Plan do not form part of an Optionee’s contract of
      employment and do not entitle an Optionee to any benefit other than that granted
      under this Plan.  Any benefits granted under this Plan are not part of
      an Optionee’s ordinary salary, and shall not be considered as part of such
      salary for pension purposes or in the event of severance, redundancy or
      resignation.  If Optionee’s employment is terminated for whatever
      reason the Optionee agrees that he or she shall not be entitled by way of
      damages for breach of contract, dismissal or compensation for loss of office
      or
      otherwise to any sum, Shares or other benefits to compensate for the loss or
      diminution in value of any actual or prospective right, benefits or expectation
      under or in relation to the Plan.

    

    14.           Adjustments.  Except
      as is expressly provided in the Plan with respect to certain changes in the
      capitalization of the Company, no adjustment shall be made for dividends or
      similar rights for which the record date is prior to such date of
      exercise.

    

    15.           Withholding
      Taxes.  If the Company in its discretion determines that it is
      obligated to withhold any tax in connection with the grant, vesting or exercise
      of this option, or in connection with the transfer of, or the lapse of
      restrictions on, any Common Stock or other property acquired pursuant to this
      option, the Optionee hereby agrees that the Company may withhold from the
      Optionee’s wages or other remuneration the appropriate amount of tax. At the
      discretion of the Company, the amount required to be withheld may be withheld
      in
      cash from such wages or other remuneration or in kind from the Common Stock
      or
      other property otherwise deliverable to the Optionee on exercise of this
      option.  The Optionee further agrees that, if the Company does not
      withhold an amount from the Optionee’s wages or other remuneration sufficient to
      satisfy the withholding obligation of the Company, the Optionee will make
      reimbursement on demand, in cash, for the amount underwithheld.

    

    16.           Early
      Disposition.  The Optionee agrees to notify the Company in writing
      immediately after the Optionee transfers any Shares, if such transfer occurs
      on
      or before the later of (a) the date that is two years after the date of
      this agreement or (b) the date that is one year after the date on which the
      Optionee acquired such Shares.  The Optionee also agrees to provide
      the Company with any information concerning any such transfer required by the
      Company for tax purposes.  The Company may, at its option, require
      that a restrictive legend be included on any certificate representing Shares
      which have been held by an Optionee for less than two years 

     

    
      
         

      

      
         

        
          
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    from
      the
      date of this agreement or less than one year from the date on which the Optionee
      acquired such Shares.

    

    17.           Provision
      of Documentation to Optionee.  By signing this agreement the
      Optionee acknowledges receipt of a copy of this agreement and a copy of the
      Plan.

    

    18.           Transfer
      of Data Waiver.  By signing this agreement the Optionee
      acknowledges that in order to perform its requirements under the Plan, the
      Company may process personal data and/or sensitive personal data about the
      Optionee.  Such data includes, but is not limited to, the information
      provided in this grant package and any changes thereto, other appropriate
      personal and financial data about the Optionee, and information about the
      Optionee’s participation in the Plan and Shares exercised under the Plan from
      time to time.  The Optionee hereby gives explicit consent to the
      Company to process any such personal data and/or sensitive personal
      data.  The Optionee also gives explicit consent to the Company to
      transfer any such personal data and/or sensitive personal data outside the
      country in which the Optionee works and to the United States.  The
      legal persons for whom the personal data is intended include the Company and
      any
      of its subsidiaries, the outside plan administrator as selected by the Company
      from time to time, and any other person that the Company may find in its
      administration of the Plan appropriate.  By signing this agreement,
      the Optionee acknowledges that he has been informed of his right of access
      to
      and correction of personal data by contacting the local Human Resources
      Representative.  Optionee further acknowledges that the transfer of
      the information outlined here is important to the administration of the Plan
      and
      failure to consent to the transmission of such information may limit or prohibit
      participation under the Plan.

    

    19.           Miscellaneous.

    

    (a)           Notices.  All
      notices hereunder shall be in writing and shall be deemed given when sent by
      mail, if to the Optionee, to the address set forth below or at the address
      shown
      on the records of the Company, and if to the Company, to the Company’s principal
      executive offices, attention of the Corporate Secretary.

    

    (b)           Entire
      Agreement; Modification.  This agreement constitutes the entire
      agreement between the parties relative to the subject matter hereof, and
      supersedes all proposals, written or oral, and all other communications between
      the parties relating to the subject matter of this agreement. This agreement
      may
      be modified, amended or rescinded only by a written agreement executed by both
      parties.

    

    (c)           Fractional
      Shares. If this option becomes exercisable for a fraction of a Share because
      of the adjustment provisions contained in the Plan, such fraction shall be
      rounded down.

    

    (d)           Issuances
      of Securities; Changes in Capital Structure. Except as expressly provided
      herein or in the Plan, no issuance by the Company of shares of stock of any
      class, or securities convertible into shares of stock of any class, shall
      affect, and no adjustment by reason thereof shall be made with respect to,
      the
      number or price of Shares subject to this option.  No adjustments need
      be made for dividends paid in cash or in 

     

    
      
         

      

      
         

        
          
-6-

      

      
         

      

    

    property
      other than securities of the Company. If there shall be any change in the Common
      Stock of the Company through merger, consolidation, reorganization,
      recapitalization, stock dividend, stock split, combination or exchange of
      shares, spin-off, split-up or other similar change in capitalization or event,
      the restrictions contained in this agreement shall apply with equal force to
      additional and/or substitute securities, if any, received by the Optionee in
      exchange for, or by virtue of his or her ownership of, Shares, except as
      otherwise determined by the Board.

    

    (e)           Severability.  The
      invalidity, illegality or unenforceability of any provision of this agreement
      shall in no way affect the validity, legality or enforceability of any other
      provision.

    

    (f)           Successors
      and Assigns.  This agreement shall be binding upon and inure to
      the benefit of the parties hereto and their respective successors and assigns,
      subject to the limitations set forth in Section 10 hereof.

    

    (g)           Governing
      Law.  This agreement shall be governed by and interpreted in
      accordance with the laws of the State of Delaware, without giving effect to
      the
      principles of the conflicts of laws thereof.

    

    

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Appendix
      A

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    To
      the
      extent that this option does not vest, the Shares shall be restored to the
      Company’s 2006 Equity and Incentive Plan pool.EXHIBIT 10.11
                                                                   -------------

                               SUTRON CORPORATION
                             STOCK OPTION AGREEMENT
                          (Non-qualified Stock Option)

         THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into
as of the 17th day of May 2006 by and between Sutron Corporation, a Virginia
corporation (the "Company"), and Andrew D. Lipman (the "Optionee").

         WHEREAS, the Board of Directors of the Company (the "Board") has
adopted and approved that certain Amended and Restated Sutron Corporation 2002
Stock Option Plan (the "Plan"), a copy of which has been provided to the
Optionee and which is incorporated by reference herein; and

         WHEREAS, pursuant to and in accordance with the provisions of the Plan,
the Board has determined that the Optionee is eligible to be granted an option
(the "Option") to acquire shares of the Company's Common Stock, $0.01 par value
per share (the "Stock"); and

         WHEREAS, Options granted under the Plan are not intended or designed to
qualify for Federal income tax treatment as incentive stock options under
Section 422 of the Internal Revenue Code of 1986 (the "Code"); and

         WHEREAS, the Optionee desires to be granted Options under the Plan; and

         WHEREAS, the Corporation and the Optionee desire to set forth herein
the terms of such Options.

         NOW, THEREFORE, in consideration of the foregoing, of the mutual
covenants set forth herein, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

         1. Grant of Option. The Company hereby grants to the Optionee the right
and option to purchase Five thousand (5,000) shares of Stock, subject to and in
accordance with the terms and conditions set forth in the Plan and in this
Agreement.

         2. Exercise Price. The Exercise Price to be paid for each share of
Stock to be acquired upon exercise of the Option granted hereunder is $7.80.
Such Exercise Price is equal to the Fair Market Value (as defined in the Plan)
of the Stock as of the date of grant of the Option.

         3. Transferability. The Option granted hereunder shall be exercisable
during the Optionee's lifetime only by the Optionee and shall not be assignable
or transferable other than by will or by the laws of descent and distribution
following the Optionee's death.
<PAGE>

         4. Exercise Terms; Vesting; Procedure.

                  (a) Except as provided in Section 6 hereof, the Option may be
exercised in whole or in part in accordance with the vesting schedule set forth
in Section 5 hereof, provided, however, that the Option shall not be exercisable
after the expiration of ten (10) years from the date of grant of the Option.

                  (b) In order to exercise the Option granted hereunder, the
Optionee shall deliver to the Secretary of the Company written notice stating
the Optionee's intent to exercise the Option, which notice shall specify:

                           (i) the name of the Optionee;

                           (ii) the Option to be exercised;

                           (iii) the number of shares of Stock to be purchased
                  pursuant to such exercise; and

                           (iv) the address to which certificates representing
                  the shares of Stock issuable upon exercise of the Option are
                  to be mailed.

                  (c) The Optionee's written notice shall be accompanied by a
certified check payable to the Company in the amount of the product of the
Exercise Price times the number of shares with respect to which the Option is
being exercised. The notice and payment shall be delivered in person or sent by
registered mail, return receipt requested, to the Secretary of the Company. The
Option shall be considered exercised on the date the notice and payment are
delivered to the Secretary or deposited in the mail, as the case may be. As
promptly as practicable after the Secretary's receipt of the notice of exercise
and payment, and the receipt of any certificates from the Optionee required by
the Company pursuant to Sections 8 and 9 hereof, the Company shall deliver to
the Optionee a certificate or certificates for the number of shares of Stock
with respect to which the Option has been exercised.

         5. Vesting. The Option shall vest ratably over the one year period
beginning May 17, 2006 and ending May 16, 2007.

         6. Effect of Termination of Employment, Disability or Death. The
following provisions shall govern the exercise of any Options held by an
Optionee at the time the Optionee ceases to be an employee of the Company,
suffers a Disability, or dies.

                  6.1 Termination of Employment. In the event that the Optionee
ceases to be an employee of the Company for any reason other than Disability or
death, then the period during which each outstanding Option held by such
Optionee is to remain exercisable shall be limited to the ninety (90) day period
following the date of termination of employment. Under no circumstances,
however, shall any such Option be exercisable after the specified expiration
date

                                       2
<PAGE>

of the Option term. Any outstanding Option may not be exercised in the aggregate
for more than the number of vested shares for which the Option is exercisable on
the date of the termination of employment, and such Option shall terminate and
cease to be outstanding with respect to any Option shares for which the Option
is not at that time exercisable or in which the Optionee is not otherwise at
that time vested.

                  6.2 Disability. In the event that the Optionee ceases to be an
employee of the Company by reason of a Disability, then the period during which
each outstanding Option held by such Optionee is to remain exercisable shall be
limited to a period of one (1) year following the date of termination of
employment due to Disability. Under no circumstances, however, shall any such
Option be exercisable after the specified expiration date of the Option term as
set forth in the Option Agreement. Any outstanding Option may not be exercised
in the aggregate for more than the number of vested shares for which the Option
is exercisable on the date of the termination of employment due to Disability,
and such Option shall terminate and cease to be outstanding with respect to any
Option shares for which the Option is not at that time exercisable or in which
the Optionee is not otherwise at that time vested.

                  6.3 Death. In the event that the Optionee dies while holding
one or more outstanding Options, then the period during which each outstanding
Option held by such Optionee is to remain exercisable shall be limited to a
period of one (1) year following the date of the Optionee's death. During such
limited period, the Option may be exercised by the personal representative of
the Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution. Under no circumstances, however, shall any such Option
be exercisable after the specified expiration date of the Option term. Any
outstanding Option may not be exercised in the aggregate for more than the
number of vested shares for which the Option is exercisable on the date of the
death of the Optionee, and such Option shall terminate and cease to be
outstanding with respect to any Option shares for which the Option is not at
that time exercisable or in which the Optionee is not otherwise at that time
vested.

         7. Adjustments to Upon Certain Events. In the event that any change is
made to the Stock issuable under the Plan and the Option granted hereunder by
reason of stock split, stock dividend, recapitalization, combination of shares,
exchange of shares, repurchase, merger, consolidation, spin-off or other change
affecting the outstanding Stock as a class, the Board shall make appropriate
adjustments to the maximum number of shares and/or class of shares, and the
number of shares and/or class of shares and the exercise price per share in
effect under the Option, in order to prevent the dilution or enlargement of
benefits thereunder. Any adjustments made by the Board pursuant to this Section
7 shall be final, binding and conclusive. Neither the existence nor the terms of
the Plan or this Agreement, nor the grant of any Option hereunder, shall affect
the right or power of the Company to make any adjustments, reorganizations,
reclassifications or other changes to its capital structure or to merge,
consolidate, dissolve, liquidate, sell or transfer any or all of its assets or
otherwise change its business structure.

         Except as expressly provided above, the issuance by the Company of
shares of stock of

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<PAGE>

any class, for cash or property, or for labor or services, either upon direct
sale or upon the exercise of rights, warrants or options to subscribe therefor,
or upon conversions of shares or obligations of the Company convertible into
such shares or other securities, shall not affect the number, class or exercise
price of shares of Stock then subject to the Option, and no adjustment shall be
made by reason thereof.

         8. Requirements of Law. The Company shall not be required to sell or
issue shares of its Stock under the Option if the sale or issuance would
constitute a violation by the Optionee or the Company of any provisions of any
state or federal law, rule or regulation. In addition, in connection with the
Securities Act of 1933, as amended, upon exercise of the Option, the Company
shall not be required to issue such shares of Stock unless the Company has
received evidence satisfactory to it to the effect that the Optionee will not
transfer such shares except pursuant to a registration statement in effect under
the Securities Act of 1933, as amended, or unless an opinion of counsel to the
Company has been received to the effect that such registration is not required.
Any determination in this regard by the Company shall be final, binding and
conclusive. Certificates representing shares of Stock issued pursuant to the
exercise of the Option will be subject to such stop-transfer orders and other
restrictions as may be applicable under federal and state laws, regulations and
rules, or the requirements of any securities exchange or automated quotation
system. In the event the shares issuable on exercise of the Option are not
registered under the Securities Act, the Company may imprint the following
legend or any other legend which counsel to the Company considers necessary or
advisable:

         "The shares of Stock represented by this certificate have not been
         registered under the Securities Act of 1933 or under the securities
         laws of any state and may not be sold or transferred except upon such
         registration or upon receipt by the Company of an opinion of counsel
         satisfactory to the Company that registration is not required for such
         sale or transfer."

         The Corporation may, but shall in no event be obligated to, register
any securities covered hereby pursuant to the Securities Act of 1933; and in the
event any shares are so registered, the Company may, in its discretion, remove
any legend on certificates representing such shares. The Company shall not be
obligated to take any other affirmative action in order to cause the exercise of
the Option or the issuance of shares pursuant thereto to comply with any state
or federal law or regulation.

         9. Investment Purpose. The Optionee agrees that any shares of Stock
subject to the Option granted hereunder will be acquired for investment and not
with any present intention to resell the same, and the Optionee further agrees
to confirm such intention by an appropriate written assurances and certificates
at the time of exercising an Option or any portion thereof.

         10. Withholding. The Company's obligation to deliver shares of Stock
upon exercise of the Option shall be subject to any and all applicable federal,
state and local tax withholding and reporting requirements.

                                       4
<PAGE>

         11. No Rights as Shareholder. The Optionee shall have no right as a
shareholder with respect to the Stock covered by the Option until the date of
issuance of Stock Certificates for such Stock to the Optionee.

         12. No Employment Obligation. The granting of any Option shall not
impose upon the Company any obligation to employ the Optionee. The right of the
Company to terminate the employment of the Optionee shall not be diminished or
affected by reason of the fact that an Option has been granted hereunder to the
Optionee.

         13. General Provisions.

                  (a) This Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors and assigns.

                  (b) This Agreement shall be construed in accordance with, and
shall be governed by, the laws of the Commonwealth of Virginia.

                  (c) No waiver by any party hereto of any breach of any
covenant, condition or agreement hereof shall be considered to constitute a
waiver of any such covenant, condition or provision, or of any subsequent breach
thereof.

                  (d) In the event any court of competent jurisdiction shall
declare any portion of this Agreement to be invalid, the remainder of this
Agreement shall not be invalidated thereby, but shall remain in full force and
effect.

(e) Unless otherwise provided in this Agreement, no notice or other
communication which may be or is required or permitted to be given under this
Agreement shall be effective unless the same is in writing and is either hand
delivered or sent by registered or certified mail, return receipt requested,
first-class postage prepaid, (1) if to the Optionee, 8513 Country Club Drive
Bethesda, Maryland 20817, and (2) if to the Company, to Sutron Corporation.,
Attn: Secretary, 21300 Ridgetop Circle, Sterling, VA 20166, or at any other
address that may be given by one party to the other party by notice pursuant to
this paragraph 6(e), with a copy to the law firm of Shulman, Rogers, Gandal,
Pordy & Ecker, P.A., 11921 Rockville Pike, Third Floor, Rockville, Maryland
20852. Unless otherwise provided in this Agreement, such notices, or other
communications, if sent by registered or certified mail in accordance with this
paragraph 6(e), shall be deemed to have been given at the time of mailing.

                  (f) Where the text requires, words in the singular shall be
deemed to include the plural and vice-versa, and words in one gender shall be
deemed to include all genders.

                  (g) Any headings preceding the text of the sections or
sub-sections in this Agreement are inserted solely for convenience of reference
and shall not constitute a part of this Agreement, nor shall they affect its
meaning, construction or effect.

                                       5
<PAGE>

                  (h) The Option granted pursuant hereto is not intended or
designed to qualify for federal income tax treatment as an incentive stock
option under Section 422 of the Code.

                  (i) The Options are subject to all terms, conditions,
limitations and restrictions contained in the Plan, which shall be controlling
in the event of any conflicting or inconsistent provisions between this
Agreement and the Plan.

         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and sealed by its duly authorized officers, and the Optionee has
executed and sealed this Agreement, all as of the day and year first above
written.

ATTEST:                                THE COMPANY:
                                       SUTRON CORPORATION

/s/ Sidney C. Hooper                   By: /s/ Raul S. McQuivey
--------------------------------          ----------------------------------
Name: Sidney C. Hooper                     Name: Raul S. McQuivey
Title: Chief Financial Officer             Title: President

WITNESS:                               THE OPTIONEE:

/s/ Thomas N. Keefer                       /s/ Andrew D. Lipman
--------------------------------          ----------------------------------
Name: Thomas N. Keefer                     Name: Andrew D. Lipman

                                       6

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