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SB-2/A

August 23, 1996

SB-2/A: Optional form for registration of securities to be sold to the public by small business issuers

Published on August 23, 1996



EXHIBIT 10.3


CONFIDENTIAL TREATMENT REQUESTED



CONFIDENTIAL

PROJECT II

RESEARCH AGREEMENT

BETWEEN

THE UNIVERSITY OF WASHINGTON AND THE WASHINGTON TECHNOLOGY CENTER

AND

MICRO VISION, INC.


This AGREEMENT is entered into as of the 23 day of October, 1993 (hereinafter
the "EFFECTIVE DATE" by and between the University of Washington, a public
institution of higher education with offices at Seattle, Washington 98195,
hereinafter referred to as "UW", The Washington Technology Center, an agency of
the State of Washington headquartered at the University of Washington, 300 Fluke
Hall, FJ-15, Seattle, Washington 98195 (hereinafter "WTC") and MICRO VISION,
INC., having a place of business at 6500 Columbia Center, 701 Fifth Avenue,
Seattle, WA 98104-7003 (hereinafter "MICRO VISION").

WHEREAS, UW and WTC have an active research program concerning development of a
Virtual Retinal Display funded in part by Mrss. David Hunter, Caisey Harlingten,
and George Hatch (known collectively as "The H. Group") under a previous
agreement entitled "PROJECT I Research Agreement Between the University of
Washington and the Washington Technology Center and THE H. GROUP" (hereinafter
"PROJECT I") wherein this AGREEMENT was attached thereto as "Attachment C";

WHEREAS, THE H. GROUP has properly assigned its option rights granted to them
under the PROJECT I AGREEMENT to MICRO VISION, the new company to be formed by
THE H. GROUP as contemplated by the PROJECT I AGREEMENT.

WHEREAS, MICRO VISION remains interested in that research and wishes to continue
to encourage and support certain aspects of the research by entering into this
AGREEMENT;

WHEREAS, UW, WTC and MICRO VISION desire to combine their mutual interest in
this research;

WHEREAS, MICRO VISION is a start-up company located in, operating in, and
preferably, incorporated in, Washington State, formed as a result of the
undertaking of THE H. GROUP as described in the PROJECT I AGREEMENT referenced
herein, in order to CONCURRENTLY HEREWITH accept a license to the UW PROPRIETARY
MATTER (defined below) and to commercialize the results of PROJECT II (defined
below);


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NOW, THEREFORE, in consideration of the above and the mutual covenants, terms,
and conditions set forth below, UW, WTC and MICRO VISION agree as follows:

1.0 DEFINITIONS

1.1 Terms defined in this Article, and parenthetically defined elsewhere
in this AGREEMENT, shall throughout this AGREEMENT have the meaning provided.
Defined terms may be used in the singular or in the plural, as sense shall
require. Terms defined in this Article and throughout this AGREEMENT will be
printed in capital letters for ease of reference.

1.2 "PARTIES" means MICRO VISION (as the sponsoring PARTY), UW, and WTC
including their AFFILIATES, successors or assigns as permitted by this
AGREEMENT, and "PARTY" means either one of them as the context where such terms
is used indicates.

1.3 "AFFILIATE" means any corporation, company, new start-up company, or
other business entity (including any joint venture, partnership, form of
association or otherwise) located in, and operating in, and preferably,
incorporated in, Washington State and directly or indirectly controlling,
controlled by, or under common control with MICRO VISION; "control" of an entity
for purposes of this definition shall mean having the right to direct or to
appoint or remove a majority or more of the members of the board of directors
(or their equivalent) or management (including the president, chairman of the
board, or general or managing partner as applicable) of said entity, by
contract, agreement, provisions in the applicable articles or bylaws, ownership
of or holding rights to vote sufficient numbers of voting shares, securities or
other rights entitled to vote for, appoint, or remove the same, or having such
right to so direct or appoint the same by applicable law.

1.4 "This AGREEMENT" means this Research Agreement, including all
Enclosures which are made a part hereof, which includes the EXCLUSIVE LICENSE
AGREEMENT, as amended in writing by the PARTIES from time to time.

1.5 "EFFECTIVE DATE" means the date referenced in the Preamble above. The
EFFECTIVE DATE takes effect upon signature of this AGREEMENT by the PARTIES
hereto.

1.6 "PRINCIPAL INVESTIGATOR" means the individual indentified in Paragraph
3.3 of this AGREEEMENT, or any successor to such individual pursuant to
Paragraph 3.3.

1.7 "UW RESEARCHERS" means any and all technical or other personnel (who
may or may not be AFFILIATED with UW as either faculty, students, or pre- or
post-doctoral candidates, fellows, physicians, nurses, scientists, or employees)
who are designated or used by UW to perform, render, or supervise any services,
research, or assistance related to PROJECT II, including the PRINCIPAL
INVESTIGATOR.



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1.8 "PROJECT I" means the "Project I Research Agreement" referenced in the
Preamble above.

1.9 "PROJECT II" means this Agreement and the project described in
Enclosure I attached to and made a part of this AGREEMENT.

1.10 "EXCLUSIVE LICENSE AGREEMENT" shall mean a license to MICRO VISION
under the terms and conditions, entitled "EXCLUSIVE LICENSE AGREEMENT Between
The University of Washington and MICRO VISION".

1.11 "TECHNICAL INFORMATION" shall mean any technical facts, data, or
advice, written or oral (in the form of information contained in patents and
patent applications, reports, letters, drawings, specifications, testing
procedures, training and operational manuals, bills of materials, photographs
and the like) relating to the VRD and owned or in the possession of UW.

1.12 "UW INVENTION" means any PATENTABLE or PATENTED new and useful
process, machine, manufacture or composition of matter conceived solely by UW at
any time during the course of, and as a direct result of, PROJECT II (whether or
not reduced to practice).

1.13 "UW PATENTS" means:

a) The UW BACKGROUND RIGHTS patents consisting of the United States
Patent(s) and any Patents issued from the United States Patent
Application(s) listed in Enclosure 3 below, together with all
corresponding foreign patents filed or issued during the term of
this AGREEMENT which relate to the VRD, and all reissues,
divisionals, continuations, and continuations in part thereof;
and/or

b) all U.S. and foreign utility and design PATENTs and PATENT
applications (including any divisionals, continuations,
continuations in part, reexaminations, extensions, renewals, or
reissues thereof), design registrations, utility models and
similar rights and applications therefor arising from this
AGREEMENT.

1.14 "UW BACKGROUND RIGHTS" means PATENTED, UNPATENTED, UNPATENTABLE,
COPYRIGHTED, UNCOPYRIGHTED and/or UNCOPYRIGHTABLE information, discoveries,
data, processes, computer projects, source code, object code, documentation
or other TECHNICAL INFORMATION in tangible form necessary to be employed in
PROJECT II, not arising directly from PROJECT II, but to which UW has
acquired rights based on the results of UW or efforts separately from
PROJECT II (whether or not such development is prior to or concurrently with
the efforts of PROJECT II). Enclosed 3 provides a list, as of the EFFECTIVE
DATE of this AGREEMENT, of UW BACKGROUND RIGHTS which UW AND WTC believes
shall be employed in PROJECT II, which contribute to PROJECT II, or which
form a portion of or all of the rights necessary for MICRO VISION to produce
LICENSED PRODUCTS during or at the conclusion of PROJECT II. UW BACKGROUND
RIGHTS shall not include any inventions, discoveries

PAGE 4

or information which are subject to any contractual obligation exclusively
between UW and any third PARTY or between WTC and any third Party.

1.15 "COPYRIGHTS" means all registered and unregistered statutory copyright
rights and applications for registration thereof and all common law COPYRIGHTS,
and includes DERIVATIVE WORKS of or assigned to UW created as a result of this
AGREEMENT.

1.16 "DERIVATIVE WORKS" means a work created based on incorporating the
results hereunder in whole or in part, including but not limited to
translations, abridgments, condensations, improvements, updates, enhancements,
or any other form in which the results hereunder may be recast, transformed,
adapted or revised in whole or in part.

1.17 "UW PROPRIETARY MATTER" means any combination of COPYRIGHTABLE or
COPYRIGHTED work, UW PATENTS, UW INVENTIONS and TECHNICAL INFORMATION.

1.18 "CONFIDENTIAL INFORMATION" means confidential information or data
disclosed to a PARTY (the "RECEIVING PARTY") in connection with PROJECT II by
the other PARTY (or, with respect to MICRO VISION, by its AFFILIATE) (the
"DISCLOSING PARTY"), including without limitation trade secrets, algorithms,
processes, formulae, programming, TECHNICAL INFORMATION, programming concepts
and methods, source code and accompanying comments and documentation which allow
understanding thereof, product specifications and procedures or operation, and
all records, models, prototypes, other media containing or disclosing such
information or data, EXCEPT, any such information that (i) is already or becomes
generally available to the public free from any confidentiality obligations
through no breach of any confidentiality obligation under this AGREEMENT by the
RECEIVING PARTY (provided, however, that information shall not be deemed
generally available to the public merely because any part of that information is
embodied in general disclosures or because individual features or components, or
a combination thereof, are now or become generally available to the public),
(ii) is already known by the RECEIVING PARTY (or, with respect to MICRO VISION,
by its AFFILIATE), without any confidentiality obligation to the DISCLOSING
PARTY, prior to receipt from the DISCLOSING PARTY, (iii) is independently
developed by the RECEIVING PARTY (or, with respect to MICRO VISION, by its
AFFILIATE), without use of CONFIDENTIAL INFORMATION of the DISCLOSING PARTY,
(iv) is independently disclosed to the RECEIVING PARTY (or, with respect to
MICRO VISION, to its AFFILIATE) by a source other than the DISCLOSING PARTY
which source is under no obligation to maintain the confidentiality thereof
(provided that the RECEIVING PARTY shall not disclose any such information
regardless of the source if the RECEIVING PARTY knows or has reason to know that
such information should be kept confidential), or (v) is required by a court or
governmental agency to be disclosed to it by the RECEIVING PARTY (or, with
respect to MICRO VISION, by its AFFILIATE) in connection with any proceeding
over which such agency or authority has jurisdiction, provided that the
RECEIVING PARTY (or, with respect to MICRO VISION, its AFFILIATE) shall use its
best efforts to obtain confidential treatment of such information by the court
or agency



PAGE 5

and shall accompany its disclosure to the court or agency with written notice of
the DISCLOSING PARTY's proprietary rights therein.


2.0 EXERCISE OF EXCLUSIVE FUNDING OPTION

2.1 The PARTIES hereby agree and acknowledge that MICRO VISION is entering
into this AGREEMENT only through exercise of its EXCLUSIVE FUNDING OPTION as
provided for in the PROJECT I AGREEMENT.

2.2 Consistent with the terms of the aforementioned EXCLUSIVE or
NONEXCLUSIVE FUNDING OPTION, the PARTIES agree to enter into the EXCLUSIVE
LICENSE AGREEMENT concurrently with entering into this Agreement.


3.0 PROJECT II

3.1 UW will conduct PROJECT II as described in the proposal entitled
"DEVELOPMENT OF A COMMERCIALLY-VIABLE VIRTUAL RETINAL DISPLAY" ( hereinafter the
"PROPOSAL"), a copy of which is attached hereto as Enclosure 1. PROJECT II will
be carried out substantially in accordance with the PROPOSAL'S Scope of Work
Statement and Schedule, and the results will be delivered in the form of a final
report. PROJECT II may be extended under mutually acceptable terms by the
written agreement of MICRO VISION UW, and WTC.

3.2 As an independent agent, UW will apply its reasonable efforts to meet
and complete the research described in the PROPOSAL for the purpose of
developing a commercially viable VRD. Commonly accepted professional standards
of workmanship will be followed.

3.3 The PRINCIPAL INVESTIGATOR for PROJECT II will be Professor Thomas A.
Furness who shall lead, supervise and/or perform substantially all research and
investigations under PROJECT II, select and supervise other PROJECT II
Participants, as needed and certify all progress reports and the final report
under this AGREEMENT. The PRINCIPAL INVESTIGATOR will be the primary contact on
behalf of UW and WTC in the performance of all research and development and
activities under this AGREEMENT. Other persons can be substituted for the
PRINCIPAL INVESTIGATOR with approval of MICRO VISION. If for any reason,
Professor Furness or any successor PRINCIPAL INVESTIGATOR hereunder is unable or
unwilling to continue as the PRINCIPAL INVESTIGATOR, UW shall immediately notify
MICRO VISION and suspend further activities or expenditures under PROJECT II
until a successor acceptable to MICRO VISION has been found by UW to succeed
Professor Furness as the PRINCIPAL INVESTIGATOR. Upon acceptance of a successor
by MICRO VISION and WTC, such successor will become the PRINCIPAL INVESTIGATOR
under this AGREEMENT. Alternatively, if Professor Furness is unable or
unwilling to continue or UW is unable within a reasonable period of time to find
an acceptable successor, MICRO VISION shall have the option, upon written notice
to UW and WTC, to



PAGE 6

immediately terminate PROJECT II and this AGREEMENT pursuant to the terms of
Article 9 below.

3.4 Control of PROJECT II will rest entirely with UW as delegated to the
PRINCIPAL INVESTIGATOR. MICRO VISION and WTC will serve in an advisory role
which may include recommendations to accelerate efforts in more promising areas
or to discontinue fruitless efforts. Title to all equipment, materials and
supplies purchased under PROJECT II shall vest in UW upon purchase.

3.5 PROJECT II performance period will begin as of the EFFECTIVE DATE and
shall continue for Four (4) Years thereafter (coincident with the TERM of this
AGREEMENT set forth in Article 9 below). This period may be amended by mutual
agreement in writing by authorized representatives of UW, WTC and MICRO VISION.

3.6 In consideration of the performance by UW of its obligations in
accordance with the terms and conditions of this AGREEMENT, MICRO VISION agrees
to fund the research and development to be carried out by the PRINCIPAL
INVESTIGATOR under PROJECT II, in the amount of Five Million One Hundred Thirty
Three Thousand Five Hundred Dollars ($5,133,500.00) to be applied generally in
keeping with the estimated budget shown in Enclosure 2. MICRO VISION shall pay
such funding to UW in sixteen (16) installments of three hundred twenty thousand
eight hundred forty three dollars and seventy five cents ($320,843.75) each.
MICRO VISION shall pay the first installment upon the EFFECTIVE DATE of this
AGREEMENT and shall pay each additional installment every 3 months (quarterly)
during the TERM of this AGREEMENT. UW will invoice MICRO VISION for payments
thirty (30) days in advance of the first quarterly payment. Invoicing will be
done for payment on the first day of each month of the applicable quarter. In
addition, MICRO VISION will, as of the EFFECTIVE DATE, make separate payments
for the patent costs stipulated in Article 6 below.

3.7 MICRO VISION' checks for THE RESEARCH FUNDING should be payable to the
University of Washington and sent to:

Director, Grant and Contract Accounting,
Mail Stop ND-22
University of Washington
Seattle, WA 98195

3.8 MICRO VISION' checks for PAYMENT OF PATENT EXPENSE REIMBURSEMENTS
stated in Article 6 should be payable to the University of Washington and sent
to:

Director, Office of Technology Transfer
Mail Stop JD-50
University of Washington
Seattle, WA 98195


4.0 PROJECT II REPORTS AND REVIEWS



PAGE 7

4.1 It is agreed that UW and WTC, through the PRINCIPAL INVESTIGATOR, will
maintain continuing communication with a designated liaison of MICRO VISION.
The reporting frequency shall be no less than four times per year and reporting
shall be accomplished by written reports and/or meetings with MICRO VISION. UW,
WTC and PRINCIPAL INVESTIGATOR shall, during regular business hours, provide
MICRO VISION with access to all ongoing research and PROJECT II results,
including (without limitation) access to UW researchers, WTC and UW facilities
and premises where such research is being conducted. UW and WTC shall provide
responses to any questions by MICRO VISION, provide written status reports of
all research performed hereunder and results achieved, and meet from time to
time with MICRO VISION. MICRO VISION may elect to visit all sites where PROJECT
II's activities are being conducted to review progress and work to date and to
take copies or extracts of documents resulting from or describing PROJECT II
activities.

4.2 The PRINCIPAL INVESTIGATOR shall meet with MICRO VISION in or about
Seattle, Washington or by telephone from time to time as requested by MICRO
VISION, or as may be necessary to discuss progress under PROJECT II as well as
any questions, problems or difficulties anticipated or encountered on PROJECT
II.

4.3 The contact person for MICRO VISION on the conduct of PROJECT II shall
be Mr. David Hunter or such other person as MICRO VISION may designate from time
to time by notifying UW and WTC in writing.

4.4 Prior to the end of each three (3) month period, UW, WTC, and MICRO
VISION will review the progress being made in the technology development, at
which time one of three decisions can be made:

a) continue the effort as currently planned;

b) adjust the effort with negotiated cost and schedule changes; or

c) cancel the effort, pursuant to the terms of Article 9,
Termination.


5.0 PROPRIETARY RIGHTS

5.1 Title to any UW PROPRIETARY MATTERS will vest in UW.

5.2 MICRO VISION will not, by performance under THIS AGREEMENT, obtain any
ownership interest in UW PROPRIETARY MATTERS or any other proprietary rights or
information of UW, its officers, inventors, employees, students, or agents,
except pursuant to THIS AGREEMENT, the EXCLUSIVE LICENSE Agreement, or other
written instrument between the PARTIES.

6.0 INVENTIONS, PATENT PROSECUTION AND COST RECOVERY

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6.1 Within six (6) months after receipt by UW from the PRINCIPAL
INVESTIGATOR or UW RESEARCHERS of a formal disclosure of a UW INVENTION or
COPYRIGHTABLE work (hereinafter the "UW INVENTION DISCLOSURE"), UW shall
disclose to MICRO VISION and WTC, in reasonable written detail, information
relating to such UW INVENTION DISCLOSURE.

6.2 MICRO VISION, within ninety (90) days of receiving a UW INVENTION
DISCLOSURE, shall determine whether to request UW to file and prosecute any
PATENT application(s), domestic or foreign, on the UW INVENTIONS described in
such UW INVENTION DISCLOSURE and/or shall determine to request UW to file for
any COPYRIGHT registrations with respect to the copyrighted or copyrightable
works described in such UW INVENTION DISCLOSURE; provided, however, that UW of
its own accord may elect to file and prosecute a PATENT application or
COPYRIGHT registration at its own expense prior to being requested by MICRO
VISION to do so (in order to comply with U.S. or foreign patent law
requirements) or UW may, in consultation with and through participation by WTC,
file in the event MICRO VISION should fail to request UW to do so. If UW files
any such patent or copyright registration prior to being requested by MICRO
VISION, and provided that MICRO VISION has not failed to notify UW pursuant to
the terms described above, MICRO VISION may still request UW to continue the
prosecution on MICRO VISION'S behalf provided that such "request" is made by
MICRO VISION to UW within ninety (90) days of UW's notification to MICRO VISION
of any such UW INVENTION DISCLOSURE. If requested, UW shall be obliged to file
all such PATENT applications and/or COPYRIGHT registrations, and thereafter
diligently prosecute and maintain all such applications and/or registrations.
MICRO VISION shall pay all reasonable costs associated with the filing and
prosecution of any PATENT application which it has properly requested UW to
make. MICRO VISION agrees to pay invoices for such fees and costs submitted by
UW within sixty (60) days of receipt of any such invoice from UW. Such UW
INVENTION DISCLOSURES elected by MICRO VISION to pursue for patenting or
copyright registration shall be thereafter included as UW PROPRIETARY MATTER
and subject to the terms of the EXCLUSIVE LICENSE AGREEMENT signed concurrently
herewith this AGREEMENT.

6.3 UW shall have sole control of the selection of counsel, preparation,
filing, prosecution and maintenance, of any applications for PATENTS or
COPYRIGHT registrations for UW PROPRIETARY MATTERS, and examinations thereof,
of any validity, opposition or re-examination proceedings related thereto, and
of the settlement or disposition of all matters related thereto (including the
renewal, defense of assertion thereof); UW shall have no liability or
obligation to MICRO VISION with respect to its exercise of discretion or
handling of such matters, except to make such report and respond to MICRO
VISION'S comments or requests, as may be appropriate.

6.4 UW shall keep MICRO VISION and WTC informed of the status of any and
all patents and patent applications comprising UW's PATENTS, and shall provide
MICRO VISION with the opportunity from time to time to advise UW on courses of
action respecting the filing of new patent applications relating to the
INVENTION, prosecution of PATENT applications, and management of PATENTS.



Page 9


6.5 In the event that MICRO VISION determines that it does not desire to
reimburse UW, or fails for any reason to reimburse UW, for UW PATENT fees
incurred under Paragraph 6.2 above, it will promptly notify UW of its decision
and UW shall thereafter have the sole and exclusive right to file and/or
maintain any such PATENT and/or PATENT application, either foreign or
domestic, at its own expense; and, any patent issued or issuing therefrom shall
not be included among THE LICENSED SUBJECT MATTER (defined in the EXCLUSIVE
LICENSE AGREEMENT) rights unless this AGREEMENT shall be amended, in writing,
to include such patent. MICRO VISION, WTC and UW agree to cooperate in filing
patent applications in UW's name on any such UW INVENTION and/or improvement
where MICRO VISION declines to proceed in its own name and at its own expense.


7.0 CONFIDENTIALITY

7.1 CONFIDENTIAL INFORMATION in connection with this AGREEMENT of MICRO
VISION or its AFFILIATES shall not, except as provided herein, be disclosed or
made available to the UW RESEARCHERS, WTC or any other persons. However,
subject to UW's rights to inventions developed by employees, and further
subject to UW's policies regarding employee consulting, MICRO VISION may
request the PRINCIPAL INVESTIGATOR, other UW RESEARCHERS, WTC and any other
persons towards whom MICRO VISION wishes to share its own CONFIDENTIAL
INFORMATION, or share MICRO VISION PROPRIETARY MATTERS, to sign separate
written agreements with MICRO VISION to maintain in confidence the CONFIDENTIAL
INFORMATION provided by or belonging solely to MICRO VISION or any AFFILIATE
and acknowledging the rights of MICRO VISION or any AFFILIATE.

7.2 MICRO VISION shall not disclose UW or WTC CONFIDENTIAL INFORMATION
(information received by UW or WTC acting as the DISCLOSING PARTY) except as
provided for in Paragraph 1.18.

7.3 UW reserves the right to publish the results of all research by
PROJECT II Participants under this AGREEMENT including UW CONFIDENTIAL
INFORMATION. However, in order to protect any material of a proprietary nature
which may be included in any proposed publication, MICRO VISION may receive
copies of manuscripts prior to their publication or presentation. At UW's
discretion, MICRO VISION may be granted delay of the proposed publication for a
period not to exceed three (3) months from the date of submission of the paper
to MICRO VISION, provided that MICRO VISION provides to UW and WTC an
explanation for its reason to delay, in writing within fourteen (14) days
following the date of submission of the paper to MICRO VISION.


8.0 RESOLUTION OF DISPUTES

8.1 MICRO VISION, UW, and WTC agree that, in the event of a dispute
between them arising from, concerning, or in any way related to this AGREEMENT,
the



Page 10

PARTIES shall undertake good faith efforts to resolve the matter amicably
between themselves.

8.2 In the event an action is commenced to enforce a PARTY's rights under
this AGREEMENT, the prevailing PARTY in such action shall be entitled to
recover its reasonable costs and attorney's fees.


9.0 TERM AND TERMINATION

9.1 This AGREEMENT will be effective on the EFFECTIVE DATE and shall
continue for Four (4) years thereafter. This period may be amended by mutual
written agreement by authorized representatives of UW, WTC and MICRO VISION
unless sooner terminated in accordance with the provisions set forth in this
AGREEMENT.

9.2 MICRO VISION may terminate this AGREEMENT with or without cause by
giving thirty (30) days' written notice to UW and WTC. In the event of such
termination, UW will cease further obligation of funds and will take all
reasonable steps to cancel or reduce outstanding obligations incurred under
this Agreement. MICRO VISION will be responsible for all expenditures
and non-cancelable commitments through the date of termination.

9.3 Termination of this AGREEMENT by either PARTY shall immediately cause
the "ACTUAL LICENSE FEE" to be calculated by UW, and become due and payable by
MICRO VISION pursuant to the terms of Article 8 (Licensing Fees and Royalty) of
the EXCLUSIVE LICENSE AGREEMENT.

9.4 Upon failure of MICRO VISION to cure a material breach of this
AGREEMENT within thirty (30) days after a written demand for performance, UW
(in consultation with WTC) shall have the right at any time to terminate this
AGREEMENT by written notice to MICRO VISION.

9.5 The provisions under which this AGREEMENT may be terminated shall be
in addition to any and all other legal remedies which either PARTY may have for
the enforcement of any and all terms hereof, and do not in any way limit any
other legal remedy such PARTY may have.

9.6 Termination by UW or MICRO VISION shall not relieve MICRO VISION from
any financial obligation to UW accruing prior to or after termination or from
performing according to any and all other provisions of this AGREEMENT
expressly agreed to survive termination.

9.7 Without affecting or limiting any other provisions of THIS AGREEMENT,
it is agreed that each PARTY's rights and obligations referenced herein
pertaining to the EXCLUSIVE LICENSE AGREEMENT shall survive any expiration or
termination of this PROJECT II AGREEMENT.



Page 11

10.0 WARRANTY AND REPRESENTATION

10.1 Nothing in this AGREEMENT shall be construed as:

a) a representation or warranty by UW or WTC as to the
patentability, validity or scope of any of UW's PROPRIETARY
MATTER;

b) a warranty or representation that anything made, used, sold or
otherwise disposed of under any license granted in this
AGREEMENT is or will be free from infringement of PATENTS or
proprietary rights of third parties; or,

c) an obligation to bring or prosecute actions or suits against
third parties for infringement.

10.2 UW represents that it has performed prior art patent and literature
searches pertaining to the Virtual Retinal Display patent application and that,
to the best of UW's knowledge, UW believes the Virtual Retinal Display patent
application does not infringe the rights of other third parties. UW will make
copies of such prior art searches available to MICRO VISION upon request.


10.3 MICRO VISION represents that it is a company formed to further
develop the Virtual Retinal Display into a commercially viable product, and
that it is and will take good faith efforts towards that end. MICRO VISION
understands UW and WTC's concerns regarding the competitive atmosphere for
products similar to the Virtual Retinal Display, and agrees with UW and WTC's
concerns regarding the potential for a licensee to "buy out" the rights of a
licensor in order to keep a product OFF the market to thereby benefit
another's product. To this end, MICRO VISION specifically represents and
warrants that at no time will it take actions intended to defeat, delay,
suspend, or otherwise prevent the Virtual Retinal Display from attaining
commercial viability as soon as reasonably possible within the scope of time
presented by the Project I and Project II Research Agreements.

10.4 Except as expressly set forth in this AGREEMENT, UW and WTC MAKE NO
REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF ANY UW PROPRIETARY MATTER
OR ANY LICENSED PRODUCT(S) WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK,
OR OTHER RIGHTS. UW and WTC MAKES NO REPRESENTATIONS AS TO THE USEFULNESS OF
UW INVENTIONS(S): IF MICRO VISION CHOOSES TO EXPLOIT IT IN ANY MANNER
WHATSOEVER, MICRO VISION DOES SO AT ITS OWN RISK.

10.5 UW represents that Mr. Donald Allen or Mr. Joel Searles is authorized
to sign THIS AGREEMENT on behalf of UW.

Page 12

10.6 WTC represents that Dr. Robert Center is authorized to sign THIS
AGREEMENT on behalf of WTC.

10.7 MICRO VISION represents that Mr. David Hunter and/or Mr. Caisey
Harlingten are authorized to sign THIS AGREEMENT on behalf of MICRO VISION.

10.8 Notwithstanding anything stated verbally or in writing to MICRO
VISION or THE H. GROUP by the PRINCIPAL INVESTIGATOR or by other UW
RESEARCHERS for the PROJECT I or PROJECT II RESEARCH AGREEMENTS, and
notwithstanding any statements made in the attached PROPOSAL, MICRO VISION
understands that UW's obligations under this AGREEMENT pertaining to results
of research conducted in accordance with the PROPOSAL are limited to the
conduct of work as outlined in Article 3 and reports as outlined in Article
4. MICRO VISION further understands that neither UW nor WTC make any implied
or express promises or warranties to provide or supply to MICRO VISION
tangible deliverables resulting from the research outlined in the PROPOSAL
including but not limited to prototypes, hardware or software in any form.
MICRO VISION further understands that UW is undertaking original research and
development, that UW cannot and does not warrant that it will achieve results
favorable or unfavorable to the commercialization goals of MICRO VISION, and
that UW intends to report either favorable or unfavorable results as the
research outlined in the PROPOSAL progresses. MICRO VISION further
understands that the PRINCIPAL INVESTIGATOR also serves as a principal
investigator or researcher for other research projects, and has other
academic, administrative, and research duties outside the scope of this
AGREEMENT consistent with his employment obligations at UW. MICRO VISION
further understands that its options for responding to unfavorable research
results are only as provided for in this AGREEMENT.

11.0 MISCELLANEOUS

11.1 All monies under this AGREEMENT shall be made in U.S. dollars by
check or money order payable to the University of Washington and sent to the
address indicated in Paragraph 11.2 (Notices).

11.2 Unless otherwise specified under this AGREEMENT, any and all notices,
requests, or demands permitted under this AGREEMENT shall be made in writing and
shall be deemed to have been given or made when delivered in person, sent by
same day or overnight courier, sent by facsimile transmission, or deposited in
the United States mail, postage prepaid, addressed to the PARTY at its address
as the same appears below, or at such other address as the PARTIES subsequently
may furnish to the other PARTY by notice hereunder.

Address and Telephone:






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For UW FOR MICRO VISION, INC.

FOR TECHNICAL MATTERS: MICRO VISION, INC.
The Human Interface Technology Laboratory Suite 6500 Columbia Center
Washington Technology Center 701 Fifth Avenue
Mail Stop FJ-15 Seattle, WA 98104-7003
Seattle, WA 98195
(206) 587-3782
FOR PAYMENT OF RESEARCH FUNDS
Director, Grant and Contract Accounting, Attn.: Mr. David Hunter,
Mail Stop ND-22 President
University of Washington
Seattle, WA 98195 Copy to Mr. James Biagi,
Monahan & Robinson, P.S.
FOR OTHER RESEARCH CONTRACT MATTERS Suite 6500 Columbia Center
Director, Grant and Contract Services 701 Fifth Avenue
Mail Stop JM-24 Seattle, WA 98104-7003
The University of Washington
Seattle, WA 98195 Tel: (206) 587-5700
Tel: (206) 685-1920

FOR CONFIDENTIALITY, INTELLECTUAL PROPERTY OR LICENSING
MATTERS:
The University of Washington
Office of Technology Transfer
Mail Stop JD-50
Seattle, WA 98195

FOR WTC:

Attn: Director
Washington Technology Center
Mail Stop FJ-15
Seattle, WA 98195


11.3 UW, WTC and MICRO VISION each agree that they will not use the name,
trademark, or other identifier of the other for any advertising, promotion,
publicity or commercially related purposes except:

a) with advance written approval of the other PARTY;

b) to the extent required by UW or WTC Boards, Committees, policies
and procedures or by law, UW and WTC may indicate that this
AGREEMENT exists, may disclose the terms of the AGREEMENT and may
use the names The University of Washington, The Washington
Technology Center or MICRO VISION solely to describe the
relationship between the UW, WTC and MICRO VISION established by
this AGREEMENT; or


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c) to the extent required by law and in a form approved in advance
in writing by the UW and WTC, MICRO VISION may indicate in any
investment offering (public or private), including but not
limited to sub-licensing, co-development, etc. circulated by
MICRO VISION that this AGREEMENT exists, may disclose the terms
of this AGREEMENT, and may use the names The Washington
Technology Center or the University of Washington solely to
describe the relationship between the UW, WTC and MICRO VISION
established by this AGREEMENT but not as a representation that UW
or WTC endorse statements made in any such investment offering.

However, UW, WTC and MICRO VISION each agree that they will not use the name,
trademark, or other identifier of the other for any advertising, promotion, or
other commercially related purpose except as provided for above or except upon
advance written notice and approval to the other PARTY.

11.4 No amendment or modification hereof shall be valid or binding upon
the parties unless it is made in writing, cites this Agreement, and signed by
duly authorized representatives of UW, WTC and MICRO VISION. No PARTY is
entering into this AGREEMENT in reliance on any oral or written promises,
inducements, representations, understandings or agreements other than those
contained in this AGREEMENT, the EXCLUSIVE LICENSE AGREEMENT and
CONFIDENTIALITY AGREEMENTS.

11.5 This AGREEMENT, the EXCLUSIVE LICENSE AGREEMENT, and Confidentiality
Agreements previously signed by the PARTIES or by individual members of MICRO
VISION (for Confidentiality Agreements) contains the complete and final
expression of the agreement between the PARTIES and, supersedes and replace any
and all other previous representations, understandings, or agreements, oral or
written, between the PARTIES with respect to the subject matter hereof. The
headings in this AGREEMENT are intended solely for convenience of reference and
shall be given no effect in the construction or interpretation of this
AGREEMENT. UW RESEARCHERS are not authorized to contractually bind the UW or
WTC.

11.6 The PARTIES agree that the relationship between the PARTIES
established by this AGREEMENT does not constitute a partnership, joint
venture, agency, or a contract of employment between them.

11.7 Each PARTY to this AGREEMENT agrees to defend, indemnify and hold
harmless the other PARTY from damage to persons or property resulting from
negligent acts or omissions of its own employees, agents, or officers. Neither
PARTY assumes any responsibility to the other PARTY for consequences of any act
or omission of any person, firm or corporation not a PARTY to this AGREEMENT.

11.8 MICRO VISION understands that UW and WTC are subject to United States
laws and federal regulations, including the export of technical data, computer
software, laboratory prototypes and other commodities (including the Arms Export


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Control Act, as amended, and the Export Administration Act of 1979), and that UW
and WTC's obligations hereunder are contingent upon compliance with applicable
United States laws and regulations, including those for export control. The
transfer of certain technical data and commodities may require a license from a
cognizant agency of the United States Government and/or written assurances by
MICRO VISION that MICRO VISION shall not transfer data or commodities to certain
foreign countries without prior approval of an appropriate agency of the United
States Government. Neither UW nor WTC represent that an export license shall
not be required, nor that, if required, it shall be issued.

11.9 The rights and obligations of the PARTIES under this AGREEMENT
shall be governed by and construed in accordance with the laws of the State
of Washington, and, at the option of UW, venue of the legal or equitable
action shall lie in King County, the State of Washington. MICRO VISION
hereby accepts the venue and jurisdiction of the Federal District Court of
Western Washington or King County Superior Court located in Seattle,
Washington, at UW's option.

11.10 Neither PARTY may transfer or assign its rights or obligation under this
AGREEMENT, except as provided herein or with the written consent of the other
PARTY. This AGREEMENT shall inure the benefit of and be binding upon each of the
PARTIES hereto and their respective permitted successors and assigns.

11.11 No provision of this AGREEMENT shall be deemed to have been waived by any
act of or acquiescence on the part of either PARTY. A waiver may only occur in
writing signed by an authorized representative of the PARTY waiving the
particular provision involved. No waiver of any provision of this AGREEMENT
shall constitute waiver of any other provision or of the same provision on any
other occasion.

11.12 If any provision of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not be in any way affected or impaired thereby.

11.13 The PATENT rights covered by this AGREEMENT may be subject to the rights
and limitations of Public Laws (PL) 96-517 and 98-620 and implementing
regulations including 35 USC Sections 200-211 and by requirements or agreements
established between UW and WTC. UW and/or MICRO VISION agree to include a
statement in any such PATENT application fully identifying such state funding or
such federal governmental right; and, MICRO VISION acknowledges that UW will
have the right to furnish the United States Government with a worldwide,
non-exclusive, royalty free license for such PATENT rights notwithstanding
anything in this AGREEMENT to the contrary.


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In witness hereof, agreement of UW, WTC and MICRO VISION to the terms stated
above is indicated by signatures affixed below. UW, WTC and MICRO VISION have
executed this AGREEMENT, in triplicate originals but collectively evidencing
only a single contract, by their respective officers hereunto duly authorized,
on the day and year hereinafter written.


For the University of Washington For MICRO VISION

/s/ Joel Searles /s/ David Hunter
- -------------------------------- -----------------------------------
Signature Signature

Joel Searles, Assistant Director, David Hunter, President
Grant and Contract Services

October 28, 1993 October 28, 1993
- -------------------------------- -----------------------------------
Date Date


For the Washington Technology Center

/s/ Robert E. Center /s/ Caisey Harlingten
- -------------------------------- -----------------------------------
Signature Signature

Robert E. Center Caisey Harlingten, Secretary,
Executive Director Treasurer

October 28, 1993 October 28, 1993
- -------------------------------- -----------------------------------
Date Date

Enclosures: Enclosure 1 PROJECT II Scope of Work
Enclosure 2 PROJECT II Budget
Enclosure 3 List of Identified UW
BACKGROUND RIGHTS


APPROVED AS TO FORM

/s/ Steve Milam
- --------------------------------

STEVE MILAM
SR. COUNSEL
ASSISTANT ATTORNEY GENERAL
STATE OF WASHINGTON

Oct. 28, 1993
- --------------------------------
Date


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Enclosure 1

PROJECT II Scope of Work



DEVELOPMENT OF A COMMERCIALLY-VIABLE

VIRTUAL RETINAL DISPLAY

1.0 OBJECTIVE

The purpose of this project is to develop a wide field-of-view, ultra high
resolution, color virtual image display medium which can be applied across a
spectrum of industrial, medical, educational and entertainment applications.
This display is created by photon generation and manipulation devices which scan
an image directly on the retina of the eye. Such a device provides for the
first time, an electronic display medium which matches the spatial visual
capabilities of the human in a lightweight, compact device. This project is
envisioned as a development program within the Human Interface Technology
Laboratory (Washington Technology Center) leading to a technology transition
into a new company start-up in the State of Washington for subsequent production
prototyping, manufacture and distribution this product for a spectrum of
applications.

2.0 VIRTUAL DISPLAY CONCEPTS

Computing machines and the electronic media have brought new opportunities
as well as challenges to our information age. While computer capacities,
speeds, and network bandwidths have increased remarkably, our ability to
communicate with these information engines is still limited by poor interfaces
between the human and the electronic display medium. Most electronically-
generated displays compress the information they present into two dimensions and
require the user to look at a fixed display in physical space, such as watching


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Washington. Disclosure of information shall not be made without the written
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the University of Washington.

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television. Furthermore, to create a large scene, such as panorama which
surrounds the user, the physical size and cost of these conventional displays
become enormous. As a consequence, current displays used with television and
computers do not capture and support the remarkable three dimensional and
spatial capabilities of the human.

Virtual interface technologies provide a new approach for coupling
electronically-generated information to the human senses. A virtual display
creates the visual experience different from real image displays (see Figure 1).
Instead of



[GRAPHIC]


FIGURE 1: COMPARISON OF REAL AND VIRTUAL IMAGE DISPLAYS

viewing directly a physical display screen, the virtual display creates only a
small physical image (e.g., nominally one square inch) and projects this image
into the eye by optical lenses and mirrors so that the original image appears to
be a large picture suspended in space. A personal virtual display system,
termed a head-mounted display, usually consists of a small image source (e.g., a
miniature cathode-ray tube or liquid crystal array) which is mounted on some
headgear, and small optical elements


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the University of Washington.

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which magnify, collimate and project this image via a mirror combiner into the
eyes such that the original image appears at optical infinity. The size of the
image is now a function of the magnification of the optics and not the physical
size of the original image source. With two image sources and projection optics
(e.g. one for each eye), a binocular virtual display is achieved providing a
stereoscopic or 3D scene. It is possible, therefore, to create a personal 3D
"cinerama theater" within special headgear worn by the user.

With a partially reflective combiner (mirror that reflects light from the
image source into the eyes), the display scene can be superimposed onto the
normal physical world. The user can also position the image anywhere simply by
moving the head. When combined with a head position sensing system, the
information on the display can be stabilized as a function of head movement,
thereby creating the effect of viewing a circumambience or "virtual world" which
surrounds the user. Since the virtual display can subtend a large visual angle,
the user feels that he or she is "inhabiting" or is "present" in a new place
instead of just looking at a picture. Further, the user can interact within the
virtual world in an intuitive way, using the natural three-dimensional
architecture of the human body. These factors empower the virtual interface
with an unprecedented efficiency in communicating computer-generated graphical
information or television, making it ideal for a spectrum of electronic display
applications.

There are three fundamental types of virtual image displays. As shown
above, each approach begins with a device which creates the visual object which
is then relayed and projected via optics into the eyes of the user. As shown in
Figure 2 below, the virtual image may occlude the outside world, providing a
virtual world substitute for the real world; the virtual image may be
superimposed over the real world to augment it; or the virtual image may be
selected by looking in a particular direction in the visual field. In this
case, perhaps the virtual image may appear in the peripheral field of view,
whereas the outside world can be seen around, above or below the virtual image.


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the University of Washington.

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The applications of virtual displays are unlimited. Table 1 lists some of
the more obvious application areas.

[GRAPHIC FIGURE]

FIGURE 2: THREE TYPES OF VIRTUAL VISUAL DISPLAYS


The concept of virtual displays is not new. Originally, virtual displays
(non-head mounted) were developed as gunsights and head-up displays for military
aircraft cockpits. Helmet-mounted displays also were developed by the military
to free the pilot from having to look at instruments in the cockpit and to aim
weapons with head position. Most of the pioneering work in these systems was
performed over the last 28 years under the direction of Professor Thomas A.
Furness, 23 years of which he was a laboratory director for the USAF.


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the University of Washington.

- -C- 1993 University of Washington


TABLE 1a: PROSPECTIVE APPLICATIONS OF VIRTUAL INTERFACES

Aerospace
virtual cockpit (Super Cockpit)
aircraft piloting
aircraft maintenance associate
tank driver display
ships/submarines
portable virtual trainer
telepresence for remotely piloted vehicles
telerobotics for EOD and space

Automotive
computer-aided design/manufacturing
auto head-up displays
navigator for UPS

Business
office operations
virtual office=carry in brief case
virtual teleconference
sales and merchandising
virtual try on
clothes
cars
real estate
virtual interior decorating (see before buy)

Building and Construction
virtual landscaping
virtual 3D blueprints
virtual building layout (see on site before build)

Command, Control, Communications
portable command post
FAA 3D air traffic control terminal
aircraft traffic display for collision avoidance

Education
virtual computer-aided instruction
virtual encyclopedia
"knowledge nautilus"

Law Enforcement/Protection
firefighter's helmet


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Washington. Disclosure of information shall not be made without the written
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the University of Washington.

- -C- 1993 University of Washington

TABLE 1b: PROSPECTIVE APPLICATIONS OF VIRTUAL INTERFACES

Medicine
3D medical imaging (3D CAT scans can touch and go
inside)
virtual surgery
surgery training (operate on virtual bodies)
surgeons goggles (displays vital signs)
anesthesiologist goggles
nurses goggles

Media
virtual magazines
wrap around 3D TV

Entertainment
electronic arcade
"feelies"

Manufacturing
portable process control monitor

Personal computing
virtual terminal
portable panoramic computer
computer that you wear

Scientific Research
virtual walk around microscope
3D visualization (go inside flow)

Prosthetic Interfaces
computer interface aid for paralytics
aids for the learning disabled (e.g. dyslexia)


3.0 LIMITATIONS OF CURRENT VIRTUAL DISPLAYS

In spite of the great potential of virtual imaging concepts described
above, several problems exits which comprise the utility and performance of
virtual interfaces. The most pervasive problem is the lack of an affordable,
lightweight, high-resolution virtual device.


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the University of Washington.

- -C- 1993 University of Washington


3.1 DISPLAY PERFORMANCE REQUIREMENTS

In order to match the field-of-vision capabilities of the eye, an ideal
virtual display system should have a field-of-view of 140 degrees horizontally
by 80 degrees. Further, the number of individual resolution or picture elements
should match the 1-3 minute-of-arc DYNAMIC ACUITY of the eye across the entire
visual field. Combined, these requirements necessitate the use of an image
source capable of producing up to 8400 (horizontal) by 4800 (vertical) picture
elements, or greater than 40 million picture elements to achieve the 1 minute of
arc resolution. Other ideal performance requirements for a virtual display are
given in Table 2.

TABLE 2: IDEAL VIRTUAL DISPLAY SYSTEM PERFORMANCE REQUIREMENTS

INSTANTANEOUS FIELD-OF-VIEW (SUBTENDED VISUAL ANGLE)

MONOCULAR
HORIZONTAL: 140 DEGREES
VERTICAL: 80 DEGREES
BINOCULAR OVERLAP (STEREO VIEWING) 100 DEGREES
BINOCULAR
HORIZONTAL: 140 DEGREES
VERTICAL: 70 DEGREES
RESOLUTION
SUBTENDED VISUAL ANGLE OF PIXEL: -2 MINUTES-OF-ARC
MONOCULAR RESOLUTION
HORIZONTAL PIXELS: 4000
VERTICAL PIXELS: 3000
COLOR: RED, GREEN, BLUE
LUMINANCE: 1000-3000 FOOT-LAMBERTS AT EYE
SEE-THROUGH TRANSMITTANCE: ADJUSTABLE BETWEEN 0-50%
UPDATE RATE: MINIMUM OF 50Hz
THROUGHOUT DELAY: LESS THAN 20 MSEC
POSITION ACCURACY
HEAD POSITION: 1 MINUTE-OF-ARC
EYE POSITION: 1 MINUTE-OF-ARC
WEIGHT: LESS THAN 2 OZ.
COST: LESS THAN $1000


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To create an image with such high detail and project it to the eyes a
virtual image with a wide field-of-view virtual image necessitates a extremely
high resolution miniature color image source and large optical elements to
relay the image to the eye. Some technological considerations and approaches
for achieving the desired virtual image performance are discussed below:

3.2 IMAGE SOURCE APPROACHES

Existing virtual displays typically is a liquid crystal array, light
emitting diodes, or miniature cathode ray tube as an image source, then relay
this image via an infinity optical system to the eye. State-of-the-art miniature
cathode-ray tubes (CRT) can produce a medium-resolution MONOCHROME picture
(nominally 1280 by 1024 elements in a one-inch raster, with luminances in excess
of 1000 ft-Lamberts) but only at the cost of a device which is heavy (e.g.
weight with cables, greater than 4 oz.), has a bulky form factor (e.g. one-inch
diameter by 4-inch length) and high-voltage acceleration potential on the head
(typically 7-13 kilovolts). One obvious drawback is the safety of this approach,
both from standpoints of soft X-rays which may be emitted from the CRT
faceplate, and the non-ionizing radiation resulting from the electromagnetic
fields used to deflect the beam in the CRT. Creating color using a single
miniature cathode ray tube (CRT) is difficult and usually causes significant
compromises in image resolution and luminance. The CRT can be removed from the
head by relaying the CRT image via a coherent fiber-optics bundle to the head
worn optical projectors, but the hardware to do this is also heavy and causes
significant light loss.

Achieving high quality color in a miniature CRT is also difficult. Field-
sequential color using a multiplexed color filter and CRT with white phosphor is
able to create good color hue saturation but also at a significantly reduced
resolution.


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(the color fields must be produced sequentially rather than in parallel,
multiplying the necessary video bandwidth by a factor of 3). Field emission
displays are also promising but represent formidable fabrication difficulties.

Alternatively, a liquid-crystal display (LCD) can produce a color image
using a low operating voltage, but it can provide only a moderate picture-
element density (the current target for small commercial displays is 1000 by
1000 elements). Past predictions about high-resolution LCDs have proved overly
optimistic, and although one new approach is promising, the defect rate
increases rapidly with resolution. Another problem with LCDs are their
relatively slow update rate, which can lead to image blur for the rapid updates
needed for Virtual Environment/Virtual Reality displays.

One novel commercial display uses a linear array of light emitting diodes
viewed via a resonant scanning mirror and simple magnifier. Although providing a
low cost alternative, the display is monochrome (no "gray-scale") and limited in
line resolution to the number of elements in the linear array (or about 280
elements), thereby creating an overall resolution of 720 by 280 pixels, although
moderately higher resolutions are planned. Another problem with this display is
the need to provide a non-standard frame buffer to accommodate its non-standard,
variable frame rate (the system uses a resonant scanner to lower costs and power
consumption). In addition, the simple optical design appears to be limited in
its potential field-of-view and completely occludes outside vision.

3.3 OPTICAL PROJECTION LIMITATIONS

Both the CRT and LCD image-generation approaches generate real images,
which are relayed to the eyes through an infinity optical system. The simplest
optical approach is to view the image source through a simple magnifier lens.
For fields-of-view greater than 40 degrees, this approach leads to a number of
problems including light loss and chromatic aberrations. Furthermore, these
optics are bulky and heavy. Typical virtual projection optical designs
create an "aerial image"


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somewhere in the optical path which is then viewed as an erect virtual image via
an eyepiece or objective lens. This approach increases the flexibility by which
the image from the image source can be folded around the head, but again, large
fields-of-view require large and bulky reflective and refractive optical
elements. Ideally, this optical system should be pupil-forming to gain maximum
image quality; however, such an approach increases the number and size of the
optical elements to provide a sufficiently large exit pupil diameter (15-20 mm
diameter) to allow for involuntary slippage of the projection optics on the head
due to head movement.


3.3 OTHER LIMITATIONS

Another key issue in creating virtual worlds is the appropriate collimation
of the images such that they appear at the relevant distances from the user.
Typical infinity optical approaches described above cause all of the virtual
picture elements to appear at the same distance from the eye in terms of the
divergence of the light rays projected through the lens of the eye to the
retina. In this case, each eye accommodates to the apparent distance of the
picture element regardless of the binocular or vergence cues of distance as seen
with both eyes. this artifact in infinity collimated displays creates conflicts
between the stereographic or binocular cues of depth and the monocular
accomodative cue of depth. This perceptual conflict can cause the virtual world
to appear unreal, since close in objects which should have diverging light rays
into the eye, appear instead to emanate from optical infinity.

In summary, it is clear from the discussion above that existing
technologies (or at least the approaches used by existing technologies) for
electronic displays and virtual image generation are severely limited in their
ability to meet ideal human-centered performance requirements. It is the
purpose of this project to resolve these deficiencies by providing a new way of
generating and projecting virtual images which approaches the ideal performance
parameters in Table 2.


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4.0 THE VIRTUAL RETINAL DISPLAY CONCEPT

The virtual retinal display (VRD) is a revolutionary display concept which
solves most if not all the problems described above relative to conventional
virtual display approaches while meet most of the ideal performance
requirements listed in Table 2.

4.1 GENERAL DESCRIPTION

The virtual retinal display is a photon generation and manipulation technology
capable of creating a panoramic, high resolution, color virtual image and
projecting it directly onto the retina of the eye. The VRD works on the
principle of a dynamic "Maxwellian-view optical system". The instantaneous
entrance pupil of the eye and the exit pupil of the virtual display device are
coupled so that modulated light produced by a photon generator (such as a low
energy diode laser) is scanned directly on the retina, producing the perception
of an erect virtual image. The configuration of the virtual retinal display is
based upon the virtual retinal display patent application.


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PAGES 11-15

CONFIDENTIAL TREATMENT REQUESTED

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the University of Washington.

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5.0 VRD DEVELOPMENT STRATEGY

The purpose of this project is to develop a high-resolution, head mounted
display using a new approach to imaging - scanning an image directly onto the
retina of the eye. Our goal is to transition the VRD into a commercially-
viable, low cost, high performance virtual display engine for a spectrum of
applications. In order to develop this approach into a superior alternative to
current techniques, several new technologies must be developed, especially if
this approach is to become a economically viable mass-market consumer product.
In most cases we will pursue both high risk (but potentially high payoff)
developments in parallel with more conservative approaches to achieve the design
goals listed in Table 2.


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PAGES 16-21

CONFIDENTIAL TREATMENT REQUESTED

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the University of Washington.

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8.0 Test and Evaluation
The developmental models of the virtual retinal display will be
evaluated extensively for utility, performance, reliability and safety.
We will work closely with the University of Washington Medical Center to
evaluate the short and long term medical considerations associated with
the long duration use of the technology.


9.0 Final Fabrication and Demonstration
The HIT lab shall demonstrate at least one complete VRD system(s) in one
or more configuration(s) to be determined by HITL and Microvision,
presumably when the various alternatives are presented during the final
design review. We anticipate at least two different helmet-mounted
stereo displays - one multiple scan color LED display and one high-
bandwidth (and possibly color) laser diode unit, which is likely to
include eye-tracking to increase the field of view.


10.0 Progress Reports
Progress reports will be sent every three months or as negotiated with
Micro Vision Inc. These reports will contain a summary of the technical
progress during the quarter and any recommended adjustments to schedule
and funding resources allocated to the program.


11.0 Final Report
The Final Report will be sent to Microvision at or shortly after the
completion of the project. This report will contain the full plans to
transition the VRD technology to Micro Vision for subsequent production
prototyping manufacture and distribution.


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12.0 Design Reviews
Design reviews will be held at the end of the 1st, 2nd, and 3rd years of
the project and mid-way through the fourth year to confirm progress and
provide feedback to the research team.




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- -C- 1993 University of Washington


6.2 Schedule and Milestones

Table 4 below, shows the schedules and milestones for each of the project
elements described above.

CONFIDENTIAL TREATMENT REQUESTED


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24 10/14/93

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Washington. Disclosure of information shall not be made without the written
permission of the Director of the Human Interface Technology Laboratory and/or
the University of Washington.

- -C- 1993 University of Washington


7.0 BUDGET


The proposed program will conducted over a period of 48 months with an
estimated total cost of $5,133,500 to the sponsor. Cost adjustments may be
necessary especially in the outyears as VRD development contingencies might
arise. These matters will be addressed in the quarterly reports and reviews.
In addition to these costs, the University of Washington is providing an
estimated $600,000 in faculty salaries which will be dedicated to this effort
across the four years of the development of the Virtual Retinal Display.
Further, the existing facilities and expertise of the University and Washington
Technology Center will be made available to accomplish this effort. The
estimated value of these facilities is $4,000,000. A detailed breakout of the
cost for this project is shown in Appendix A.



8.0 PROJECT MANAGEMENT

The virtual retinal scanner will be developed as a coordinated program
involving investigators and support staff from the Human Interface Technology
Laboratory of the Washington Technology Center, selected faculty and graduate
students from the College of Engineering at the University of Washington, and
outside consultants who are subject matter experts in various technologies
associated with the virtual retinal display technology. Dr. Thomas A.
Furness, Director of the Human Interface Technology Laboratory and
co-inventor of the virtual retinal display, will provide the overall
coordination and direction for this effort. Mr. Joel Kollin, senior research
engineer and also a co-inventor of the virtual retinal display technology,
will serve as the technical manager of the program. During the course of the
project, other key individuals in vision physiology, human factors, optical
design, electronics design and mechanical design will be added to the
development team. Additionally, collaboration with other firms such as the
Hughes Research Laboratories, Texas Instruments, Spectra-Diode Labs and some
Japanese companies may be appropriate during the course of our development.
Qualifications of key personnel is given in Appendix B.

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25 10/14/93

This document contains information which is proprietary to the University of
Washington. Disclosure of information shall not be made without the written
permission of the Director of the Human Interface Technology Laboratory and/or
the University of Washington.

- -C- 1993 University of Washington


Appendix A:



Cost Proposal:


Virtual Retinal Display Development




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26 10/14/93

This document contains information which is proprietary to the University of
Washington. Disclosure of information shall not be made without the written
permission of the Director of the Human Interface Technology Laboratory and/or
the University of Washington.

- -C- 1993 University of Washington


Enclosure 2, Project II Budget




FIRST YEAR SECOND YEAR THIRD YEAR
----------------------------------------------------------------------------------
MTLY SALARY MTLY SALARY MTLY SALARY
RATE FTE AMOUNT RATE FTE AMOUNT RATE FTE AMOUNT
----------------------------------------------------------------------------------

1. SALARIES AND WAGES [NOTE 1]

Principal Investigator-Dr. T.A. Furness [Note ?] 8,896 0.3 32,026 9,163 0.3 32,986 9,529 0.3 34,306

Faculty Co- Investigator-Dr. T. ???????? 10,000 0.1 12,000 10,300 0.1 12,360 10,712 0.1 12,854

Faculty Co-Investigator-TBD 8,000 0.1 9,600 8,240 0.1 9,888 8,570 0.1 10,284

Research Engineer-J. Kollin 4,500 1.0 54,000 4,635 1.0 55,620 4,820 1.0 57,845

Research Engineer-R. Burstein 3,500 1.0 42,000 3,605 1.0 43,260 3,749 1.0 44,990

Research Physicist-D. Melville 3,200 1.0 38,400 3,296 1.0 39,552 3,428 1.0 41,134

Senior Research Scientist 6,800 0.5 40,800 7,004 0.5 42,024 7,284 0.5 43,705

Senior Research Engineer 6,000 0.5 36,000 6,240 0.5 37,440

Senior Human Factors Engineer 6,000 0.5 36,000 6,180 0.5 37,080 6,427 0.5 38,563

Mechanical Engineer/Designer 4,000 4,160

Systems Administrator 2,800 0.5 16,800 2,884 0.5 17,304 2,999 0.5 17,996

Administrative Assistant 2,800 0.5 16,800 2,884 0.5 17,304 2,999 0.5 17,996

Secretary 2,100 0.6 15,120 2,163 0.6 15,574 2,250 0.6 16,197

Budget Administrator 2,800 0.5 16,800 2,884 0.5 17,304 2,999 0.5 17,996

Post Doctoral Fellows 2,800 0.5 16,800 2,884 0.5 17,304 2,999 0.5 17,996

Research Associates (Ph. D. Candidates) [Note ?] 2,482 1.0 29,784 2,556 1.0 30,678 2,659 1.0 31,905

Research Assistants (M.S. Candidates) [Note ?] 2,304 2.0 55,296 2,373 2.5 71,194 2,468 2.5 74,041
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL - SALARIES AND WAGES 432,226 495,431 515,248
- ------------------------------------------------------------------------------------------------------------------------------------



FOURTH YEAR
-------------------------------------------------
MTLY SALARY TOTAL
RATE FTE AMOUNT COSTS
-------------------------------------------------

1. SALARIES AND WAGES [NOTE 1]

Principal Investigator-Dr. T.A. Furness [Note ?] 9,911 0.3 35,678 134,996

Faculty Co- Investigator-Dr. T. ???????? 11,140 0.1 13,369 50,583

Faculty Co-Investigator-TBD 8,912 0.1 10,695 40,466

Research Engineer-J. Kollin 5,013 1.0 60,159 227,623

Research Engineer-R. Burstein 3,899 1.0 46,790 177,040

Research Physicist-D. Melville 3,565 1.0 42,779 161,866

Senior Research Scientist 7,576 0.5 45,453 171,982

Senior Research Engineer 6,490 0.5 38,938 112,378

Senior Human Factors Engineer 6,684 0.5 40,106 151,749

Mechanical Engineer/Designer 4,326

Systems Administrator 3,119 0.5 18,716 70,816

Administrative Assistant 3,119 0.5 18,716 70,816

Secretary 2,340 0.6 16,844 63,735

Budget Administrator 3,119 0.5 18,716 70,816

Post Doctoral Fellows 3,113 0.5 18,716 70,816

Research Associates (Ph. D. Candidates) [Note ?] 2,765 0.5 16,590 108,957

Research Assistants (M.S. Candidates) [Note ?] 2,567 2.0 61,602 262,133
- ---------------------------------------------------------------------------------------------
SUBTOTAL - SALARIES AND WAGES 503,867 1,946,772
- ---------------------------------------------------------------------------------------------




- --------------------------------------------------------------------------------
10/14/93

This document contains information which is proprietary to the University of
Washington. Disclosure of information shall not be made without the written
permission of the Director of the Human Interface Technology Laboratory and/or
the University of Washington.

- -C- 1993 University of Washington


PAGES 2-3

CONFIDENTIAL TREATMENT REQUESTED


- --------------------------------------------------------------------------------
10/14/93

This document contains information which is proprietary to the University of
Washington. Disclosure of information shall not be made without the written
permission of the Director of the Human Interface Technology Laboratory and/or
the University of Washington.

- -C- 1993 University of Washington

Appendix B

Qualifications of Key Personnel

DR. THOMAS A. FURNESS III, PROFESSOR AND LABORATORY DIRECTOR. Dr. Furness
will serve as the overall program manager and coordinator for the VRD
Development Program. He is the founding director of the Human Interface
Technology Laboratory and professor of Industrial Engineering and adjunct
professor of Electrical Engineering at the University of Washington. He
received the BSEE degree form Duke University and the Ph.D. degree in
Engineering and Applied Science from the University of Southampton, England.
He brings to the Human Interface Technology Laboratory 23 years of virtual
world research experience with the U.S. Air Force. Prior to founding the
Laboratory, Dr. Furness was Chief of the Visual Display Systems Branch, Human
Engineering Division of the Armstrong Aerospace Medical Research Laboratory
(AAMRL) at Wright-Patterson Air Force Base, Ohio. His staff of 50 government
and contractor scientists, engineers, and technicians pioneered advanced
interface concepts for fighter aircraft including the Super-Cockpit, a
virtual cockpit that the pilot wears. This system created a
three-dimensional visual, aural, and tactile world enabling pilots to operate
complex aircraft with natural hand and eye movements and voice control.

JOEL KOLLIN, RESEARCH ENGINEER (OPTICAL SYSTEMS) Mr. Kollin is the
Technical Manager and system designer of the VRD and is co-inventor on the
pending patent. At the HIT Lab he is responsible for the design and
demonstration of other projects involving optics, including a novel optical
head-tracking system. He received his Bachelor's degree in Electrical
Engineering from the University of Michigan and his Master's degree form the
MTT Medial Lab, where he was co-inventor of the Holographic Video display
developed there. In addition, he has demonstrated an autostereoscopic (no
glasses) 3-D television system also patented through MIT. A experienced
holographer and photographer, he also spent two years developing complex
imaging diagnostic


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30 10/14/93

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Washington. Disclosure of information shall not be made without the written
permission of the Director of the Human Interface Technology Laboratory and/or
the University of Washington.

- -C- 1993 University of Washington


systems for nanosecond-scale laser-plasma interaction experiments for a DOE
contractor and has been a consultant for Polaroid and the Industrial
Technology Institute.

DR. THOMAS A. PEARSALL, PROFESSOR. Dr. Pearsall will be assist in the
development of the photon generator for the project. He is currently the
Boeing Professor of Semiconductor Electronics at the university of
Washington, following an eight-year career with AT&T Bell Laboratories where,
among other things, he managed optoelectronic technology advancements,
invented wave-function engineering, and developed practical microarrays of
LEDs and photo detectors. Prior to his work with AT&T, Dr. Pearsall was a
member of the Thompson/CSF Central Research Laboratory in Orsay, France; and,
before that, a researcher at AT&T Bell Labs. Dr. Pearsall received his Ph.D.
from Cornell University in the Department of Applied and Engineering Physics.
He holds 16 basic patents and has published five books and book chapters,
and 82 articles.

ROBERT BURSTEIN, RESEARCH ENGINEER. (ELECTRONICS) Mr. Burstein will be
responsible for the hardware integration for the project. He manages the
Laboratory facilities and plays a major role in the fabrication of
virtual-worlds presentation hardware as well as prototyping new tracking and
video technology. He holds a B.S.E.E. from the University of Dayton and has
contributed to other pioneering WTC enterprises, including most recently the
Materials Fabrication Laboratory. Mr. Burstein has extensive experience with
systems and instrumentation design.

SUZANNE WEGHORST, BIOMEDICAL SYSTEMS ANALYST. Ms. Weghorst will assist in
the human factors evaluation of the VRD project. She brings a combination of
expertise in computer science and behavioral science to her work. She has
conducted independent research in several relevant areas, including
neurobiology, ecological psychology, program evaluation, graphics workstation
usability, and computer user perception of graphical displays. Her most
recent project, prior to joining the HIT Laboratory, evaluated the clinical
acceptability of a comprehensive computer system for acquiring, storing, and
displaying digital radiography images. Ms. Weghorst holds an M.A. in
Psychology from the University of California at Riverside and an M.S. in
Computer


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31 10/14/93

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Washington. Disclosure of information shall not be made without the written
permission of the Director of the Human Interface Technology Laboratory and/or
the University of Washington.

- -C- 1993 University of Washington


Science at the University of Washington. Her computer science thesis
examined user perception of graphical interface displays.


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32 10/14/93

This document contains information which is proprietary to the University of
Washington. Disclosure of information shall not be made without the written
permission of the Director of the Human Interface Technology Laboratory and/or
the University of Washington.

- -C- 1993 University of Washington





Appendix C


Virtual Retinal Display Patent Information



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33 10/14/93

This document contains information which is proprietary to the University of
Washington. Disclosure of information shall not be made without the written
permission of the Director of the Human Interface Technology Laboratory and/or
the University of Washington.

- -C- 1993 University of Washington




PROJECT II RESEARCH AGREEMENT BETWEEN UW, WTC AND MICRO VISION CONFIDENTIAL
PAGE 18

ENCLOSURE 2

PROJECT II BUDGET







ENCLOSURE 2, PROJECT II BUDGET



FIRST YEAR SECOND YEAR THIRD YEAR
--------------------------------------------------------------------------------

MTLY SALARY MTLY SALARY MTLY SALARY
RATE FTE AMOUNT RATE FTE AMOUNT RATE FTE AMOUNT
--------------------------------------------------------------------------------
8. SALARIES AND WAGES (Note 1)

Principal Investigator - [illegible] 8,896 0.3 32,026 9,163 0.3 32,986 9,529 0.3 34,306

Faculty Co-Investigator - [illegible] 10,000 0.1 12,000 10,300 0.1 12,360 10,712 0.1 12,854

Faculty Co-Investigator - TBD 8,000 0.1 9,600 8,240 0.1 9,888 8,570 0.1 10,284

Research Engineer - [illegible] 4,500 1.0 54,000 4,635 1.0 55,620 4,820 1.0 57,845

Research Engineer - [illegible] 3,500 1.0 42,000 3,605 1.0 43,260 3,749 1.0 44,990

Research Physicist - [illegible] 3,200 1.0 38,400 3,296 1.0 39,552 3,428 1.0 41,134

Senior Research Scientist 6,800 0.5 40,800 7,004 0.5 42,024 7,284 0.5 43,705

Senior Research Engineer 6,000 0.5 36,000 6,240 0.5 37,440

Senior Human Factors Engineer 6,000 0.5 36,000 6,190 0.5 37,080 6,427 0.5 38,563

Mechanical Engineer/Designer 4,000 4,160

Systems Administrator 2,800 0.5 16,800 2,884 0.5 17,304 2,999 0.5 17,996

Administrative Assistant 2,800 0.5 16,800 2,884 0.5 17,304 2,999 0.5 17,996

Secretary 2,100 0.6 15,120 2,163 0.5 15,574 2,250 0.5 16,197

Budget Administrator 2,800 0.5 16,800 2,884 0.5 17,304 2,999 0.5 17,996

Post Doctoral Fellows 2,800 0.5 16,800 2,884 0.5 17,304 2,999 0.5 17,996

Research Associate (Ph.D. Candidates) (Note) 2,482 1.0 29,784 2,556 1.0 30,678 2,659 1.0 31,905

Research Assistants (MS Candidates) (Note) 2,304 2.0 55,296 2,373 2.5 71,194 2,468 2.5 74,041
- -----------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL - SALARIES AND WAGES 432,226 495,431 515,248
- -----------------------------------------------------------------------------------------------------------------------------------


FOURTH YEAR
MTLY SALARY TOTAL
RATE FTE AMOUNT COSTS
-------------------------------------

8. SALARIES AND WAGES (Note 1)

Principal Investigator - [illegible] 9,911 0.3 35,678 134,996

Faculty Co-Investigator - [illegible] 11,140 0.1 13,369 50,583

Faculty Co-Investigator - TBD 8,912 0.1 10,695 40,466

Research Engineer - [illegible] 5,013 1.0 60,159 227,623

Research Engineer - [illegible] 3,899 1.0 46,790 177,040

Research Physicist - [illegible] 3,565 1.0 42,779 161,866

Senior Research Scientist 7,576 0.5 45,453 171,982

Senior Research Engineer 6,490 0.5 38,938 112,378

Senior Human Factors Engineer 6,684 0.5 40,106 151,749

Mechanical Engineer/Designer 4,326

Systems Administrator 3,119 0.5 18,716 70,816

Administrative Assistant 3,119 O.5 18,716 70,816

Secretary 2,340 0.6 16,844 63,735

Budget Administrator 3,119 0.5 18,716 70,816

Post Doctoral Fellows 3,119 0.5 18,716 70,816

Research Associate (Ph.D. Candidates) (Note) 2,765 0.5 16,590 108,957

Research Assistants (MS Candidates) (Note) 2,567 2.0 61,602 262,133
- ----------------------------------------------------------------------------------------
SUBTOTAL - SALARIES AND WAGES 503,867 1,946,772
- ----------------------------------------------------------------------------------------






PAGES 2-3

CONFIDENTIAL TREATMENT REQUESTED


PROJECT II RESEARCH AGREEMENT BETWEEN UW, WTC AND MICRO VISION CONFIDENTIAL
PAGE 19


ENCLOSURE 3

LIST OF IDENTIFIED UW BACKGROUND RIGHTS

This Enclosure provides a list of possible UW BACKGROUND rights related to
PROJECT II as stated in Paragraph 1.14.


PATENT FILING
TITLE NUMBER FILING DATE COUNTRY ASSIGNEE

Virtual 07/965,070 October 22, United States The Board of
Retinal 1992 Regents of the
Display University of
Washington

Virtual N/A October 4, Patent Cooperation The Board of
Retinal 1993 Treaty Regents of the
Display (International) University of
designating all Washington
signatory countries