OPTION AGREEMENT

This Agreement is made effective as of the date of the last signature to this Agreement by and between Iowa State University Research Foundation, Inc. (hereinafter called ISURF), a nonprofit Iowa corporation, and MicroChannel Technologies Corporation (hereinafter called Company), a corporation organized and existing under the laws of Nevada;

WHEREAS, ISURF owns by assignment certain inventions that are described in the Option Technology defined below, and ISURF desires to have the inventions of the Option Technology utilized in the public interest;

WHEREAS, Company is or intends to evaluate the Option Technology to determine whether it will acquire a license from ISURF under the inventions of the Option Technology; and

WHEREAS, ISURF is willing and hereby offers to grant an option to the Option Technology to Company, and Company hereby states its desire for such an option.

In consideration of the mutual covenants and agreements set forth below, the parties covenant and agree as follows:

Section 1.

Definitions.

A.

Option Technology shall refer to and mean the intellectual property entitled Patterned Substrates and Methods for Nerve Regeneration as described in ISURF Docket Number 02610, including any patents and patent applications listed on Appendix A hereto that are in countries in the Option Territory and any subsequent patent applications owned by ISURF in a country in the Option Territory but only to the extent it claims an invention claimed in a patent application listed on Appendix A in such country.

B.

Option Field shall be limited to Nerve Regeneration.

C.

Option Territory shall be Worldwide.

D.

Option Period shall mean the period commencing on the effective date of this Agreement and ending two (2) months after completion of research project defined in Section 3.B of this Agreement.

E.

Products shall refer to and mean any and all products that employ or are in any way produced by the practice of the Option Technology or that would otherwise constitute infringement of any intellectual property rights in the Option Technology.

Section 2.

Grant.

A.

Option to a License.

ISURF hereby grants to Company an option to obtain a license under the Option Technology to make, use and sell Products in the Option Field and the Option Territory.

B.

Standstill.

 ISURF hereby agrees that during the Option Period it will not grant to any other third party any license under the Option Technology to make, use and sell Products in the Option Territory and the Option Field.

C.

Term and Exercise of Option.

(i)

The option granted under Section 2A above shall terminate at the end of the Option Period.  In order to exercise its option, Company must, prior to the end of the Option Period, both notify ISURF in writing that it is exercising its rights and provide to ISURF an acceptable development plan similar in scope to that outlined on Appendix B of this Agreement.  The failure of Company to provide timely notice and an acceptable development plan shall be deemed a waiver of Companys option.  

(ii)

Company agrees to notify ISURF promptly at any time during the Option Period if Company has determined not to exercise the option granted under this Agreement.  Company agrees to provide ISURF, in reasonable detail, the basis for such determination with said notice.  The option granted under this Agreement shall terminate upon the giving of such notice by Company.

(iii)

Upon the expiration or termination of its option, Company shall have no residual rights or other rights in the Option Technology.

D.

Negotiation and Terms of License.

(i)

Upon ISURFs receipt of notice and a development plan reasonably acceptable to ISURF pursuant to Section 2C, ISURF and Company shall enter into good faith negotiations regarding the terms of a license agreement, said agreement to be entered into no later than (3) months after the date Company exercises its option.

(ii)

The terms of the license agreement shall contain reasonable commercial terms and shall be substantially the same in format as those generally used in ISURFs agreements with companies concerning similar technology.

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