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                                                                   EXHIBIT 10.3
                            MANUFACTURING SUPPLY AGREEMENT



     This MANUFACTURING SUPPLY AGREEMENT (the "Agreement"), dated this 19th 
day of July, 1995, is made by and between Vista Medical Technologies 
("Vista"), a California Corporation, located at 2752 Loker Avenue West, 
Carlsbad, California 92008 and KAISER ELECTRO-OPTICS, INC. ("KEO"), a 
California Corporation, located at 2752 Loker Avenue West, Carlsbad, 
California 92008.

                                       RECITALS

     WHEREAS, Vista has developed and owns exclusive rights to a proprietary 
Medical Head Mounted Display ("MHMD"); and

     WHEREAS, KEO has developed Head Mounted Displays ("HMD") for nonmedical 
markets, provided development services for Vista's MHMD and possesses certain 
know-how and manufacturing technology related to HMDs; and

     WHEREAS, Vista desires to have KEO manufacture the display optical 
subassembly of its MHMD and any reasonable functional derivative thereof, 
such subassemblies hereinafter referred to as "Product'; and

     WHEREAS, KEO desires to manufacture Product and to meet Vista's 
reasonable requirements as to competitive price, delivery, and quality;

     NOW, THEREFORE, in consideration of the above matters and of the 
covenants contained herein, Vista and KEO agree as follows:

                                      AGREEMENT

     1.   PREFERRED SUPPLIER RELATIONSHIP:  During the term of this 
Agreement, KEO shall be Vista's preferred supplier of Product, and Vista 
shall contract with KEO to supply up to 100%, but not less than 75%, of its 
requirements for Product.  

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Similarly, KEO shall not supply HMDs to any direct competitor of Vista in the 
medical marketplace.

     2.   PRODUCT SPECIFICATIONS:  KEO will supply Product to Vista 
consisting of the head-mounted display optical subassembly of the MHMD, in 
accordance with specifications defined prior to placing of a purchase order 
by Vista and acceptance by KEO.  All modifications of the Product must be 
mutually agreed upon in writing by Vista and KEO and documented by Vista 
according to current GMP (Good Management Practices) then in effect.

     3.   PRODUCT CONFORMITY:  In the event of test results which show a lack 
of Product conformity to quality or specifications provided and mutually 
agreed to, KEO will repair or replace the Product within a reasonable time.  
Failure to repair or replace non-conforming products, as defined in the 
purchase orders and agreed upon specifications, within eight (8) weeks shall 
be considered a failure to supply.

     4.   PURCHASE ORDERS:  KEO will accept each purchase order submitted by 
Vista hereunder that conforms with the terms of this Agreement.  In the event 
that pre-printed terms on Vista's purchase order are in conflict with this 
Agreement, the terms of this Agreement shall prevail.

     5.   VISTA'S FORECAST:  Vista will provide KEO with monthly non-binding 
rolling forecasts of its anticipated requirements for Product for the 
following twelve (12) months.  However, the first (3) months of this rolling 
forecast, as well as the mutually agreed to purchase of long-lead items of 
significant value required to meet the forecast beyond the first (3) months, 
will be binding to both parties.  KEO agrees to 


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meet Vista's reasonable schedule requirements; once agreed, repeated failure 
to meet delivery schedules shall be considered a failure to supply.

     6.   COMPETITIVE PRICING:  For the first year, the price of the Product 
sold by KEO to Vista will be that price agreed to be mutually acceptable 
prior to the start of production.  KEO's pricing for Vista's Product will 
remain competitive over time to that generally charged for similar OEM 
products of the same performance level in the medical marketplace.  Failure 
to remain competitive, according to evidence documented by Vista, shall be 
considered a failure to supply.

     7.   REGULATORY APPROVAL:  Vista shall be solely responsible for 
obtaining any regulatory approvals it requires to market and sell its 
products.  KEO agrees to provide Vista with all specified information and 
materials required for the purpose of obtaining any regulatory approvals.  
Vista will require KEO to manufacture Product in accordance with Vista's 
specified GMP requirements for suppliers.  Failure to conform shall be 
considered a failure to supply.

     8.   INSURANCE:  KEO shall maintain product liability insurance in 
effect to cover any manufacturing deficiencies in its Product caused by 
non-conformance to the product specification.  KEO agrees to indemnify, 
protect, and save Vista including Vista's dealers and agents harmless from 
and against all claims, demands, proceedings, lawsuits, and actions and any 
liabilities, expenses, or costs due directly to any product malfunction 
caused by non-conformance to the Product specification.  KEO will not be 
liable for any failures of the MHMD caused by manufacturing or design defects 
in anything other than its own manufacturing of Product.


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     9.   INDEMNIFICATION:  For and in consideration of Vista's purchase of 
Product under this Agreement, KEO will indemnify, hold harmless and defend 
Vista, including Vista's dealers and agents, from and against any claim, 
demand, liability, loss, damage, suit, or judgment resulting from operational 
deficiencies caused by non-conformance to the Product specification.

     10.  KEO WARRANTIES:  KEO warrants that title to all Product delivered 
to Vista will be free and clear of all liens, encumbrances and security 
interests; and that all Product sold under this Agreement will conform to the 
specifications accepted by KEO, and shall be free from defects in material 
and workmanship under normal use and service.  Any Product which exhibits 
such defects in material and workmanship within 12 months from date of 
shipment to the final customer but not more than 15 months from date of 
shipment to Vista shall be repaired or replaced, at KEO's option, without 
charge, under terms of this Agreement.

          VISTA WARRANTIES:  Vista agrees to be solely responsible for any 
warranty that it extends or allows to be extended to its customers, whether 
express or implied, with respect to the Product.

     11.  TERM OF AGREEMENT:  The duration of this Agreement is three (3) 
years from the date of execution provided that it is not terminated sooner 
pursuant to paragraph 12 below.  After termination, the following provisions 
will survive and remain in force: paragraphs 8 (Insurance), 9 
(Indemnification), 10 (Warranties), 12 (Termination), 13 (Obligations on 
Termination), 16 (Applicable Law), 17 (Relationship of Parties), 20 
(Tradenames/Trademarks), 21 (Non-Disclosure), and 23 (Statute of Limitations).


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     12.  TERMINATION:  The following provisions shall govern the termination 
of this Agreement:

          (a)  If either party has defaulted or failed to perform any 
obligation arising under this Agreement and fails to remedy such default or 
non-performance after written notice by the other party within thirty (30) 
days for payment of monies due and sixty (60) days for all other defaults 
(including KEO's failure to supply), the other party has the right to 
terminate this Agreement immediately upon further written notice.

          (b)  Either party, at its election, may treat this Agreement as 
breached and, without prejudice to any other of its rights, may forthwith 
terminate this Agreement by written notice to the other party on occurrence 
of any of the following events:

               (i)   The other party shall make a general assignment for the 
benefit of creditors; 

               (ii)  A receiver of all or substantially all of the property 
of the other party shall be appointed and not removed within thirty (30) days;

               (iii) The other party shall file a petition for reorganization 
under the provisions of federal bankruptcy laws;

               (iv)  The other party shall file a petition for an arrangement 
under federal bankruptcy laws;

               (v)   The other party shall become or be declared insolvent; 
and/or


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               (vi)  The other party shall file a petition in bankruptcy or 
shall be adjudged a bankrupt.

          (c)  The two parties may elect to terminate the Agreement by mutual 
written consent at any time.


     13.  OBLIGATIONS ON TERMINATION:  Upon termination of this Agreement:

          (a)  All amounts owing by Vista or KEO shall remain due and payable 
as provided herein;

          (b)  All unshipped orders due to be shipped after the effective 
date of termination for breach shall be canceled without liability of either 
party to the other;

          (c)  All unshipped orders (and mutually agreed in advance long-lead 
items) due to be shipped after the effective date of termination if such 
termination is for  reasons other than a breach, shall be binding, unless 
otherwise mutually agreed by the parties; and

          (d)  Neither party shall be liable to the other because of such 
termination for compensation, reimbursement, or damages on account of the 
loss of prospective profits or anticipated sales, or on account of 
expenditures, investments, leases, or commitments in connection with the 
business or goodwill of Vista or KEO or for any other reason whatsoever 
growing out of such termination.

     14.  ASSIGNMENT:  Neither party may assign or otherwise dispose of this
Agreement and any right or obligation arising under this Agreement without the
prior 


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written approval given by the other party.  However, the Agreement shall 
survive a transfer of control or sale of either Vista or KEO to a 3rd party.

     15.  WAIVER:  The waiver by either party of one breach or default 
hereunder shall hot constitute the waiver of any subsequent breach or default.

     16.  APPLICABLE LAW:  This Agreement shall be governed by and construed 
in accordance with the laws of the state of California, without reference to 
the rules of conflict of laws.

     17.  RELATIONSHIP OF THE PARTIES:  Each party shall act solely as an 
independent contractor, and nothing in this Agreement shall be construed to 
give either party the power or authority to act for or bind the other party.

     18.  HEADINGS:  Headings are inserted in this Agreement only for 
convenience and shall not be used to construe its terms.

     19.  NOTICES:  All notices required or permitted by this Agreement, or 
given in connection with this Agreement, shall be in writing and may be by 
personal delivery by Federal Express or by depositing the written notice with 
the United States Postal Service, postage pre-paid, first-class, Certified 
Mail, return receipt requested, addressed to the party to receive the same as 
follows:
                                                       
     --------------------------------        ---------------------------
     President                               President
     Vista Medical Technologies, Inc.        Kaiser Electro-Optics, Inc.
     2752 Loker Avenue West                  2752 Loker Avenue West
     Carlsbad, CA 92008                      Carlsbad, CA 92008

or to any other address or addresses as shall be designated in writing in the
same manner.


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     20.  TRADENAMES/TRADEMARKS: Each party acknowledges the validity of each 
other's tradenames and trademarks and that neither party shall have any right 
to or interest in any tradenames or trademarks owned, used, or claimed now or 
in the future by Vista or KEO as a result of this Agreement.

     21.  NON-DISCLOSURE: Because the parties have and will continue to 
exchange confidential, sensitive, and/or unique data relating to product, 
markets and/or projects, the attached Non-Disclosure Agreement is 
incorporated herein as Exhibit "A."

     22.  REGULATORY REQUIREMENTS: Vista is responsible for complying with 
regulatory requirements including, but not limited to, all costs related to 
UL, FDA, and resale of the product.  KEO will provide Vista with all 
specified information and materials required by Vista for the purpose of 
obtaining any regulatory approvals.  All regulatory data is the sole property 
of Vista.

     23.  STATUTE OF LIMITATIONS:  Any action for breach of this Agreement 
must be commenced within one (1) year after the cause of action has accrued.

     24.  ENTIRE AGREEMENT/SEVERABILITY:  This Agreement, with its exhibits, 
constitutes the entire Agreement between the parties with respect to the 
manufacture and sale of products and supersedes any prior agreements or 
understandings.  The provisions of this Agreement may be waived, altered, 
amended, or repealed in whole or in part only upon the written consent of 
both parties.  In case any provision(s) shall, insofar as possible, be 
construed or applied in such manner as will permit enforcement; otherwise 
this Agreement shall be construed as though such provision had never been 
made a part thereof. 


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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be 
executed by the respective duly authorized representatives as of the date 
first set forth above.


VISTA MEDICAL TECHNOLOGIES, INC.   KAISER ELECTRO-OPTICS, INC.



BY: /s/ John Lyon                 By: /s/ Jerry Carollo        
    ----------------------------       ----------------------------       
    John Lyon                         Jerry Carollo
    President                         President



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