**Exhibit 10.59**

** **

**ASSET PURCHASE AGREEMENT**

 

This Asset Purchase Agreement (“Agreement”) is made and entered into asof December 22, 2003, by and among Viking Systems, Inc., a Nevadacorporation (“Purchaser”) and Vista Medical Technologies, Inc., a Delawarecorporation (the “Company”).

 

**RECITALS**

 

WHEREAS, Purchaser desiresto acquire from the Company, and the Company desires to sell to Purchaser,certain assets of the Company’s medical device and technology business(the”Business”) on the terms and subject to the conditions set forth in thisAgreement; and

 

WHEREAS, the Purchaserdesires to assume certain liabilities of the Business as more fully describedherein; and

 

WHEREAS, the Company shallretain certain product rights with respect to the products and assets of theBusiness, which product rights will be exclusively licensed to Purchaserpursuant to the terms of the License Agreement; and

 

WHEREAS, certain otherassets and liabilities of the Company will remain with the Company and not betransferred to Purchaser, all as more particularly set forth herein; and

 

WHEREAS, Purchaser and theCompany acknowledge that this Agreement and the agreements attached as exhibitshereto collectively constitute the agreements necessary to accomplish thetransactions contemplated by this Agreement and are parts of an integratedarrangement between the parties with respect to the purchase and sale of thePurchased Assets (as defined in Section 1.1) and certain licenses andother relationships between the parties, and that separate agreements have beenused for the sake of convenience.

 

NOW, THEREFORE, inconsideration of the premises and the mutual covenants and promises containedherein, and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the parties hereto agree asfollows:

 

**ARTICLE I**

**DEFINITIONS**

 

1.1   *Defined Terms*. As used in this Agreement,the following defined terms have the meanings indicated below:

 

“**Actions or Proceedings**” means any action, suit, proceeding,arbitration, Order, inquiry, hearing, assessment with respect to fines orpenalties or litigation (whether civil, criminal, administrative, investigativeor informal) commenced, brought, conducted or heard by or before, or otherwiseinvolving, any Governmental or Regulatory Authority.

 

“**Affiliate**” means, with respect to any Person, another Personthat directly, or indirectly through one or more intermediaries, controls, iscontrolled by or is under common control with such Person.

 

“**Assets and Properties**” and “**Assetsor Properties**” of any Person each means all assets and properties ofevery kind, nature, character and description (whether real, personal or mixed,whether tangible or intangible, whether absolute, accrued, contingent, fixed orotherwise and wherever situated), including the goodwill related thereto,operated, owned or leased by such Person, including, without limitation, cash,cash equivalents, accounts and notes receivable, chattel paper, documents,instruments, general intangibles, real estate, equipment, inventory, goods andIntellectual Property.

 

“**Assumed Contracts**” has the meaning set forth inSection 2.1(d) below.

 

“**Assumed Liabilities**” has the meaning set forth inSection 2.3(a) below.

 

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“**Books and Records**” of any Person means all files, documents,instruments, papers, books, computer files (including but not limited to filesstored on a computer’s hard drive or on floppy disks), electronic files andrecords in any other medium relating to the business, operations or conditionof such Person.

 

“**Business Day**” means a day other than Saturday, Sunday or anyday on which banks located in the State of California are authorized orobligated to close.

 

“**Cash Purchase Price**” means the sum of (i) $132,000 and(ii) the difference (at Closing) between the Company’s aggregate accountsreceivable and aggregate accounts payable. To the extent the Cash PurchasePrice exceeds $400,000, only $400,000 will be paid at Closing and the remainderwill be paid upon the earlier of (i) collection of the associated accountsreceivable or (ii) forty-five (45) days after Closing.

 

**“Claim Notice”** has the meaning set forth in Section 8.2(c).

 

“**Closing**” has the meaning set forth in Section 2.9(a)below.

 

“**Closing Date**” has the meaning set forth in Section 2.9(a)below.

 

“**Closing Shares”** means that number of shares of Purchaser’sCommon Stock equal to 10% of Purchaser’s fully-diluted capitalization (which,for purposes of calculation, includes all outstanding common stock, preferredstock and convertible or exercisable securities) as of Closing.

 

“**Code**” means the Internal Revenue Code of 1986, as amended.

 

“**Company**” has the meaning set forth in the first paragraph ofthis Agreement.

 

“**Company Disclosure Schedule**” means the disclosure schedule ofthe Company attached hereto which sets forth the exceptions to therepresentations and warranties contained in *Article III*hereof and certain other information called for by this Agreement.

 

“**Company Intellectual Property**” means any Intellectual Propertyexclusively relating to the conduct of the Business that is owned by,exclusively licensed to or managed by the Company.

 

“**Company Records**” has the meaning set forth inSection 2.1(f) below.

 

“**Company Reports**” has the meaning set forth in Section 3.3below.

 

“**Confidentiality Agreement**” has the meaning set forth inSection 5.11 below.

 

“**Customer Lists and Accounts**” has the meaning set forth inSection 2.1(f) below.

 

“**Damages**” has the meaning set forth in Section 8.2(a)below.

 

“**Dispute Notice**” has the meaning set forth inSection 8.2(c).

 

“**Encumbrances**” means any mortgage, pledge, assessment, securityinterest, deed of trust, lease, lien, adverse claim, levy, charge or otherencumbrance of any kind, or any conditional sale or title retention agreementor other agreement to give any of the foregoing in the future.

 

“**Environment**” means any surface water, ground water, drinkingwater supply, land surface or subsurface strata, ambient air and any indoorworkplace.

 

“**Environmental Laws**” means all national, state, local andforeign laws, codes, regulations, common law, requirements, directives, Orders,and administrative or judicial interpretations thereof, all as in effect on thedate hereof or on the Closing Date, that may be enforced by any Governmental orRegulatory Authority, relating to pollution, the protection of the Environmentand the safety of workers and the public, or the regulation of the emission,discharge, disposal, release or threatened release of Materials in or into theEnvironment.

 

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“**Environmental Notice**” means any written notice by any Personalleging potential liability (including, without limitation, potentialliability for investigatory costs, cleanup costs, governmental costs, harm ordamages to person, property, natural resources or other fines or penalties)arising out of, based on or resulting from (a) the emission, discharge,disposal, release or threatened release in or into the Environment of anyMaterials or (b) circumstances forming the basis of any violation, oralleged violation, of any applicable Environmental Law.

 

“**ERISA**” means the Employee Retirement Income Security Act of1974, as amended, and the rules and regulations promulgated thereunder.

 

“**Exchange Act”** means the Securities Exchange Act of 1934, asamended.

 

“**Excluded Assets**” has the meaning set forth in Section 2.2below.

 

“**Fair Market Value**” has the meaning set forth inSection 8.2(e)(iv) below.

 

“**Financial System**” has the meaning set forth inSection 8.9 below.

 

“**GAAP**” means United States generally accepted accountingprinciples.

 

“**General Assignment**” has the meaning set forth inSection 2.9(b)(iv) below.

 

“**Governmental or Regulatory Authority**” means any court,tribunal, arbitrator, authority, agency, commission, official or otherinstrumentality of the United States or other country, any state, county, cityor other political subdivision.

 

“**Indemnity Shares**” means 10% of the Closing Shares, al of whichare to be held by the Company in accordance with the terms of this Agreement.

 

“**Intellectual Property**” means (i) trademarks, servicemarks, trade names, trade dress, labels, product configurations, logos, and allother names and slogans associated with any products or embodying the goodwillof the Business, whether or not registered, and any applications orregistrations therefor (including any goodwill or common law rights associatedtherewith), (ii) plans, design drawings, specifications and performancecriteria, operating instructions and maintenance manuals, manufacturinginformation (including production documentation, methods, layouts and supplierand cost information), copies of on-site computer software and relateddocumentation (including, without limitation, source and object code to theextent available), prototypes, models or samples, ideas, concepts and data,research records, all promotional literature, customer and supplier lists andsimilar data and information and all other confidential or proprietarytechnical and business information, (iii) copyrights, copyrightregistrations and applications for registration, (iv) patent and patentapplications (including all reissues, divisions, continuations,continuations-in-part, renewals, and extensions of the foregoing) owned by theCompany and (v) all other intellectual property rights and goodwillrelated thereto.

 

“**Knowledge of the Company**” or “**Known to the Company**” means the actual knowledge of anyCompany executive officer after reasonable inquiry.

 

“**Leased Real Property**” has the meaning set forth inSection 3.9 below.

 

“**Liabilities**” means any liability, debts, obligations of anykind or nature (whether known or unknown, whether asserted, or unasserted,whether absolute or contingent, whether accrued or unaccrued, whetherliquidated or unliquidated, and whether due or to become due), including butnot limited to any liability for Taxes.

 

“**License Agreement**” has the meaning set forth inSection 2.2 below.

 

“**Materials**” means pollutants, contaminants or chemical,industrial, hazardous, radioactive or toxic materials or wastes, including,without limitation, petroleum, petroleum products and radiation.

 

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“**Material Adverse Effect**” means, for any Person, a materialadverse effect, whether individually or in the aggregate, (a) on thebusiness, operations, financial condition, Assets and Properties, Liabilitiesor prospects of such Person, or (b) on the ability of such Person toconsummate the transactions contemplated hereby. For an event or condition tohave a Material Adverse Effect hereunder, such event or condition mustspecifically and particularly affect the Person in question as opposed toaffecting generally the economy, an industry or society (or a segment thereof).

 

“**Offer Recipients**” has the meaning set forth inSection 5.9(a) below.

 

“**Order**” means any writ, judgment, decree, injunction or similarorder of any Governmental or Regulatory Authority (in each such case whetherpreliminary or final).

 

“**Ordinary Course of Business**” means the action of a Person thatis consistent with the past practices of such Person and is taken in theordinary course of the normal day-to-day operations of such Person.

 

“**Permits**” means all licenses, permits, certificates ofauthority, authorizations, approvals, registrations and similar consentsgranted or issued by any Governmental or Regulatory Authority relating to theBusiness, the Purchased Assets or the Assumed Liabilities.

 

“**Permitted Encumbrances**” means (i) anyEncumbrance fortaxes that are not yet due or payable, (ii) any Encumbrance for taxassessments and other charges or claims with respect to taxes, the validity ofwhich are being contested in good faith by appropriate proceedings for whichadequate reserves have been established in accordance with generally acceptedaccounting principles, (iii) any minor imperfection of title or similarEncumbrances which individually or in the aggregate with other suchEncumbrances does not impair the value of the property subject to suchEncumbrance or the use of such property in the conduct of the Business,(iv) mechanics’ and materialmen’s liens incurred in the Ordinary Course ofBusiness for construction or alterations, (v) statutory liens of landlordsand workmen’s, repairmen’s, warehousemen’s and carriers’ liens arising in theOrdinary Course of Business, (vi) requirements incurred or otherEncumbrances relating to deposits made in the Ordinary Course of Business inconnection with workers’ compensation, unemployment insurance and other similarstatutory requirements and (vii) Eencumbrances constituted by the terms of(A) any equipment lease; (B) any capital lease; (C) any licenseand (D) any real property lease.

 

“**Person**” means any natural person, corporation, generalpartnership, limited partnership, limited liability company, proprietorship,other business organization, trust, union, association or Governmental orRegulatory Authority.

 

“**Products**” has the meaning set forth in Section 2.1(a)below.

 

“**Property**” has the meaning set forth in Section 2.1(b)below.

 

“**Purchased Assets**” has the meaning set forth inSection 2.1 below.

 

“**Purchaser**” has the meaning set forth in the first paragraph ofthis Agreement.

 

“**Purchaser Disclosure Schedule**” means the disclosure scheduleof the Purchaser attached hereto which sets forth the exceptions to therepresentations and warranties contained in *Article IV*hereof and certain other information called for by this Agreement.

 

“**Purchaser Group**” has the meaning set forth inSection 8.2(a) below.

 

“**Registration Rights Agreement**” means the agreementsubstantially in the form of *Exhibit D*attached hereto.

 

“**SEC**” means the United States Securities and ExchangeCommission, or any successor entity.

 

“**Securities**” means, collectively, the Closing Shares andIndemnity Shares.

 

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“**Securities Act**” means the Securities Act of 1933, as amended.

 

“**Survival Period**” has the meaning set forth in Section 8.1below.

 

“**Tax**” (and, with correlative meaning, “Taxes,” “Taxable” and“Taxing”) means all sales and use taxes, real and personal property taxes,income taxes, gross receipts taxes, documentary transfer taxes, employmenttaxes, withholding taxes, unemployment insurance contributions and other taxesor governmental charges of any kind, however denominated, including anyLiability in respect thereto, under any federal, state, local, foreign or otherapplicable tax law.

 

“**Tax Return**” means any return, report, information return,schedule or other document (including any related or supporting information)filed or required to be filed with respect to any taxing authority with respectto Taxes.

 

“**Updated Capitalization Representation**” has the meaning setforth in Section 4.2 below.

 

“**Updated Company Disclosure Schedule**” has the meaning set forthin Section 5.13 below.

 

“**Updated Purchaser Disclosure Schedule**” has the meaning setforth in Section 5.13 below.

 

1.2         *Construction of Certain Terms and Phrases*.Unless the context of this Agreement otherwise requires, (a) words of anygender include each other gender; (b) words using the singular or pluralnumber also include the plural or singular number, respectively; (c) theterms “hereof,” “herein,” “hereby” and derivative or similar words refer tothis entire Agreement; (d) the terms “Article” or “Section” refer to the specifiedArticle or Section of this Agreement; (e) the term “or” has, except whereotherwise indicated, the inclusive meaning represented by the phrase “and/or”;and (f) ”including” means “including without limitation.” Whenever thisAgreement refers to a number of days, such number shall refer to calendar daysunless Business Days are specified. All accounting terms used herein and notexpressly defined herein shall have the meanings given to them under GAAP.

 

**ARTICLE II**

**PURCHASE AND SALE OF ASSETS**

 

2.1         *Purchase and Sale of Certain Assets of the Company*.Subject to the terms and conditions hereof, the Company shall sell, assign,grant, transfer, convey and deliver to Purchaser, and Purchaser shall purchaseand accept from the Company as of the Closing, other than the Excluded Assets,all of the assets of the Business, wherever situated, as the same shall existon the Closing Date (collectively, the “Purchased Assets”), including withoutlimitation the following:

 

(a)   *Products*. All products listed on *Schedule 2.1(a)*, including withoutlimitation all specifications, documentation, supplements, improvements,modifications, updates, corrections and enhancements to past versions of suchproducts, shipping versions of such products and versions of such productscurrently under development (the “Products”)

 

(b)   *Property*. All fixed assets and tangiblepersonal property used exclusively in the operation of the Business and setforth in *Schedule 2.1(b)*attached hereto (the “Property”);

 

(c)   *Customer Lists*. All customer lists andcustomer accounts owned by the Company and used primarily in operation of theBusiness and set forth in *Schedule 2.1(c)*attached hereto (the “Customer Lists and Accounts”);

 

(d)   *Assumed Contracts*. All rights of theCompany under the agreements entered into between the Company and third partiesnamed therein in the operation of the Business and listed in *Schedule 2.1(d)* attached hereto (the“Assumed Contracts”);

 

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(e)   *Permits*. All Permits (other than Permitsthat are not assignable pursuant to applicable laws) issued to or held by theCompany relating to the Purchased Assets, the Business or Assumed Liabilitiesas forth in *Schedule 2.1(e)*attached hereto;

 

(f)    *Company Records*. All of the Books andRecords of the Company exclusively related to the Business, Purchased Assetsand Assumed Liabilities (the “Company Records”);

 

(g)   *Inventory*. Only the inventory of theBusiness set forth in *Schedule 2.1(g)*;and

 

(h)   *Accounts*. All accounts receivable andaccounts payable of the Business as set forth in *Schedule 2.1(h)*.

 

2.2         *Excluded Assets*. The Company shall retainall of its rights, title and interest in and to all the assets of the Companyother than the Purchased Assets including, without limitation, the CompanyIntellectual Property and the assets set forth in *Schedule 2.2* (collectively, the “Excluded Assets”).Certain Company Intellectual Property shall be licensed to Purchaser inexchange for royalty payments pursuant to the terms of a License Agreement tobe executed in connection herewith, substantially in the form of *Exhibit A* hereto (the “LicenseAgreement”).

 

2.3         *Assumed Liabilities/Excluded Liabilities.*

 

(a)   Asof the Closing Date, Purchaser agrees to assume, satisfy or perform when duethose liabilities and obligations of the Company listed in *Schedule 2.3* (the “AssumedLiabilities”).

 

(b)   Otherthan the Assumed Liabilities, Purchaser shall not assume, or be deemed to haveassumed or guaranteed, or otherwise be responsible for any liability,obligation or claims of any nature of the Company, whether matured orunmatured, liquidated or unliquidated, fixed or contingent, known or unknown,or whether arising out of acts or occurrences prior to, at or after the datehereof. Without limiting the generality of the foregoing, the Company shallremain liable for all, Tax liabilities, litigation matters involving theCompany and the payment of all Liabilities and obligations to personnel of theCompany with respect to the notice and continuation coverage requirement ofSection 4980B(e) of the Code and regulations thereunder, payroll,overtime, accrued vacation time, holiday time, severance arrangements orworker’s compensation of any nature which are accrued but unpaid as of theClosing Date.

 

2.4         *Purchase Price*. On the Closing Date, asconsideration for the Purchased Assets, Purchaser agrees:

 

(a)   Topay and deliver to the Company the Cash Purchase Price; and

 

(b)   Todeliver to the Company a certificate evidencing the Closing Shares;

 

(c)   Toassume the Assumed Liabilities.

 

2.5         *Allocation of Aggregate Purchase Price.*The allocation of the purchase price set forth in Section 2.4 above shallbe as set forth on *Schedule 2.5*attached hereto. Purchaser and the Company agree (a) to report the sale ofthe Purchased Assets for federal and state Tax purposes in accordance with theallocations set forth on *Schedule 2.5*hereto and (b) not to take any position inconsistent with such allocationson any of their respective tax returns.

 

2.6         *Private Placement*. The Closing Shares tobe issued to the Company will be exempt from the registration requirements ofthe Securities Act pursuant to the private placement exemption provided byRules 505 and/or 506 of Regulation D promulgated under the SecuritiesAct and/or Section 4(2) of the Securities Act and applicable statesecurities laws, based in part upon the representations and warranties of theCompany contained herein. The Company hereby agrees to take all actions andexecute all subscription and other documents which Purchaser reasonably deemsnecessary to qualify the issuance of the Closing Shares for such exemption.

 

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2.7         *Sales, Use and Other Taxes.* The Companyshall be responsible for all sales, use, documentary stamp and other Taxes, ifany, arising out of the sale of the Purchased Assets to Purchaser pursuant tothis Agreement or any of the transactions contemplated by this Agreement.

 

2.8         *Bulk Sales Compliance*. The Purchaserhereby waives compliance by the Company with the provisions of any and all lawsrelating to bulk transfers in connection with the sale of the Purchased Assets.The Company covenants and agrees to indemnify and hold harmless Purchaser fromand against any and all Damages arising out of noncompliance with such bulktransfers laws.

 

2.9         *Closing.*

 

(a)         *Time and Place*. The consummation of thepurchase and sale of the Purchased Assets under this Agreement (the “Closing”)shall take place at the offices of Heller Ehrman White & McAuliffe,LLP, 4350 La Jolla Village Drive, Suite 700, San Diego, California, 92122-1246,at 10:00 a.m. on January 21, 2004 or at such other time and in such manneras the parties mutually agree in writing (the “Closing Date”).

 

(b)         *Closing Deliveries by the Company*. At theClosing, the Company shall have delivered or caused to be delivered toPurchaser:

 

(i)    possessionof all of the Purchased Assets;

 

(ii)   theLicense Agreement, duly executed by the Company;

 

(iii)  aBill of Sale substantially in the form of *Exhibit B*attached hereto, conveying good and marketable title in and to all of thePurchased Assets, duly executed by the Company;

 

(iv)  anAssignment and Assumption Agreement substantially in the form of *Exhibit C* attached hereto (the“General Assignment”), duly executed by the Company;

 

(v)   theRegistration Rights Agreement, duly executed by the Company;

 

(vi)  theUpdated Company Disclosure Schedule;

 

(vii) acertificate of an officer of the Company with respect to the matters set forthin Section 7.1 hereof;

 

(viii) acertificate of the Secretary of the Company, certifying as of the Closing Date(A) a true and complete copy of the Certificate of Incorporation of theCompany, (B) a true and complete copy of the resolutions of each of theboard of directors and stockholders of the Company authorizing the execution,delivery and performance of this Agreement by the Company and the consummationof the transaction contemplated hereby, (C) a certificate of good standingas of a recent date of the Company in the State of Delaware and(D) incumbency matters; and

 

(ix)  consentsto assignment of the Assumed Contracts in form and substance satisfactory toPurchaser and its counsel.

 

(c)         *Closing Deliveries By Purchaser*. At theClosing, Purchaser shall have delivered or caused to be delivered:

 

(i)    theCash Purchase Price to the Company;

 

(ii)   theClosing Shares to the Company;

 

(iii)  theLicense Agreement, duly executed by Purchaser;

 

(iv)  theGeneral Assignment, duly executed by Purchaser;

 

(v)   theRegistration Rights Agreement, duly executed by Purchaser;

 

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(vi)  theUpdated Purchaser Disclosure Schedule;

 

(vii) acertificate of an officer of Purchaser with respect to the matters set forth inSection 6.1 hereof;

 

(viii) acertificate of the Secretary of Purchaser, certifying as of the Closing Date(A) a true and complete copy of the Certificate of Incorporation of thePurchaser, (B) a true and complete copy of the resolutions of the board ofdirectors of the Purchaser authorizing the execution, delivery and performanceof this Agreement by the Purchaser and the consummation of the transactionscontemplated hereby, (C) a certificate of good standing as of a recentdate of the Purchaser in the State of Nevada and (D) incumbency matters;and

 

(ix)  suchother documents as the Company may reasonably request for the purpose offacilitating the consummation of the transactions contemplated herein.

 

**ARTICLE III**

**REPRESENTATIONS AND WARRANTIES OF THE COMPANY**

 

The Company represents andwarrants to Purchaser as of the date hereof, except as set forth on theDisclosure Schedule furnished separately to Purchaser or as set forth in theCompany Reports, which exceptions shall be deemed to be representations andwarranties as if made hereunder, as follows:

 

3.1         *Organization of the Company*. The Companyis a corporation duly organized, validly existing, and in good standing underthe laws of the State of Delaware. The Company has the requisite corporatepower and corporate authority to carry on its business and own its Assets andProperties except where failure to have such power and authority would not havea Material Adverse Effect on the Business. The Company is duly qualified toconduct its respective business and is in good standing under the laws of eachjurisdiction where such qualification is required except for any jurisdictionwhere failure so to qualify would not have a Material Adverse Effect upon theBusiness.

 

3.2         *Authority*. The Company has all necessarycorporate power and corporate authority and has taken all corporate actionnecessary to enter into this Agreement, to consummate the transactions contemplatedhereby and to perform its respective obligations hereunder and no otherproceedings or corporate or stockholder action on the part of the Company isnecessary to authorize this Agreement or to consummate the transactionscontemplated hereby. This Agreement has been duly and validly executed anddelivered by the Company and (assuming due authorization, execution anddelivery by the other parties to this Agreement) constitutes a legal, valid andbinding obligation of the Company enforceable against the Company in accordancewith its terms except (i) as limited by applicable bankruptcy, insolvency,reorganization, moratorium and other laws of general application affectingenforcement of creditors’ rights generally and (ii) as limited by laws relatingto the availability of specific performance, injunctive relief or otherequitable remedies.

 

3.3         *Financial Statements and Reports*. Thereports and documents filed by the Company under Section 13 or subsections(a) or (c) of Section 14 of the Exchange Act with the SEC sinceJanuary 1, 2001 (such reports are collectively referred to herein as the“Company Reports”) constitute all of the reports and documents required to befiled by the Company under Section 13 or subsections (a) or (c) ofSection 14 of the Exchange Act with the SEC from January 1, 2001through the date of this Agreement. The Company Reports have been duly andtimely filed, were in compliance in all material respects with the requirementsof the Exchange Act and the rules and regulations thereunder when filed, andwere complete and correct in all material respects as of the dates at which theinformation therein was furnished. As of their respective dates, the CompanyReports did not contain any untrue statement of a material fact or omit tostate a material fact required to be stated therein or necessary to make thestatements therein, in light of the circumstances under which they were made,not misleading. The audited financial statements and unaudited interimfinancial statements of Company included in the Company Reports(i) complied as to form in all material respects with applicableaccounting requirements and the published rules and regulations of the SEC withrespect thereto when filed, (ii) were prepared in accordance with GAAPapplied on a consistent basis throughout the periods

 

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covered thereby (except as may be indicatedtherein or in the notes thereto, and in the case of quarterly financialstatements, as permitted by Form 10-Q under the Exchange Act),(iii) fairly present the consolidated financial condition, results ofoperations and cash flows of Company as of the respective dates thereof and forthe periods referred to therein, and (iv) are consistent with the booksand records of Company. Since the date of the filing with the SEC of Company’smost recent Form 10-Q, there has been no material adverse change in thefinancial condition or results operations of Company that has resulted in aMaterial Adverse Effect on the Business or the Purchased Assets. There are norestatements of Company’s financial statements currently contemplated asdiscussed with Company’s Audit Committee.

 

3.4         *No Conflicts*. The execution and deliveryby the Company of this Agreement does not, and the performance by the Companyof its obligations under this Agreement and the consummation of thetransactions contemplated hereby will not:

 

(a)   conflictwith or result in a violation or breach of any of the terms, conditions orprovisions of the Certificate of Incorporation or Bylaws of the Company;

 

(b)   conflictwith or result in a violation or breach of any term or provision of any law,Order, Permit, statute, rule or regulation of a Governmental or RegulatoryAuthority applicable to the Business or the Purchased Assets;

 

(c)   resultin a breach of, or default under (or give rise to right of termination,cancellation or acceleration under) any of the terms, conditions or provisionsof any note, bond, mortgage, indenture, license, permit, agreement, lease orother similar instrument or obligation to which the Business or the PurchasedAssets may be bound; or

 

(d)   resultin an imposition or creation of any Encumbrance on the Business or any of thePurchased Assets.

 

3.5         *Consents, Approvals and Filings*. Noconsent, approval or action of, filing with or notice to any Governmental orRegulatory Authority or other Persons on the part of the Company is required inconnection with the execution, delivery and performance of this Agreement orthe consummation of the transactions contemplated hereby other than approval bythe Company’s stockholders in accordance with the Company’s bylaws and theDelaware General Corporation Law.

 

3.6         *No Undisclosed Liabilities*. Except asdisclosed in the Company Reports (including financial statements containedtherein), there are no Liabilities, nor any basis for any claim against theCompany for any such Liabilities, relating to or affecting the Business or thePurchased Assets, other than Liabilities incurred after the date of the latestCompany Report in the Ordinary Course of Business which have not had, and couldnot reasonably be expected to result in, individually or in the aggregate, aMaterial Adverse Effect on the Business or the Purchased Assets.

 

3.7         *Purchased Assets*. Section 3.7 of theCompany Disclosure Schedule contains a complete and accurate schedulespecifying the location of all of the Purchased Assets, as of the Closing Date.The Company has good and marketable title to, or a valid leasehold interest inall of the Purchased Assets, free and clear of all Encumbrances (other thanPermitted Encumbrances). The Purchased Assets (together with the ExcludedAssets), constitute all property of any nature owned by the Company used in, oruseful to, the operation of the Business as conducted as of the date hereof.All tangible personal property of the Company and/or used in or useful to theoperation of the Business is in good operating condition and repair, ordinarywear and tear excepted. The Company shall be in actual possession of all of thePurchased Assets at the Closing.

 

3.8         *Benefit Plans; ERISA*. Except as set forthon Section 3.8 of the Company Disclosure Schedule, Purchaser will incur noliability with respect to, or on account of, and the Company will retain anyliability for, and on account of, any employee benefit plan of the Company,including, but not limited

 

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to, liabilities the Company may have to suchemployees under all incentive compensation plans, bonus plans, pension andretirement plans, profit-sharing plans (including, any profit-sharing plan witha cash-or-deferred arrangement subject to Section 401(k) of the Code)stock purchase and option plans, savings and similar plans, medical, dental,travel, accident, life, disability and other insurance and other plans orarrangements, whether written or oral and whether “qualified” or“non-qualified” under the Code, or to any employee as a result of terminationof employment by the Company as contemplated by this Agreement. The Company hasnot, with respect to any Offer Recipients, maintained, contributed to, or beenobligated or required to contribute to, a “multiemployer plan,” as such term isdefined in Section 3(37) of ERISA. The Company is not a party to anycollective bargaining agreement covering any Offer Recipients and the Companyknows of no effort to organize any such employee as a part of any collectivebargaining unit.

 

3.9         *Real Property*. The Company does not ownany real property. Section 3.9 of the Company Disclosure Schedule containsthe complete and accurate street address of each parcel of real property leasedby the Company or any of its Affiliates in the conduct of the Business (aslessee or lessor) (the “Leased Real Property”). The Company has a validleasehold interest in all real property used in or relating to the conduct ofthe Business, free and clear of all Encumbrances (other than PermittedEncumbrances). Each lease with respect to the Leased Real Property is a legal,valid and binding agreement subsisting in full force and effect enforceable inaccordance with its terms, and except as set forth in Section 3.9 of theCompany Disclosure Schedule, there is no, and the Company has not receivednotice of any, default (or any condition or event which, after notice or lapseof time or both, would constitute a default) thereunder. Such leases in effectallow the particular use of the premises involved, and no provision of anylease prohibits or unduly limits the Company’s ability to conduct the Businessso as to have a Material Adverse Effect on the Business if enforced. TheCompany does not owe any brokerage commissions with respect to any such LeasedReal Property.

 

3.10        *Intellectual Property Rights*.

 

(a)   Section 3.10(a)of the Company Disclosure Schedule contains a true, correct, complete andcurrent list and summary of all patents, trademarks and copyright registrationsor applications comprising Company Intellectual Property. The Company owns andhas good and exclusive title to (or valid right to use) each item of CompanyIntellectual Property free and clear of any Encumbrance (other than PermittedEncumbrances).

 

(b)   Section 3.10(b)of the Company Disclosure Schedule lists all Actions or Proceedings before anyGovernmental or Regulatory Authority (including the United States Patent andTrademark Office or equivalent authority anywhere in the world) related to anyCompany Intellectual Property. No Company Intellectual Property or product or serviceof the Business is subject to any proceeding or outstanding decree, order,judgment, agreement, or stipulation restricting in any manner the use,transfer, or licensing thereof by the Company, or which may affect thevalidity, use or enforceability of such Company Intellectual Property.

 

(c)   Tothe Knowledge of the Company, each item of Company Intellectual Property isvalid and subsisting, all necessary registration, maintenance and renewal feesin connection with such Company Intellectual Property have been made and allnecessary documents and certificates in connection with the CompanyIntellectual Property have been filed with the relevant patent, copyright,trademark or other authorities in the United States or foreign jurisdictions,as the case may be, for the purposes of maintaining such Company IntellectualProperty.

 

(d)   Tothe extent that any Company Intellectual Property has been developed or createdby a third party for the Company, the Company has a written agreement with suchthird party with respect thereto and the Company thereby has obtained ownershipof, and is the exclusive owner of, or has a valid license to use, allIntellectual Property in such work, material or invention by operation of lawor by valid assignment.

 

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(e)   Exceptas set forth in Section 3.10(e) of the Company Disclosure Schedule, theCompany has not transferred ownership of, or granted any license (exclusive ornon-exclusive) with respect to any Company Intellectual Property to any thirdparty.

 

(f)    Section 3.10(f)of the Company Disclosure Schedule lists all contracts, licenses and agreementsto which the Company is a party that are currently in effect (i) withrespect to the Company Intellectual Property licensed or offered to any thirdparty; or (ii) pursuant to which a third party has licensed or transferredany Company Intellectual Property to the Company. Each of the contracts,licenses and agreements listed in Section 3.10(f) of the Company DisclosureSchedule is in full force and effect. The consummation of the transactionscontemplated by this Agreement will neither violate nor result in the breach,modification, cancellation, termination or suspension of such contracts,licenses and agreements. The Company is in compliance with, and has notbreached any term of any of such contracts, licenses and agreements. To theKnowledge of the Company, following the Closing Date Purchaser will bepermitted to exercise all of the Company’s rights under the contracts, licensesand agreements required to be listed in Section 3.10(f) to the same extentthe Company would have been able to had the transactions contemplated by thisAgreement not occurred and without the payment of any additional amounts orconsideration other than ongoing fees, royalties or payments which the Companywould otherwise be required to pay.

 

(g)   Tothe Knowledge of the Company, the operation of the Business, as currentlyconducted, has not, does not and will not infringe or misappropriate theIntellectual Property of any third party or constitute unfair competition ortrade practices under the laws of any jurisdiction.

 

(h)   TheCompany has not received notice from any third party that the operation of theBusiness or any act, product or service of the Business infringes ormisappropriates the Intellectual Property of any third party or constitutesunfair competition or trade practices under the laws of any jurisdiction.

 

(i)    Tothe Knowledge of the Company, (i) no Person has or is infringing ormisappropriating any Company Intellectual Property and (ii) there havebeen, and are, no claims asserted against the Company or against any customerof the Company, related to any product or service of the Business.

 

3.11       *Litigation*. Except as set forth inSection 3.11 of the Company Disclosure Schedule, there are no Actions orProceedings pending or, to the Knowledge of the Company, threatened oranticipated against, relating to or affecting (i) the Business or thePurchased Assets or (ii) the transactions contemplated by this Agreement,and, to the Knowledge of the Company, there is no basis for any such Action orProceeding. The Company is not in default with respect to any Order, and thereare no unsatisfied judgments against the Company.

 

3.12       *Compliance with Law*. To the Knowledge ofthe Company, it is in compliance with all applicable laws, statutes, Orders,ordinances and regulations, whether federal, state, local or foreign, exceptwhere the failure to comply, in each instance and in the aggregate, would notreasonably be expected to have a Material Adverse Effect on the Business. TheCompany has not received any notice to the effect that, or otherwise has beenadvised that, it is not in compliance with any of such laws, statutes, Orders,ordinances or regulations, where the failure to comply could reasonably beexpected to result in a Material Adverse Effect on the Business.

 

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3.13       *Contracts.*

 

(a)         Section 3.13of the Disclosure Schedule contains a true and complete list of each of thefollowing contracts, agreements or other arrangements to which the Company is aparty and by which any of the Purchased Assets are bound:

 

(i)    allloan agreements, indentures, debentures, notes or letters of credit relating tothe borrowing of money or to mortgaging, pledging or otherwise placing anEncumbrance on any Purchased Assets;

 

(ii)   allleases or agreements under which the Company is lessee or lessor of, or holds,or operates, any property, real or personal, owned by any other party used inconnection with the conduct of the Business;

 

(iii)  allcommitments, contracts, sales contracts, purchase orders, mortgage agreementsor groups of related agreements with the same party or any group or affiliatedparties which require or may in the future require payment of any considerationby the Company;

 

(iv)  alllicense agreements, distribution agreements or any other agreements involvingany of the Company Intellectual Property;

 

(v)   allcontracts or commitments that in any way restrict the Company from carrying onthe Business;

 

(vi)  allother contracts and agreements pertaining to the conduct of the Business or bywhich any of the Purchased Assets is bound that (A) involve the payment orpotential payment, pursuant to the terms of any such contract or agreement, bythe Company and (B) cannot be terminated within thirty (30) daysafter giving notice of termination without resulting in any cost or penalty tothe Company; and

 

(vii) allcontracts or commitments that in any way grants a third party a right of firstrefusal for the purchase of any of the Purchased Assets.

 

(b)         Acorrect and complete copy of each contract, agreement or other arrangementdisclosed in Section 3.13 of the Company Disclosure Schedule has beenpreviously provided to Purchaser. Each contract, agreement or other arrangementdisclosed in Section 3.13 of the Company Disclosure Schedule is in fullforce and effect and constitutes a legal, valid and binding agreement,enforceable in accordance with its terms.

 

3.14       *Environmental Matters*. The Business is incompliance with, and has at all times complied with, all applicableEnvironmental Laws in all respects and, to the Knowledge of the Company, thereare no circumstances which may prevent or interfere with such compliance in theimmediate future. In the last five (5) years, the Company has not receivedany communication (whether written or oral), whether from a Governmental orRegulatory Authority, citizen group, employee or otherwise, that alleges thatthe Company or any predecessor of any of the Leased Real Property or PurchasedAssets is not in full compliance with Environmental Laws. All Permits,licenses, registrations and other governmental authorizations currently held bythe Company pursuant to Environmental Laws are identified in Section 3.14of the Company Disclosure Schedule and are in good standing and without anyviolation and represent all such environmental Permits necessary for the conductof the Business as currently conducted. The Company has not been notified byany Governmental or Regulatory Authority that any environmental Permit will bemodified, suspended or revoked or cannot be renewed, reissued or transferred,and, to the Knowledge of the Company, no environmental Permit will be modified,suspended or revoked, or cannot be renewed, reissued or transferred.

 

3.15       *Inventory*. The inventory of the Businessis in good and merchantable condition, and suitable and usable at its carryingvalue in the Ordinary Course of Business for the purposes for which

 

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intended. There is no material adversecondition affecting the supply of materials available to the Company in theconduct of the Business. All inventories used in or relating to the conduct ofthe Business are owned by the Company free and clear of any Encumbrances (otherthan Permitted Encumbrances).

 

3.16       *Plants, Buildings, Structures, Facilities andEquipment*. All plants, buildings, structures, facilities andequipment used by the Company in the conduct of the Business are structurallysound with no known material defects and are in good operating condition andrepair (subject to normal wear and tear) so as to permit the operation of theBusiness as presently conducted. The current condition of such plants,buildings, structures and facilities comply with applicable zoning and permitrequirements.

 

3.17       *Customer Lists and Accounts*. The CustomerLists and Accounts set forth in *Schedule 2.1(b)*is a true and correct list of the Company’s customers and accounts as of thedate hereof.

 

3.18       *Relationships with Suppliers and Licensors*.No current supplier to the Company with the respect to the Business hasnotified the Company of an intention to terminate or substantially alter itsexisting business relationship with the Company nor has any licensor under alicense agreement with the Company that constitutes part of the AssumedContracts notified the Company of an intention to terminate or substantiallyalter the Company’s rights under such license.

 

3.19       *Tax Matters*. All Taxes of the Company havebeen or will be paid on a timely basis. The Company has duly and timely filed(or will file prior to the Closing) all Tax Returns required to be filed priorto Closing, and all such Tax Returns and reports are true, correct, andcomplete in all material respects. There are no Encumbrances (other thanPermitted Encumbrances) for Taxes on any of the Purchased Assets. The Company hascomplied with all record keeping and tax reporting obligations relating toincome and employment taxes due with respect to compensation paid to employeesor independent contractors. The Company is not a “foreign person” within themeaning of Section 1445(f)(3) of the Code. There are no pending or, to theKnowledge of the Company, threatened proceedings with respect to Taxes forwhich Purchaser could bear successor liability beyond what is set forth in theDisclosure Schedule or which could become a charge against the PurchasedAssets, and there are no outstanding waivers or extensions of statutes oflimitations with respect to assessments of Taxes, of the Company for whichPurchaser could bear successor liability beyond what is set forth in theDisclosure Schedule or which could become a charge against the PurchasedAssets.

 

3.20       *Permits*. Section 3.20 of theDisclosure Schedule contains a true and complete list of all Permits used bythe Company in the conduct of the Business. All such Permits are currentlyeffective and valid and have been validly issued and are freely transferable toPurchaser at the Closing. To the Knowledge of the Company, no additionalPermits are necessary to enable the Company to conduct the Business incompliance with all applicable federal, state and local laws. To the Knowledgeof the Company, the execution, delivery or performance of this Agreement willnot have any effect on the continued validity or sufficiency of the Permits,nor will any additional Permits be required by virtue of the execution,delivery or performance of this Agreement to enable the Company to conduct theBusiness as now operated. To the Knowledge of the Company, there is no pendingAction or Proceeding by any Governmental or Regulatory Authority which couldaffect the Permits or their sufficiency for the current conduct of the Businessor of the conduct of the Business after the Closing.

 

3.21       *Brokers.* The Company has not retained anybroker in connection with the transactions contemplated hereunder. Purchaserhas, and will have, no obligation to pay any broker’s, finder’s, investmentbanker’s, financial advisor’s or similar fee in connection with this Agreementor the transactions contemplated hereby by reason of any action taken by or onbehalf of the Company.

 

3.22       *Material Misstatements and Omissions.* Thestatements, representations and warranties of the Company contained in thisAgreement (including the exhibits and schedules hereto) and in each document,statement, certificate or exhibit furnished or to be furnished by or on behalfof the

 

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Company pursuant hereto, or in connectionwith the transactions contemplated hereby, taken together, do not contain andwill not contain any untrue statement of a material fact and do not or will notomit to state a material fact necessary to make the statements or factscontained herein or therein, in light of the circumstances made, notmisleading.

 

3.23       *Investment Representations*. The Company isan “accredited investor” as such term is defined in Rule 501(a)promulgated under the Securities Act. The Company is aware that the ClosingShares have not been registered under the Securities Act or any applicablestate securities laws, and hereby agrees that the Closing Shares may not beoffered or sold (i) in the absence of registration under the SecuritiesAct and any applicable state securities laws or an exemption from theregistration requirements of the Securities Act and any applicable state securitieslaws and (ii) unless in compliance with the terms and provisions of thisAgreement. The Company represents that the Company is familiar withRule 144 promulgated by the SEC pursuant to the Securities Act, aspresently in effect, and understands the resale limitations imposed thereby andby the Securities Act. The Company understands that the offering and sale ofthe Closing Shares is intended to be exempt from registration under theSecurities Act, by virtue of the private placement exemption provided byRule 505 and/or 506 of Regulation D promulgated under the SecuritiesAct and/or Section 4(2) of the Securities Act, based, in part, upon therepresentations, warranties and agreements contained in this Agreement, andPurchaser may rely on such representations, warranties and agreements inconnection therewith.

 

The Company agrees that itwill be acquiring the Closing Shares for its own account and for investment,and not with a view to the distribution thereof or with any present intentionof distributing or selling any of the Closing Shares except in compliance withthe Securities Act, applicable state securities laws and this Agreement. TheCompany represents that by reason of its business and financial experience, theCompany has knowledge, sophistication and experience in business and financialmatters as to be capable of evaluating the merits and risk of the prospectiveinvestment. The financial condition and investments of the Company are suchthat the Company is in a financial position to hold the Closing Shares for anindefinite period of time and to bear the economic risk of, and withstand acomplete loss of, the investment in the Closing Shares.

 

**ARTICLE IV**

**REPRESENTATIONS AND WARRANTIES OF PURCHASER**

 

Purchaser represents andwarrants to the Company as of the date hereof, except as set forth on thePurchaser Disclosure Schedule furnished separately to the Company, whichexceptions shall be deemed to be representations and warranties as if madehereunder, as follows:

 

4.1       *Organization*. Purchaser is a corporationduly organized, validly existing, and in good standing under the laws of theState of Nevada. Purchaser has the requisite corporate power and corporateauthority to carry on its business and own its Assets and Properties exceptwhere failure to have such power and authority would not have a MaterialAdverse Effect on Purchaser. Purchaser is duly qualified to conduct itsrespective business and is in good standing under the laws of each jurisdictionwhere such qualification is required except for any jurisdiction where failureso to qualify would not have a Material Adverse Effect upon Purchaser.

 

4.2       *Capital Stock of Purchaser*. The authorizedcapital stock of Purchaser, consists of (i) 20,000,000 shares of commonstock, par value $0.001 per share, of which 6,294,650 shares were issued andoutstanding as of the date hereof; (ii) no shares of capital stock ofPurchaser in treasury; and (iii) 5,000,000 shares of Preferred Stock,$0.001 par value per share, all of which have been designated Series APreferred Stock and all of which were issued and outstanding as of the datehereof (each of which shares is convertible into four shares of common stock).Each share of the issued and outstanding capital stock of Purchaser is duly authorized,validly issued, fully paid and nonassessable. Purchaser will provide at Closingan updated version of this Section 4.2, updated and accurate as of the

 

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Closing (the “Updated CapitalizationRepresentation”). The fully diluted percentage ownership of Purchaserrepresented by the Closing Shares will not materially change between the datehereof and the Closing.

 

Except for outstandingoptions to purchase up to 1,200,000 shares of common stock, there are nooutstanding options, warrants, rights (including conversion or preemptiverights) or agreements for the purchase or acquisition from Purchaser of anyshares of its capital stock.

 

4.3       *Authority*. Purchaser has all necessarycorporate power and corporate authority and has taken all corporate actionnecessary to enter into this Agreement, to consummate the transactionscontemplated hereby and to perform its respective obligations hereunder and noother proceedings or corporate or stockholder action on the part of Purchaseris necessary to authorize this Agreement or to consummate the transactionscontemplated hereby. This Agreement has been duly and validly executed anddelivered by Purchaser and (assuming due authorization, execution and deliveryby the other parties to this Agreement) constitutes a legal, valid and bindingobligation of Purchaser enforceable against Purchaser in accordance with itsterms except (i) as limited by applicable bankruptcy, insolvency,reorganization, moratorium and other laws of general application affectingenforcement of creditors’ rights generally and (ii) as limited by lawsrelating to the availability of specific performance, injunctive relief orother equitable remedies.

 

4.4       *Litigation*. Except as set forth in thePurchaser Disclosure Schedule, there are no Actions or Proceedings pending or,to the Knowledge of Purchaser, threatened or anticipated against, relating toor affecting (i) Purchaser or (ii) the transactions contemplated bythis Agreement, and, to the Knowledge of Purchaser, there is no basis for anysuch Action or Proceeding. Purchaser is not in default with respect to anyOrder, and there are no unsatisfied judgments against Purchaser.

 

4.5       *Financial Statements and Reports*.Purchaser is required to file reports and documents under Section 13 orsubsections (a) or (c) of Section 14 of the Exchange Act withthe SEC (such reports are collectively referred to herein as the “PurchaserReports”). Purchaser is not current with respect to filing the PurchaserReports. However, Purchaser will become current in the filing of the PurchaserReports within ninety (90) days following the Closing and such PurchaserReports, when filed, will be in compliance in all material respects with therequirements of the Exchange Act and the rules and regulations thereunder andwill be complete and correct in all material respects as of the applicablefiling dates. The Purchaser Reports, when brought current, will not contain anyuntrue statement of a material fact or omit to state a material fact requiredto be stated therein or necessary to make the statements therein, in light ofthe circumstances under which they were made, not misleading. The auditedfinancial statements and unaudited interim financial statements of Purchaser tobe included in the Purchaser Reports will (i) comply as to form in allmaterial respects with applicable accounting requirements and the publishedrules and regulations of the SEC with respect thereto when filed, (ii) beprepared in accordance with GAAP applied on a consistent basis throughout theperiods covered thereby (except as may be indicated therein or in the notesthereto, and in the case of quarterly financial statements, as permitted byForm 10-Q under the Exchange Act), (iii) fairly present theconsolidated financial condition, results of operations and cash flows ofPurchaser as of the respective dates thereof and for the periods referred totherein, and (iv) be consistent with the books and records of Purchaser.Purchaser acknowledges that it has access to, and has reviewed (to the extentit has deemed necessary) the Company Reports.

 

4.6       *Financial Statements*. Purchaser hasdelivered to the Company its unaudited balance sheet and unaudited statementsof income and cash flows for the nine month period ending September 30,2003 (the “Statement Date”) (all of the foregoing financial statements,collectively, the “Financial Statements”). The Financial Statements, togetherwith the notes thereto, are complete and correct in all material respects, havebeen prepared in accordance with generally accepted accounting principlesapplied on a consistent basis throughout the periods indicated, except asdisclosed therein, and present

 

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fairly the financial condition and positionof Purchaser as of the dates, and for the periods, specified therein; provided,however, that the unaudited Financial Statements are subject to normalrecurring year-end audit adjustments (which are not expected to be material),and do not contain all footnotes required under generally accepted accountingprinciples.

 

4.7       *No Undisclosed Liabilities*. Purchaser hasno material liabilities and knows of no material contingent liabilities notdisclosed in the Financial Statements, except current liabilities incurred inthe ordinary course of business subsequent to the Statement Date which have notbeen, either in any individual case or in the aggregate, materially adverse.

 

4.8       *Brokers*. Purchaser has not retained anybroker in connection with the transactions contemplated hereunder. Purchaserwill have no obligation to pay any broker’s, finder’s investment banker’s,financial advisor’s or similar fee in connection with this Agreement or thetransactions contemplated hereby.

 

4.9       *No Conflicts*. The execution and deliveryby Purchaser of this Agreement does not, and the performance by Purchaser ofits respective obligations under this Agreement and the consummation of thetransactions contemplated hereby will not:

 

(a)   conflictwith or result in a violation or breach of any of the terms, conditions orprovisions of the Certificate of Incorporation or Bylaws of Purchaser;

 

(b)   conflictwith or result in a violation or breach of any term or provision of any law, Order,Permit, statute, rule or regulation of a Governmental or Regulatory Authorityapplicable to Purchaser, the business or Assets or Properties of Purchaser orthe capital stock of Purchaser; or

 

(c)   resultin a breach of, or default under (or give rise to a right of termination,cancellation or acceleration) under any of the terms, conditions or provisionsof any note, bond, mortgage, indenture, license, agreement, lease or othersimilar instrument or obligation to which Purchaser may be bound; or

 

(d)   resultin an imposition or creation of any Encumbrance (other than a PermittedEncumbrance) on the business or Assets or Properties of Purchaser except ascontemplated by this Agreement.

 

4.10      *Consents and Governmental Approvals and Filings*.No consent, approval or other action of, filing with or notice to anyGovernmental or Regulatory Authority on the part of Purchaser is required inconnection with the execution, delivery and performance of this Agreement orthe consummation of the transactions contemplated hereby.

 

4.11      *Compliance with Law*. To the Knowledge ofPurchaser, except with respect to the lack of timeliness and currency of thePurchaser Reports described in Section 4.5 above, it is in compliance withall applicable laws, statutes, Orders, ordinances and regulations, whetherfederal, state, local or foreign, except where the failure to comply, in eachinstance and in the aggregate, would not reasonably be expected to have aMaterial Adverse Effect on Purchaser. Purchaser has not received any notice tothe effect that, or otherwise has been advised that, it is not in compliancewith any of such laws, statutes, Orders, ordinances or regulations, where thefailure to comply could reasonably be expected to result in a Material AdverseEffect on Purchaser.

 

4.12      *Trading of Securities*. Neither Purchasernor any of its officers, directors or ten percent (10%) or greatershareholders, nor, to Purchaser’s Knowledge any of its employees, affiliates,agents or representatives have violated any laws, statutes, Orders, ordinancesand regulations, whether federal, state, local or foreign, arising out of or inany way related to the issuance of or trading in the capital securities ofPurchaser, including, without limitation, Rule 10b-5 of the Exchange Act.

 

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4.13      *Closing Shares*. The Closing Shares, uponissuance thereof, will be duly authorized, validly issued, fully paid,nonassessable, and not subject to any Encumbrance. The Closing Shares shall beissued in compliance with all applicable securities laws.

 

4.14      *Material Misstatements and Omissions*. Thestatements, representations and warranties of Purchaser contained in thisAgreement (including the exhibits and schedules hereto) and in each document,statement, certificate or exhibit furnished or to be furnished by or on behalfof Purchaser pursuant hereto, or in connection with the transactionscontemplated hereby, taken together, do not contain and will not contain anyuntrue statement of a material fact and do not or will not omit to state amaterial fact necessary to make the statements or facts contained herein ortherein, in light of the circumstances made, not misleading.

 

**ARTICLE V**

**COVENANTS OF THE PARTIES**

 

Each of the parties covenantswith the others to act, as follows:

 

5.1      *Operation of Business Prior to Closing Date*.Except as otherwise contemplated by this Agreement, between the date hereof andthe Closing Date (or earlier termination of this Agreement), the Company will operatethe Business in the Ordinary Course of Business and, to the extent consistenttherewith, with no less diligence and effort than would be applied in theabsence of this Agreement, use all commercially reasonable efforts to seek topreserve intact its current Business organizations, keep available the serviceof current managers, officers and employees of the Business and preserverelationships with customers, suppliers, distributors, lessors, employees,contractors and others having business dealings with the Business with theintention that the Business shall be unimpaired at the Closing Date. Withoutlimiting the generality of the foregoing, except as otherwise expresslyprovided in this Agreement, prior to the Closing Date (or earlier termination ofthis Agreement), the Company:

 

(a)   willnot create, incur or assume any obligation which would adversely affect thePurchased Assets or Purchaser’s ability to conduct the Business insubstantially the same manner and condition as conducted by the Company on thedate of this Agreement;

 

(b)   exceptto the extent an obligation is established in a written agreement in existenceprior to the date hereof, will not change in any manner the compensation of, oragree to provide additional benefits to, or enter into any employment agreementwith, any Offer Recipient, except as contemplated in Section 5.9 below andexcept for such benefits provided to substantially all of the Company’ssimilarly situated employees;

 

(c)   willmaintain insurance coverage in amounts adequate to cover the reasonablyanticipated risks of the Business;

 

(d)   willnot sell, dispose of or encumber any of the Purchased Assets or license anyPurchased Assets to any Person except object code licenses on a non-exclusivebasis in a manner and on terms consistent with past practice;

 

(e)   willnot enter into any material agreements or commitments relating to the Business,except on commercially reasonable terms in the Ordinary Course of Business ofthe Business;

 

(f)    willcomply in all material respects with all laws and regulations applicable to theBusiness;

 

(g)   willnot enter into any agreement with any third party for the distribution of anyof the Purchased Assets;

 

(h)   willnot materially amend its Certificate of Incorporation or Bylaws (except asnecessary to comply with the terms of this Agreement)

 

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5.2      *Investigation by Purchaser*. Subject to allapplicable patient confidentiality laws and confidentiality obligations of theCompany, the Company shall allow Purchaser or its authorized representatives,at Purchaser’s own expense during regular business hours, or otherwise with theconsent of the Company (which consent shall not be unreasonably withheld), tomake such inspection of the Company and to inspect (and, if applicable, makecopies of) Books and Records, plants, offices, warehouses and other facilitiesof the Company as reasonably requested by Purchaser or its authorizedrepresentatives.

 

5.3      *Consents*. As soon as practicable afterexecution of this Agreement, each party will commence all action requiredhereunder to obtain all applicable Permits, consents, approvals and agreementsof, and to give all notices and make all filings with, any third parties as maybe necessary to authorize, approve or permit the full and complete consummationof the transactions contemplated hereby by the Closing Date. In this regard,the Company will use its reasonable best efforts to obtain consent from itslandlord to assign to Purchaser (effective at Closing) the real property leasepertaining to the Company’s facility located at 134 Flanders Rd., Westborough,MA 01581. In the event the Company is unable to obtain such assignment, theCompany will sublease such facility to Purchaser effective at Closing.

 

5.4      *Notification of Certain Matters.* Each ofthe parties shall give prompt notice to the other party, of (i) thediscovery of a fact or facts of which the notifying party has actual knowledgewhich cause it to conclude that any of the representations, warranties orstatements made by it or in an any exhibit, schedule or other documentdelivered pursuant to this Agreement, may be false or misleading or omission ofany facts necessary in order to make such representations, warranties orstatements not false or misleading; (ii) the occurrence, or failure tooccur, of any event which occurrence or failure would be likely to cause anyrepresentation or warranty made by them in this Agreement to be untrue orinaccurate any time from the date hereof to the Closing Date; and(iii) any failure of the notifying party to comply with or satisfy anycovenant, condition or agreement to be complied with or satisfied by ithereunder. Each party hereto shall use all reasonable efforts to remedy anyfailure on its part to comply with or satisfy any covenant, condition oragreement to be complied with or satisfied by it hereunder.

 

5.5      *Cooperative Efforts*. Subject to the termsand conditions of this Agreement, each of the parties hereto will use itscommercially reasonable efforts to take, or cause to be taken, all action, orto do, or cause to be done, all things necessary, proper or advisable underapplicable laws and regulations to consummate and make effective thetransactions contemplated by this Agreement, including, without limitation,obtaining all consents and approvals of all Persons and Governmental orRegulatory Authorities and removing any injunctions or other impairments ordelays or otherwise which are necessary to the consummation of the transactionscontemplated by this Agreement.

 

5.6      *Filings*. Each of the parties hereto willuse its best efforts to make or cause to be made all such filings andsubmissions as may be required under applicable laws and regulations for theconsummation of the transactions contemplated by this Agreement. The Companyand Purchaser will coordinate and cooperate with one another in exchanging suchinformation and provide each other such assistance as any other party mayreasonably request in connection with the foregoing.

 

5.7      *Inconsistent Activities.* Unless and untilthis Agreement is terminated pursuant to Section 9.1, the Company will notdirectly or indirectly solicit, initiate or encourage any inquiries orproposals from, discuss or negotiate with, provide any non-public informationto or consider the merits of any unsolicited inquiries or proposals from, anyPerson (other than Purchaser) relating to any transaction involving the sale ofthe Business or the Purchased Assets, or any merger, consolidation, businesscombination or similar transaction involving the Business (each a “ProposedAcquisition Transaction”). The Company will immediately notify Purchaser if anydiscussions or negotiations are sought to be initiated, any inquiry or proposalis made, or any information is requested with respect to any Proposed

 

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Acquisition Transaction and notify Purchaserof the terms of any proposal which it or its Affiliates, if any, may receive inrespect of any such Proposed Acquisition Transaction, including withoutlimitation the identity of the prospective purchaser or soliciting party.

 

5.8      *Public Announcements*. Except as may berequired by applicable law, including any determination that a press release orother public statement or filing is required under applicable securities orregulatory rules, prior to the Closing, none of the parties hereto shall issueor cause the publication of any press release or otherwise make any publicstatement with respect to the transactions contemplated hereby without theprior written consent of each of the other parties hereto.

 

5.9      *Employee Matters*.

 

(a)   *Offer of Employment*. Subject to and inaccordance with the provisions of this Section 5.9, Purchaser will offeremployment to all employees other than Stephen Gorgol who are employed in theBusiness as of the date of this Agreement (such employees to receive offers ofemployment are referred to as the “Offer Recipients”). The Company hasdelivered to Purchaser a list setting forth the names, home addresses,compensation levels, stock option position, if any, and job titles of all OfferRecipients. Prior to the Closing, Purchaser, after notice to the Company as tothe timing and method of contact, shall have the right to contact each of theOffer Recipients for the purposes of making offers of employment with Purchaserto be effective after the Closing Date and receiving written acceptances ofsuch employment (in each case contingent on consummation of the transactionscontemplated by this Agreement). Upon Closing, Purchaser shall hire all OfferRecipients who accept such offer in the manner and within the time framereasonably established by Purchaser. Each such employee who is employed by theCompany on the Closing Date and who actually transfers to employment withPurchaser at or after the Closing Date as a result of an offer of employmentmade by Purchaser is hereafter referred to as a “Transferred Employee.” On aperiodic basis following the date hereof and prior to the Closing, Purchasershall advise the Company of its intentions with respect to Offer Recipients itdesires to extend or has extended offers to and the general status ofdiscussions with such employees.

 

(b)   *Transition*. The employment of theTransferred Employees by the Company shall end at the close of business on theClosing Date and the employment of the Transferred Employees by Purchaser shallcommence at 12:01 a.m. on the day after the Closing Date, except as tothose Transferred Employees who are on disability leave of less than twenty-six(26) weeks, authorized leave of absence or military service as of theClosing Date, in which case such Transferred Employees shall remain employeesof the Company until, and will commence employment with Purchaser as of,12:01 a.m. on the date they return to active employment. TransferredEmployees shall not include any person on a disability leave of more thantwenty-six (26) weeks. The terms of employment with Purchaser shall be asmutually agreed to between each Transferred Employee and Purchaser, subject tothe succeeding provisions of this Section 5.9.

 

(c)   *Retention of Employees Prior to Closing*.The Company agrees to use reasonable efforts to (i) retain the OfferRecipients as employees of the Business until the Closing Date, and(ii) assist Purchaser in securing the employment after the Closing Date ofthe Offer Recipients. The Company shall notify Purchaser promptly if any OfferRecipient terminates employment with the Company after the date of thisAgreement but prior to the Closing.

 

(d)   *Employees Other than Transferred Employees*.Any employees of the Company who do not become Transferred Employees willremain employees of the Company after the Closing. Any severance obligations tosuch employees shall be the Company’s responsibility.

 

5.10      *Prorations*. The Purchaser and the Companyagree to make customary prorations (as of the Closing Date) in respect of itemscustomarily prorated in connection with the sale of assets similar to

 

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the Purchased Assets, including, withoutlimitation, if applicable, real estate taxes and power and utility charges.

 

5.11     *Confidentiality*. Each of the partieshereto will maintain in confidence, and will cause its respective directors,officers, members, managers, employees, agents, Affiliates and advisors tomaintain in confidence any written, oral or other information furnished at anytime by another party to this Agreement in connection with the transactionscontemplated by this Agreement, unless (a) such information is alreadyknown to such party or to such others other than on a confidential basis,(b) such information becomes publicly available through no fault of suchparty, (c) the use of such information is necessary or appropriate inmaking any filing or obtaining any consent or approval required for theconsummation of the transactions contemplated by this Agreement, or(d) the furnishing or use of such information is required by law. If thetransactions contemplated hereby are not consummated, the confidentialityobligations of each party pursuant to this Section 5.111 will continue,and each party will, at the request of the party supplying the information,return or destroy (and provide appropriate certification thereof) any and allsuch written, electronic or computer-based information.

 

5.12     *Approval of the Company’s Stockholders*.The Company shall take the actions necessary to conduct a special meeting ofthe Company’s stockholders to consider and vote on the transactionscontemplated by this Agreement at the earliest practicable date after the dateof this Agreement and in connection therewith the Company’s Board of Directorsshall recommend to the Company’s Stockholders that they approve this Agreementand the transactions contemplated thereby. The Company agrees to use itscommercially reasonable efforts to take all necessary steps to obtain approvalof the Company’s stockholders, including the filing and distribution of a proxystatement, calling of a special meeting and the holding of that meeting. Such aspecial meeting shall be called, held and conducted and proxies shall besolicited, in compliance with the Company’s Certificate of Incorporation andBylaws, both as amended, and in compliance with applicable law.

 

5.13     *Updating of Disclosure Schedules*. TheCompany shall prepare and deliver an updated version of the Company DisclosureSchedule (the “Updated Company Disclosure Schedule”) and all schedules andexhibits thereto to include all information necessary to make therepresentations and warranties of the Company contained in this Agreement, assupplemented by the Updated Company Disclosure Schedule, accurate as of theClosing Date. The Company shall deliver a reasonably complete version of theUpdated Company Disclosure Schedule to Purchaser approximately five(5) days prior to Closing. Purchaser shall prepare and deliver an updatedversion of the Purchaser Disclosure Schedule (the “Updated Purchaser DisclosureSchedule”) and all schedules and exhibits thereto to include all informationnecessary to make the representations and warranties of Purchaser contained inthis Agreement, as supplemented by the Updated Purchaser Disclosure Schedule,accurate as of the Closing Date. Purchaser shall deliver a reasonably completeversion of the Updated Purchaser Disclosure Schedule to the Companyapproximately five (5) days prior to Closing.

 

5.14      *Board of Directors of Purchaser*. Purchasershall take all necessary steps such that, upon the Closing, John Lyon will beelected to Purchaser’s Board of Directors if he so chooses to serve thereon.This option for Mr. Lyon shall be available for 90 days following theClosing.

 

**ARTICLE VI**

**CONDITIONS TO THE OBLIGATIONS OF THE COMPANY**

 

The obligations of theCompany to effect the transactions contemplated hereby are subject to thesatisfaction, at or before the Closing, of each of the following conditions:

 

6.1      *No Material Adverse Effect*. Purchasershall not have acted or caused any Person to have acted in any manner which hascreated or could reasonably be expected to create (individually or in theaggregate), a Material Adverse Effect on Purchaser.

 

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6.2      *Stockholder Approval*. Purchaser shall haveobtained the approval of its shareholders (if necessary) for the consummationof the transactions contemplated by this Agreement.

 

6.3      *Closing Deliveries*. Purchaser shall haveexecuted and delivered the documents required to be executed and delivered byPurchaser pursuant to Section 2.9(c) above.

 

**ARTICLE VII**

**CONDITIONS TO THE OBLIGATIONS OF PURCHASER**

 

The obligation of Purchaserto effect the transactions contemplated hereby is subject to the satisfaction,at or before the Closing, of each of the following conditions:

 

7.1      *Material Adverse Effect*. The Company shallnot have acted or caused any Person to have acted in any manner which hascreated or could reasonably be expected to create (individually or in theaggregate), a Material Adverse Effect on the Business or the Purchased Assets.

 

7.2      *Stockholder Approval*. The Company shallhave obtained the approval of its stockholders for the consummation of thetransactions contemplated by this Agreement.

 

7.3      *Closing Deliveries*. The Company shall haveexecuted and delivered the documents required to be executed and delivered bythe Company pursuant to Section 2.9(b) above.

 

**ARTICLE VIII**

**ACTIONS BY THE PARTIES AFTER THE CLOSING**

 

8.1      *Survival of Representations, Warranties, Etc.*The representations, warranties and covenants contained in or made pursuant tothis Agreement or any certificate, document or instrument delivered pursuant toor in connection with this Agreement in the transactions contemplated herebyshall survive the execution and delivery of this Agreement and the Closinghereunder (notwithstanding any investigation, analysis or evaluation by anyparty hereto or their designees of the Assets and Properties, business,operations or condition (financial or otherwise) of the other party), andthereafter the representations and warranties of the Parties herein shallcontinue to survive in full force and effect for a period of twelve(12) months after the Closing Date (the “Survival Period”).

 

8.2      *Indemnification.*

 

(a)   *By the Company*. The Company shallindemnify, defend and hold harmless Purchaser and each of its officers,directors, employees, agents, successors and assigns (collectively the“Purchaser Group”) from and against any and all costs, losses, Liabilities,damages, lawsuits, deficiencies, claims and expenses, including withoutlimitation, penalties, costs of mitigation, clean-up or remedial action,reasonable attorneys’ fees and all amounts paid to third parties ininvestigation, defense or settlement of any of the foregoing (collectively, the“Damages”), suffered by Purchaser, incurred in connection with, arising out of,resulting from or incident to (i) any breach of any covenant,representation, warranty or agreement or the inaccuracy of any representation,made by the Company in or pursuant to this Agreement and (ii) Liabilitiesthat are not Assumed Liabilities.

 

(b)   *By Purchaser*. Purchaser shall indemnify,defend and hold harmless the Company, its officers, managers, employees,agents, successors and assigns (the “Company Group”) from and against any andall Damages incurred in connection with, arising out of, resulting from orincident to any (i) breach of any covenant, representation, warranty oragreement or the inaccuracy of any representation made by Purchaser in orpursuant to this Agreement and (ii) Assumed Liabilities.

 

(c)   *Resolution of Claims*. A claim forindemnification for any matter not involving a third-party claim may beasserted by written notice to the party from whom indemnification is sought tothe other party (the “Claim Notice”). Upon receipt of a Claim Notice, the partyfrom whom indemnification is sought shall have fifteen (15) Business Daysto object, in writing, to such claim

 

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(the “Dispute Notice”),otherwise the party seeking indemnification shall have the right to enforce itsindemnity rights as defined hereunder. If the party from whom indemnificationis sought provides the other party with a Dispute Notice in a timely fashion, theparties shall attempt in good faith to agree upon the rights or the respectiveparties with respect to such claim. If the parties agree as to the resolutionof such claim, they shall prepare a memorandum setting forth the terms of suchresolution signed by each of the parties hereto and enforce the indemnificationrights hereunder. If no agreement is reached within thirty (30) days afterdelivery of the Dispute Notice, the dispute resolution provisions of thisAgreement shall govern.

 

(d)   *Third Party Claims; Defense of Claims*. Ifany Action or Proceeding is filed or initiated against any party entitled tothe benefit of indemnity hereunder, written notice thereof shall be given tothe indemnifying party as promptly as practicable (and in any event within ten(10) days after the service of the citation or summons); provided,however, that a delay or failure of any indemnified party to give timely noticeshall not affect rights to indemnification hereunder except to the extent thatthe indemnifying party demonstrates actual damage caused by such failure. Anysuch notice shall state (with reasonable specificity) the basis on whichindemnification is being asserted, the amount of Damages for whichindemnification is being asserted and copies of all relevant pleadings, demandsand other papers being served on the indemnified party. After such notice, theindemnifying party may, if it so elects, take control of the defense andinvestigation of such Action or Proceeding and to employ and engage attorneysof its own choice to handle and defend the same, such attorneys to bereasonably satisfactory to the indemnified party, at the indemnifying party’ssole cost, risk and expense (unless the indemnifying party has failed to assumethe defense of such Action or Proceeding), and compromise or settle such Actionor Proceeding, which compromise or settlement shall be made only with thewritten consent of the indemnified party, such consent not to be unreasonablywithheld. The indemnified party may withhold such consent if such compromise orsettlement would adversely affect the conduct of business or requires less thanan unconditional release to be obtained. If the indemnifying party fails toassume the defense of such Action or Proceeding within fifteen (15) days afterreceipt of notice thereof pursuant to this Section 8.2, the indemnifiedparty against which such Action or Proceeding has been filed or initiated will(upon delivering notice to such effect to the indemnifying party) have theright to undertake, at the indemnifying party’s own cost and expense, thedefense, compromise or settlement of such Action or Proceeding on behalf of andfor the account and risk of the indemnifying party; provided, however, thatsuch Action or Proceeding shall not be compromised or settled without thewritten consent of the indemnifying party, which consent shall not beunreasonably withheld. In the event the indemnified party assumes defense ofthe Action or Proceeding, the indemnified party will keep the indemnifyingparty reasonably informed of the progress of any such defense, compromise orsettlement and will consult with, when appropriate, and consider any reasonableadvice from, the indemnifying party of any such defense, compromise orsettlement. The indemnifying party shall be liable for any settlement of anyaction subject to indemnification and effected pursuant to and in accordancewith this Section 8.2 and for any final judgment (subject to any right ofappeal), and the indemnifying party agrees to indemnify and hold harmless theindemnified party from and against any Damages by reason of such settlement orjudgment.

 

The indemnified party shallcooperate in all reasonable respects with the indemnifying party and itsattorneys in the investigation, trial and defense of such Action or Proceedingand any appeal arising therefrom; provided, however, that the indemnified partymay, at its own cost, participate in the investigation, trial and defense ofsuch Action or Proceeding and any appeal arising therefrom.

 

(e)           *Limitations on Indemnity*.

 

(i)    TheCompany shall have no liability to Purchaser for amounts payable pursuant toits indemnification obligations in this Section 8.2 until the total of allsuch Damages incurred by

 

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any member of the PurchaserGroup, individually or in the aggregate, exceed Fifty Thousand Dollars($50,000) (the “Threshold Amount”), and then indemnification by theindemnifying party shall apply to all such Damages exceeding the ThresholdAmount. Purchaser shall have no liability to the Company for amounts payablepursuant to its indemnification obligations in this Section 8.2 until thetotal of all such Damages incurred by any member of the Company Group,individually or in the aggregate, exceed Fifty Thousand Dollars ($50,000) (the“Threshold Amount”), and then indemnification by the indemnifying party shallapply to all such Damages exceeding the Threshold Amount.

 

(ii)   TheIndemnity Shares shall be the sole and exclusive means for Purchaser to collectany Damages for which it is entitled to indemnification under thisArticle VIII. The maximum aggregate amount of indemnification for anyDamages for which the Company is required to indemnify the members of thePurchaser Group under this Agreement shall be limited to the aggregate value ofthe Indemnity Shares. The maximum aggregate amount of indemnification for anyDamages for which Purchaser is required to indemnify the members of the CompanyGroup under this Agreement shall be limited to the aggregate value of theIndemnity Shares. Purchaser shall have the right to satisfy any indemnificationclaims made by the Company through the issuance to the Company of shares ofPurchaser’s common stock.

 

(iii)  Thelimitations on the Company’s and Purchaser’s indemnification obligations in8.2(e)(i) and 8.2(e)(ii) above shall not apply to any Damages arisingout of or in connection with any fraud or intentional breach by Purchaser orthe Company of any representation, warranty, covenant or agreement or obligationof such party.

 

(iv)  Forall purposes of this Article VIII, the value of Indemnity Shares shall bedetermined at the time a claim for indemnity is made and shall be the “FairMarket Value” of the Indemnity Shares at that time. For purposes hereof, “FairMarket Value” shall mean the average of the closing price of the common stockof Purchaser as quoted or traded on its primary inter-dealer quotation systemor any securities exchange, over the ten (10) trading day period endingthree (3) trading days prior to the date on which the subject claim forindemnification is made hereunder. However, if at any time the common stock ofPurchaser is not listed on any securities exchange or quoted on an inter-dealerquotation system, “Fair Market Value” shall mean the fair value of the class orseries of capital stock of Purchaser constituting Indemnity Shares asdetermined in good faith and in the sole discretion of a reputable appraiserchosen by the Company’s Board of Directors and Purchaser’s Board of Directors,together. If these respective Boards of Directors cannot agree on an appraiserwithin thirty (30) days from the making of the claim, each Board ofDirectors shall choose a reputable appraiser within ten (10) daysthereafter and such appraiser shall have ten (10) additional days tochoose the final appraiser, whose appraisal shall be binding on the parties.The cost of such process shall be borne equally by the Company and Purchaser.

 

8.3         *Restriction on Transferability of the Securities*.The certificates representing the Securities (if and when issued) shall bearthe following legend restricting transfer, and such other legends as may berequired by any applicable state securities law:

 

**THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIESACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED ORHYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECTTO THE SECURITIES UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCHACT OR ANOTHER AVAILABLE EXEMPTION.**

 

8.4         *Agreement not to dispose of Indemnity Shares*.The Company agrees that, for purposes of keeping the Indemnity Shares availablefor satisfaction of any claims for indemnification pursuant to

 

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this Article VIII hereof (if necessary),it will make no transfer, sale or hypothecation of the Indemnity Shares untiltwelve (12) months following the Closing Date.

 

8.5         *Further Assurances*. In case at any timeafter the Closing any further action is necessary or desirable to carry out thepurposes of this Agreement, each of the parties will take such further action(including the execution and delivery of such further instruments anddocuments) as the other party reasonably may request, at the sole cost andexpense of the requesting party (unless the requesting party is entitled toindemnification therefor under this *Article VIII*).

 

8.6         *Reports Under Securities Exchange Act of 1934*.With a view to making available to the Company the benefits of Rule 144promulgated under the Act and any other rule or regulation of the SEC that mayat any time permit the Company to sell Purchaser’s Common Stock to the publicwithout registration, Purchaser agrees to use its best efforts to:

 

(a)   makeand keep public information available, as those terms are understood anddefined in SEC Rule 144, at all times; and

 

(b)   filewith the SEC in a timely manner all reports and other documents required ofPurchaser under the Act and the 1934 Act.

 

8.7         *Transfer of Rights to Name*. Subject toapproval of the Company’s stockholders, the Company shall transfer and assignto Purchaser all rights in the name “Vista Medical Technologies,” as the samemay be used in whole.

 

8.8         *Access to Records*. After the Closing Date,Purchaser shall retain for a period consistent with Purchaser’srecord-retention policies and practices those records of the Company relatingto the Purchased Assets. Purchaser also shall provide the Company (includingthe Company’s accountants and auditors) reasonable access thereto, duringnormal business hours and on at least three days’ prior written notice, toenable them to prepare financial statements or Tax Returns or deal with Taxaudits. After the Closing Date, the Company shall provide Purchaser (includingPurchaser’s accountants and auditors) reasonable access to records relating toExcluded Assets, during normal business hours and on at least three days’ priorwritten notice, for any reasonable business purpose specified by Purchaser insuch notice.

 

8.9         *Transitional Use of Financial System*. TheCompany may designate one of its employees who will have the right, for aperiod of 90 days following the Closing, to use the financial reportingand auditing system transferred to Purchaser in connection herewith (the“Financial System”) for the purpose of generating and maintaining the Company’sfinancial reporting obligations and practices. Such employee shall have fulluse of (and access to) the Financial System for such 90 day period.

 

8.10        *Payment of Royalties*. Purchaser agrees topay the royalties described in the License Agreement.

 

8.11        *Payment for Inventory*. The Company andPurchaser acknowledge and agree that the Company is consigning to Purchaser, inconnection with the Closing, the Company’s inventory of Products. The Companyagrees to account and pay for such inventory in accordance with the procedureset forth on *Exhibit E*.

 

**ARTICLE IX**

**MISCELLANEOUS**

 

9.1         *Termination*.

 

(a)          ThisAgreement may be terminated and the transactions contemplated hereby abandoned:

 

(i)    atany time prior to the Closing, by mutual written consent of Purchaser and theCompany;

 

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(ii)   atany time after April 16, 2004 (the “Termination Date”), by the Purchaseror the Company in writing, if the transactions contemplated by this Agreementhave not been consummated on or before the Termination Date and suchterminating party is not then in material breach of this Agreement; providedthat no party may terminate this Agreement pursuant to this clause (ii) ifsuch party’s failure to fulfill any of its obligations under this Agreementshall have been a principal reason that the Closing shall not have occurred on orbefore said date;

 

(iii)  bythe Company on written notice to the Purchaser if (i) there shall havebeen a material breach of any representations or warranties on the part ofPurchaser set forth in this Agreement or if any representations or warranties ofPurchaser shall have become untrue in any material respect, provided that theCompany has not breached any of its obligations hereunder in any materialrespect; or (ii) there shall have been a breach by Purchaser of any of itscovenants or agreements hereunder in any material respect or materiallyadversely affecting (or materially delaying) the ability of Purchaser or theCompany to consummate the transactions contemplated hereby, and Purchaser hasnot cured such breach within ten (10) Business Days after notice by theCompany thereof, provided that the Company has not breached any of itsobligations hereunder in any material respect;

 

(iv)  byPurchaser on written notice to the Company if (i) there shall have been amaterial breach of any representations or warranties on the part of the Companyset forth in this Agreement or if any representations or warranties of theCompany shall have become untrue in any material respect, provided thatPurchaser has not breached any of its obligations hereunder in any materialrespect; or (ii) there shall have been a breach by the Company of any ofits covenants or agreements hereunder in any material respect or materiallyadversely affecting (or materially delaying) the ability of Purchaser toconsummate the transactions contemplated hereby, and the Company has not curedsuch breach within ten (10) Business Days after notice by Purchaserthereof, provided that Purchaser has not breached any of its obligationshereunder in any material respect;

 

(v)   byPurchaser, if the Company becomes insolvent or seeks protection under anybankruptcy, receivership, trust deed, creditors arrangement, composition orcomparable proceeding, or if any such proceeding is instituted against theCompany;

 

(vi)  byPurchaser, if the Company becomes insolvent or seeks protection under anybankruptcy, receivership, trust deed, creditors arrangement, composition orcomparable proceeding, or if any such proceeding is instituted against theCompany; and/or

 

(b)         Inthe event of the termination of this Agreement as provided in thisSection 9.1, except as otherwise provided in this Agreement or theinstruments and agreements executed in connection herewith, no party shall haveany other liability hereunder of any nature whatsoever to any other party,including any liability for Damages; *provided,however*, that if, at the time of such termination, any party is indefault under its obligations hereunder, the party in default shall be liableto the other parties for such default; and *provided*,*further*, that the provisions ofSection 5.11 and Article IX shall continue in full force and effect.

 

(c)         Inthe event that a condition precedent to its obligations is not satisfied,nothing contained herein shall be deemed to require any party to terminate thisAgreement, rather than to waive such condition precedent and proceed with theClosing.

 

9.2         *Notices*. All notices, requests and othercommunications hereunder must be in writing and will be deemed to have beenduly given only if delivered personally against written receipt or by facsimiletransmission with answer back confirmation or mailed (postage prepaid bycertified or registered mail,

 

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return receipt requested) or by overnightcourier to the parties at the following addresses or facsimile numbers: 

 
| **If to the  Company, to:** |   | Vista Medical  Technologies, Inc.  2101 Faraday Avenue  Carlsbad, CA 92008  Attention: John R. Lyon  Facsimile No.: 760-603-9170                           |
|-----------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                        |   |                                                                                                                                                       |
| **with  copies to:**        |   | Craig S. Andrews, Esq.  Heller Ehrman White & McAuliffe LLP  4350 La Jolla Village Drive #700  San Diego, CA 92122-1246  Facsimile No.: 858-450-8499   |
|                        |   |                                                                                                                                                       |
| **If to  Purchaser, to:**   |   | Viking Systems, Inc.  7514 Girard Ave., Suite 1509  La Jolla, CA 92037  Facsimile No.: (619) 839-3793  Attention: Thomas B. Marsh                          |
|                        |   |                                                                                                                                                       |
| **with  copies to:**        |   | A.O. “Bud” Headman, Jr.  Cohne, Rappaport & Segal, P.C.  525 E. 100 S., Suite 500  Salt Lake City, Utah 84102  Facsimile No.: (801) 355-1813 |

 

All such notices, requests and othercommunications will (i) if delivered personally to the address as providedin this Section 9.2, be deemed given upon delivery, (ii) if deliveredby facsimile transmission to the facsimile number as provided in thisSection 9.2, be deemed given upon receipt, and (iii) if delivered bymail in the manner described above to the address as provided in thisSection 9.2, be deemed given upon receipt (in each case regardless ofwhether such notice, request or other communication is received by any otherPerson to whom a copy of such notice, request or other communication is to bedelivered pursuant to this Section 9.2). Any party from time to time maychange its address, facsimile number or other information for the purpose ofnotices to that party by giving notice specifying such change to the otherparties hereto.

 

9.3         *Entire Agreement*. This Agreement (and allExhibits and Schedules attached hereto, all other documents delivered inconnection herewith and the Confidentiality Agreement) supersedes all priordiscussions and agreements among the parties with respect to the subject matterhereof and contains the sole and entire agreement among the parties hereto withrespect hereto.

 

9.4         *Waiver*. Any term or condition of thisAgreement may be waived at any time by the party that is entitled to thebenefit thereof, but no such waiver shall be effective unless set forth in awritten instrument duly executed by or on behalf of the party waiving such termor condition. No waiver by any party hereto of any term or condition of thisAgreement, in any one or more instances, shall be deemed to be or construed asa waiver of the same or any other term or condition of this Agreement on anyfuture occasion. All remedies, either under this Agreement or by law orotherwise afforded, will be cumulative and not alternative.

 

9.5         *Amendment*. This Agreement may be amended,supplemented or modified only by a written instrument duly executed by or onbehalf of each party hereto.

 

9.6         *No Third Party Beneficiary*. The terms andprovisions of this Agreement are intended solely for the benefit of each partyhereto and their respective successors or permitted assigns, and it is not the

 

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intention of the parties to conferthird-party beneficiary rights upon any other Person other than any Personentitled to indemnity under Section 8.2 above.

 

9.7         *No Assignment; Binding Effect*. Neitherthis Agreement nor any right, interest or obligation hereunder may be assignedby any party hereto without the prior written consent of the other partieshereto and any attempt to do so without such consent will be void, except thatany party’s rights to indemnification under Section 8.2 may be freelyassigned. This Agreement is binding upon, inures to the benefit of and isenforceable by the parties hereto and their respective successors and assigns.

 

9.8         *Headings*. The headings used in thisAgreement have been inserted for convenience of reference only and do notdefine or limit the provisions hereof.

 

9.9         *Severability*. If any provision of thisAgreement is held to be illegal, invalid or unenforceable under any present orfuture law, and if the rights or obligations of any party hereto under thisAgreement will not be materially and adversely affected thereby, (i) suchprovision will be fully severable, (ii) this Agreement will be construedand enforced as if such illegal, invalid or unenforceable provision had nevercomprised a part hereof, (iii) the remaining provisions of this Agreementwill remain in full force and effect and will not be affected by the illegal,invalid or unenforceable provision or by its severance herefrom and(iv) in lieu of such illegal, invalid or unenforceable provision, therewill be added automatically as a part of this Agreement a legal, valid andenforceable provision as similar in terms to such illegal, invalid orunenforceable provision as may be possible and mutually acceptable to theparties herein.

 

9.10       *Governing Law*. This Agreement shall begoverned by and construed in accordance with the laws of the State ofCalifornia applicable to contracts executed and performed in such State,without giving effect to conflicts of laws principles.

 

9.11       *Consent to Jurisdiction and Forum Selection*.The parties hereto agree that all actions or proceedings arising in connectionwith this Agreement shall be initiated and tried exclusively in the State andFederal courts located in the County of San Diego, State of California. Theaforementioned choice of venue is intended by the parties to be mandatory andnot permissive in nature, thereby precluding the possibility of litigationbetween the parties with respect to or arising out of this Agreement in anyjurisdiction other than that specified in this Section 9.11. Each partyhereby waives any right it may have to assert the doctrine of forum nonconveniens or similar doctrine or to object to venue with respect to anyproceeding brought in accordance with this paragraph, and stipulates that theState and Federal courts located in the County of San Diego, State ofCalifornia shall have in personam jurisdiction and venue over each of them forthe purposes of litigating any dispute, controversy or proceeding arising outof or related to this Agreement. Each party hereby authorizes and acceptsservice of process sufficient for personal jurisdiction in any action againstit as contemplated by this Section 9.11 by registered or certified mail,return receipt requested, postage prepaid, to its address for the giving ofnotices as set forth in this Agreement, or in the manner set forth inSection 9.2 of this Agreement for the giving of notice. Any final judgmentrendered against a party in any action or proceeding shall be conclusive as tothe subject of such final judgment and may be enforced in other jurisdictionsin any manner provided by law.

 

9.12       *Expense*. Each of the parties hereto shallpay the fees, expenses and costs incurred by such party incidental to thepreparation of this Agreement and to the consummation of the transactionscontemplated hereby.

 

9.13       *Construction*. No provision of thisAgreement shall be construed in favor of or against any party on the groundthat such party or its counsel drafted the provision. Any remedies provided forherein are not exclusive of any other lawful remedies which may be available toeither party. This Agreement shall at all times be construed so as to carry outthe purposes stated herein.

 

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9.14       *Counterparts*. This Agreement may beexecuted in any number of counterparts and by facsimile, each of which will bedeemed an original, but all of which together will constitute one and the sameinstrument.

 

[REMAINDEROF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, this Agreement has been duly executed and deliveredby the parties hereto, or their duly authorized officer, as of the date firstabove written. 

 
|   | **“Purchaser”**                                  |                            |
|--------|------------------------------------------------------------|---------------------------------|
|   |                                                       |                            |
|   | Viking Systems, Inc.  a Nevada corporation                 |                            |
|   |                                                       |                            |
|   |                                                       |                            |
|   | By                                                         | /s/  THOMAS B.  MARSH |   |
|   |                                                       |                            |   |
|   | Name: Thomas B. Marsh                                      |                            |
|   | Title: President                                           |                            |
|   |                                                       |                            |
|   |                                                       |                            |
|   | **“Company”**                                    |                            |
|   |                                                       |                            |
|   | Vista Medical  Technologies, Inc.,  a Delaware corporation |                            |
|   |                                                       |                            |
|   |                                                       |                            |
|   | By                                                         | /s/  JOHN R.  LYON    |   |
|   |                                                       |                            |   |
|   | Name: John R. Lyon                                         |                            |
|   | Title: President and Chief  Executive Officer              |                            |
|        |                                                            |                                 |  |  |  |

 

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**EXHIBIT A**

**LICENSE AGREEMENT**

 

**PATENT AND TECHNOLOGY LICENSE AGREEMENT**

 

This AGREEMENT (“**AGREEMENT**”) is made onthis       dayof       2003 (“**EFFECTIVE DATE**”), by and between Vista MedicalTechnologies, Inc., a Delaware corporation, having a principal place ofbusiness located at 2101 Faraday Avenue, Carlsbad, CA 92008 (“**LICENSOR**”), and Viking Systems, Inc.,a Nevada corporation, having a principal place of business located at 7514 GirardAve., Suite 1509, La Jolla, CA 92037 (“**LICENSEE**”).

 

**RECITALS**

 

A.    WHEREAS, pursuantto that certain Asset Purchase Agreement by and between LICENSOR and LICENSEEdated December 22 (the “Asset Purchase Agreement”), LICENSEE is acquiringfrom the LICENSOR, and LICENSOR is selling to LICENSEE, certain assets (“**ASSETS**”) of the LICENSOR’s medical deviceand technology business (“**BUSINESS**”);and

 

B.    WHEREAS, LICENSORowns certain intellectual property rights necessary to make use of such ASSETS,commercialize LICENSED PRODUCTS and operate the BUSINESS; and

 

C.    WHEREAS, LICENSEEdesires to license certain intellectual property rights necessary to make useof such ASSETS, commercialize LICENSED PRODUCTS and operate the BUSINESS andLICENSOR is willing to grant such an exclusive license to LICENSEE.

 

NOW, THEREFORE, inconsideration of the mutual covenants and promises herein contained, theparties agree as follows:

 

**I. DEFINITIONS**

 

All definitions below orelsewhere in this AGREEMENT apply to both their singular and plural forms, asthe context may require. **“Herein**, **“ “hereunder**,**”** and **“hereof”**and other similar expressions refer to this AGREEMENT. “**Section**” refers to sections in thisAGREEMENT. **“Including”** means“including without limitation.” **“Days”**means “calendar days,” unless otherwise stated.

 

1.1**    ”AFFILIATE”**    meansany business entity more than fifty percent (50%) owned by LICENSEE, anybusiness entity which owns more than fifty percent (50%) of LICENSEE, or anybusiness entity that is more than fifty percent (50%) owned by a businessentity that owns more than fifty percent (50%) of LICENSEE.

 

1.2**    ”CONFIDENTIAL INFORMATION”**    meansthe proprietary or confidential information of a party (each, a “**DISCLOSER**”) which is disclosed to the otherparty (each, a “**RECIPIENT**”) beforeor after the EFFECTIVE DATE and (i) is identified as “confidential” byDISCLOSER in writing prior to disclosure and (ii) relates to products,plans, designs, costs, prices, finances, marketing plans, businessopportunities, personnel, research, development, know-how, trade secrets,inventions, blueprints, techniques, chemical or biological materials, drugs,devices, specimens, apparatus, processes, algorithms, software programs,schematics, designs, contracts, customer lists, procedures, formulae, patentapplications and other information relating to DISCLOSER’s business, services,processes or technology. CONFIDENTIAL INFORMATION shall not include informationthat RECIPIENT proves: (i) was known by RECIPIENT, or was publicly available,prior to disclosure by DISCLOSER to RECIPIENT; (ii) became publiclyavailable after disclosure by DISCLOSER to RECIPIENT through no act ofRECIPIENT; (iii) is hereafter rightfully furnished to RECIPIENT by a thirdparty without confidentiality restriction; or (iv) is disclosed with theprior written consent of DISCLOSER or as expressly authorized under thisAGREEMENT.

 

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1.3**    ”GROSS REVENUES”**    meansroyalties, up-front payments, marketing, distribution, franchise, option,license, or documentation fees, bonus and milestone payments, equity securitiesor any other payment or value received by License from the sale, licensing,sublicensing, renting, leasing or other commercialization of Licensed Products,less sales/and/or use taxes actually paid, import and/or export duties actuallypaid, outbound transportation prepaid or allowed, and amounts allowed orcredited due to returns.

 

1.4**    ”IMPROVEMENTS”**    meansany and all derivative works, modifications, improvements, enhancements,translations, abridgements, additional developments or the like to the existingLICENSED TECHNOLOGY made by LICENSEE, LICENSEE’s AFFILIATES and/or LICENSEE’ssublicensees after the EFFECTIVE DATE.

 

1.5**    ”INTELLECTUAL PROPERTY”**or**“INTELLECTUAL PROPERTY RIGHTS”**    collectivelymeans any and all patents (including reissues, divisions, continuations andextensions thereof), patent registrations, patent applications, data rights,utility models, business processes, trademarks, trade secrets, know how, tradenames, registered or unregistered designs, mask works, copyrights, moral rightsand any other form of proprietary protection afforded by law to intellectualproperty, or any applications therefor, which arises or is enforceable underthe laws of the United States, any other jurisdiction or any bi-lateral ormulti-lateral treaty regime.

 

1.6**    ”KNOW-HOW”**    meansany and all information, processes, procedures, documents and materialsrelating to the design, development and manufacture of LICENSED PRODUCTS knownto LICENSOR as of the EFFECTIVE DATE.

 

1.7**    ”LICENSED PRODUCTS”**    meansany product incorporating or arising out of LICENSED TECHNOLOGY, including theOEM PRODUCTS and the VISTA PRODUCTS.

 

1.8**    ”LICENSED PATENTS”**    meansall of the patent applications and patents listed on *Schedule 3.10(a)* of the Company Disclosure Schedule (asdefined in the Asset Purchase Agreement), and any patents issued therefrom,together with all pending and issued foreign counterparts of such applications,and all pending and issued renewals, continuations, continuations-in-part,divisions, patents of addition, reexaminations and/or reissues of suchapplications or foreign counterparts.

 

1.9**    ”LICENSED TECHNICALINFORMATION”**    means LICENSOR’s rights in anytechnical information, KNOW-HOW, processes, procedures, compositions, devices,methods, formulae, protocols, techniques, software, designs, drawings or datawhich are not claimed in LICENSED PATENTS but that are necessary or useful forpracticing LICENSED PATENTS.

 

1.10**    ”LICENSED TECHNOLOGY”**    meansinventions or discoveries covered by LICENSED PATENTS and/or LICENSED TECHNICALINFORMATION as more fully defined in *Exhibit A*.LICENSED TECHNOLOGY includes any IMPROVEMENTS developed by LICENSEE or itsAFFILIATES subsequent to the EFFECTIVE DATE as set forth in Section 4.2.

 

1.11**    ”LIMITED ROYALTY PERIOD”**    hasthe meaning set forth in Section 3.1(b).

 

1.12**    ”LIMITED ROYALTY PERIOD GROSSREVENUES”**    means Gross Revenues from Licensee’sSale of Vista Products less the gross revenues earned by LICENSOR from its Saleof Vista Products during 2003.

 

1.13**    ”OEM PRODUCTS”**    meansthe Aesculap product line, the Wolf product line and the OEM Camera productline as further defined in *Exhibit B,*and any improvements, derivatives, modifications or enhancements thereto.

 

1.14**    ”SALE” OR “SOLD”**    meansthe transfer, licensing, renting, leasing, disposition or othercommercialization of Licensed Products for value.

 

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1.15**    ”TERM”**    hasthe meaning set forth in Section 10.1.

 

1.16**    ”VISTA PRODUCTS”**    meansthe Endosite System product line and the Three Chip Endosite System productline as further defined in *Exhibit B,*and any improvements, derivatives, modifications or enhancements thereto.

 

**II. LICENSE; TECHNOLOGY TRANSFER**

 

2.1   Subjectto the terms and conditions of this Agreement, LICENSOR hereby grants toLICENSEE, a worldwide, exclusive (even as to LICENSOR) license, with the rightto sublicense, under LICENSED TECHNOLOGY, and all INTELLECTUAL PROPERTY RIGHTStherein (i) to make, have made, use, import, reproduce, offer to selland/or sell LICENSED PRODUCTS; and (ii) to modify and create IMPROVEMENTS.

 

2.2**    Sublicenses.**    LICENSEEmay grant sublicenses under LICENSED TECHNOLOGY consistent with the terms ofSection 2.1 and this AGREEMENT. Notwithstanding anything else herein andfor avoidance of doubt, LICENSEE shall have no right to commercialize theLICENSED TECHNOLOGY except as incorporated into LICENSED PRODUCTS.

 

2.3**    Technology Transfer.**    Nolater than thirty (30) days following the EFFECTIVE DATE, LICENSOR shalldeliver to LICENSEE all LICENSED TECHNOLOGY.

 

**III. CONSIDERATION, PAYMENTS AND REPORTS**

 

3.1**       Royalties.**    Inconsideration of rights granted by LICENSOR to LICENSEE under this AGREEMENT,LICENSEE agrees to pay LICENSOR the following:

 

(a)   Afive percent (5%) royalty on Gross Revenues for all OEM PRODUCTS Sold byLICENSEE, its AFFILIATES or its sublicensees;

 

(b)   Forthe first (1st) two (2) twelve (12) month periods after the EFFECTIVEDATE (“**LIMITED ROYALTY PERIOD**”), aten percent (10%) royalty on the Limited Royalty Period Gross Revenues for allVISTA PRODUCTS Sold by LICENSEE, its AFFILIATES or its sublicensees; and

 

(c)   Afterthe LIMITED ROYALTY PERIOD, a ten percent (10%) royalty on Gross Revenues forall VISTA PRODUCTS Sold licensed, leased, rented or otherwise commercialized byLICENSEE, its AFFILIATES or its sublicensees.

 

3.2**       Minimum Royalties.**    NotwithstandingSection 3.1, the minimum royalty payment by LICENSEE to LICENSOR for theLicensed Products shall be as follows:

 

(a)   OneHundred and Fifty Thousand U.S. Dollars ($150,000) for the first (1st) twelve(12) month period after the EFFECTIVE DATE to be paid no later than thirty(30) days after the first (1st) anniversary of the EFFECTIVE DATE;

 

(b)   ThreeHundred Thousand U.S. Dollars ($300,000) for the second twelve (12) monthperiod starting on the first (1st) anniversary of the EFFECTIVE DATE to be paidno later than thirty (30) days after the second (2nd) anniversary of theEFFECTIVE DATE;

 

(c)   ThreeHundred Thousand U.S. Dollars ($300,000) for the third twelve (12) monthperiod starting on second (2nd) anniversary of the EFFECTIVE DATE to be paid nolater than thirty (30) days after the third (3rd) anniversary of theEFFECTIVE DATE;

 

(d)   ThreeHundred Thousand U.S. Dollars ($300,000) for the fourth twelve (12) monthperiod starting on the third (3rd) anniversary of the EFFECTIVE DATE to be paidno later than thirty (30) days after the fourth (4th) anniversary of theEFFECTIVE DATE; and

 

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(e)   ThreeHundred and Seventy-Five Thousand U.S. Dollars ($375,000) for the fifth twelve(12) month period starting on the fourth (4th) anniversary of theEFFECTIVE DATE to be paid no later than thirty (30) days after the fifth(5th) anniversary of the EFFECTIVE DATE.

 

3.3**       Terminationof License.**    If LICENSEE does not pay LICENSORthe minimum royalty for each twelve month period as set forth inSection 3.2, and such failure continues for thirty (30) days afterLICENSOR notifies LICENSEE thereof in writing, the licenses granted underSection 2 shall terminate immediately and all rights and interests grantedtherein shall revert back to LICENSOR. The parties shall take any and allnecessary actions and execute all documents necessary to ensure that the intentof this Section is enforced.

 

3.4**       RoyaltyObligation and Conditional Transfer of LICENSED TECHNOLOGY.**    Theroyalties agreed to hereunder shall be paid until the earlier of the date onwhich LICENSEE has paid LICENSOR an aggregate of Four Million Five HundredThousand U.S. Dollars ($4,500,000) or the fifth anniversary of Effective Date.(“**TOTAL ROYALTY**”). If LICENSEEpays LICENSOR the TOTAL ROYALTY, LICENSOR shall assign and transfer to LICENSEEall of LICENSOR’s rights, title and interests in and to the LICENSEDTECHNOLOGY. The parties shall take any and all necessary actions and executeall documents necessary to ensure the intent of this Section is enforced.

 

3.5**       PaymentTerms.**    The royalties due hereunder shall bepaid on a semi annual basis (“Payment Period”) commencing six (6) monthsfrom the Effective Date. Within thirty (30) days after the end of eachPayment Period, LICENSEE:

 

(i)    shallpay all royalties set forth in this Section 3 accrued and payable for suchperiod, and

 

(ii)   furnishLICENSOR with a royalty report along with a written statement certified by anofficer of LICENSEE (a) stating that the royalty report is true andaccurate, and (b) specifying the total royalties payable to LICENSOR forsuch period and providing the basis for the calculation of such royalties.

 

All payments due to LICENSOR shall be madesolely in U.S. Dollars in immediately available funds, via wire transfer tosuch account as is designated by LICENSOR in writing to LICENSEE. Late paymentsshall accrue interest from the date due until the date paid at a rate of onepercent (1%) per month, or the maximum rate allowed under applicable law,whichever is less. LICENSEE shall make no offset for any amounts due toLICENSOR regardless of the justification for such intended offset.

 

3.6**       Right ofAudit.**    During the TERM and for three(3) years after the expiration and termination of this AGREEMENT for anyreason (the “**AUDIT PERIOD**”),LICENSEE shall keep complete, true and accurate records containing all invoicesand other data related to the computation and verification of the royalties tobe paid under Section 3 and any other amounts to be paid to LICENSOR, and(b) the basis of information provided in the royalty report or anystatements provided by LICENSEE to LICENSOR pursuant to this AGREEMENT. Duringthe AUDIT PERIOD LICENSEE shall permit LICENSOR or its designees or agents, atLICENSOR’s expense and upon ten (10) days prior written notice, to inspectand make copies of such records for the sole purpose of verifying the accuracyof the royalties and other payments made by LICENSEE under this AGREEMENT.LICENSEE shall itself, and shall cause its accountants to, diligently cooperatewith the audit. If any audit reveals any underpayment by LICENSEE, LICENSEEshall within ten (10) days after such audit remit to LICENSOR all amountsdue, with interest thereon at the rate of one percent (1%) per month compounded(or the highest rate permitted by applicable law, whichever is lower),calculated from the date such amounts were due. If any underpayment is morethan five percent (5%) of the total payments due for the period audited,LICENSEE shall remit to LICENSOR in full all costs for such audits and thesubsequent audit, including any fees of a certified public accountant.

 

3.7**       Taxes.**    Inaddition to any other amounts due under this AGREEMENT, LICENSEE agrees to pay,indemnify and hold LICENSOR harmless from any TAXES imposed by any governmental

 

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authority with respect to LICENSEE’s use ofthe LICENSED TECHNOLOGY. “**TAXES**”herein means any tax, fee or cost not based on LICENSOR’s net income, includingany sales, use, excise, import or export, value added, withholding or similartax, or any duty or fee and any penalties or interest associated with any ofthe foregoing. LICENSEE’s obligation to pay TAXES shall survive any expirationor termination of this AGREEMENT. Notwithstanding the foregoing, if LICENSEE isrequired by U.S. or other law to withhold any amount from sums payable toLICENSOR hereunder, LICENSEE shall deduct and pay any withholding taxes to theappropriate U.S. or other tax authorities, respectively, and shall provideLICENSOR with a tax receipt evidencing such payment.

 

**IV. PATENTS AND INVENTIONS**

 

4.1**       Ownership.**    Exceptfor the licenses granted herein and as set forth in Section 3, LICENSORshall retain all of its rights, title and interests, which it may have, in theunderlying INTELLECTUAL PROPERTY RIGHTS of the LICENSED TECHNOLOGY and anyIMPROVEMENTS.

 

4.2**       LICENSEEIMPROVEMENTS.**    In the event that LICENSEEdevelops IMPROVEMENTS subsequent to the EFFECTIVE DATE, LICENSEE shall have allrights to such IMPROVEMENTS under the terms of the exclusive license granted toLICENSEE in Section 2.1.

 

4.3**       PatentProsecution.**    LICENSEE shall have the responsibilityfor preparing, filing, prosecuting and maintaining the LICENSED PATENTS andconducting any interferences, reexaminations or requesting reissues or patentterm extensions with respect to the LICENSED PATENTS in the United States, andthe right to prepare, file, prosecute and maintain the LICENSED PATENTS andconduct any interferences, reexaminations or request reissues or patent termextensions with respect to the LICENSED PATENTS, or to take such similaractions to protect the LICENSED PATENTS in any other country. During the TERMLICENSEE shall prosecute and/or maintain, as appropriate, the LICENSED PATENTSin at least the countries in which LICENSOR has already begun prosecutionand/or maintenance (“**PROSECUTION COUNTRIES**”),a list of which shall be provided by LICENSOR upon request. LICENSEE shall keepLICENSOR fully informed as to the status of such patent matters, includingwithout limitation by providing LICENSOR with the opportunity to review andcomment on any documents which will be filed in any patent office and byproviding LICENSOR copies of any documents received by LICENSEE from suchpatent offices including notices of all interferences, reexaminations,oppositions or requests for patent term extensions. In the event that LICENSEEdeclines or fails to prepare, file, prosecute or maintain any LICENSED PATENTSin any PROSECUTION COUNTRY, LICENSEE shall promptly, and in no event later thanninety (90) days prior to any filing deadline, provide written notice toLICENSOR and LICENSOR shall then have the right to assume such responsibilitiesat its own expense using counsel of its choice. In addition, LICENSEE shallpromptly notify LICENSOR of any decision to abandon a patent or applicationcovered by the LICENSED PATENTS in any country, in which case, LICENSOR shallhave the option, at its expense and with counsel of its choice, of continuingto prosecute any such pending patent application or of keeping the issuedpatent in force. If LICENSEE abandons, declines or fails to prepare, file,prosecute or maintain any LICENSED PATENTS as set forth in this Section, thelicenses granted by LICENSOR to LICENSEE pursuant to Section II shallimmediately become non-exclusive.

 

4.4**       AdditionalFilings.**    LICENSEE shall have the right tofile for the protection of the LICENSED TECHNICAL INFORMATION, or any rightstherein in any country. LICENSEE shall keep LICENSOR fully informed as to thestatus of such matters, including without limitation by providing LICENSOR withthe opportunity to review and comment on any documents to protect the LICENSEDTECHNICAL INFORMATION which will be filed in any governmental office or agencyand by providing LICENSOR copies of any documents received by LICENSEE fromsuch governmental offices or agencies.

 

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**V.INFRINGEMENT BY THIRD PARTIES**

 

5.1**    Notice.**    Eachparty shall promptly notify the other in writing of any alleged or threatenedINTELLECTUAL PROPERTY infringement of the LICENSED TECHNOLOGY which mayadversely impact the rights of the parties hereunder, of which it becomesaware.

 

5.2**    Enforcement.**    Inthe event that either party becomes aware of any alleged or threatenedINTELLECTUAL PROPERTY infringement of the LICENSED TECHNOLOGY, as between theparties, LICENSEE shall have the first right, but not the obligation, to takeappropriate action against any person or entity directly or contributorilyinfringing such LICENSED TECHNOLOGY, and to retain any recovery from suchaction. In furtherance of such right, LICENSOR hereby agrees that LICENSEE mayjoin LICENSOR as a party in any such action (with LICENSOR having the right toparticipate in such action and to be represented, if it so desires and at itsown expense, by counsel of its own selection) and to give LICENSEE reasonableassistance and any needed authority to control, file and prosecute such action,without expense to LICENSOR. If LICENSEE does not file suit against asubstantial infringer within six (6) months of knowledge thereof, then LICENSORmay, at its sole discretion, enforce any INTELLECTUAL PROPERTY RIGHTS in anyLICENSED TECHNOLOGY licensed hereunder, provided LICENSOR does so both onbehalf of itself and LICENSEE, with LICENSOR retaining all recoveries from suchenforcement. In furtherance of such right, LICENSEE hereby agrees that LICENSORmay join LICENSEE as a party in any such action (with LICENSEE having the rightto participate in such action and to be represented, if it so desires and atits own expense, by counsel of its own selection) and to give LICENSORreasonable assistance and any needed authority to control, file and prosecutesuch action, without expense to LICENSEE.

 

5.3**    Cooperation.**    Inany suit or dispute involving an infringer, the parties agree to cooperatefully with each other at the expense of the party bringing the suit.Cooperation shall include permitting access during regular business hours uponreasonable notice, to all relevant personnel, records, papers, information,samples, specimens, and the like in its possession.

 

5.4**    Licenses to Abate Third PartyInfringement.**    LICENSEE shall have the soleright in accordance with the terms and conditions herein to sublicense therights granted to LICENSEE under Section 2.1 to any alleged infringer.

 

**VI.INDEMNIFICATION**

 

6.1**    Indemnification By LICENSOR.**    Subjectto Section 6.2, LICENSOR, at its own expense, shall: (i) defend, or at itsoption settle, any claim, suit or proceeding brought by a third party againstLICENSEE: (a) that the LICENSED TECHNOLOGY (except for IMPROVEMENTS) as used inaccordance with this Agreement infringes any United States patent issued as ofthe Effective Date, or any United States copyright or trademark right(s) of athird-party, or misappropriates any United States trade secret of a thirdparty, (b) that LICENSOR breached any of its warranties, representations orobligations in Section 8.1, or (c) arising out of LICENSOR's negligence,tortious conduct or willful misconduct hereunder; and (ii) pay any final andnon-appealable judgment entered or settlement against LICENSEE thereon;provided, however, that LICENSOR shall not be responsible for any compromise orsettlement made without its consent. LICENSOR shall have no obligation toLICENSEE unless: (1) LICENSEE gives LICENSOR prompt written notice of theclaim; (2) LICENSOR is given the right to control and direct the investigation,preparation, defense and settlement of the claim; and (3) LICENSEE fullycooperates with LICENSOR, at LICENSOR's expense, in such defense andsettlement.

 

(a)**    Exclusions.**    LICENSOR'sindemnification obligations shall not apply to any claim relating to: (a) theIMPROVEMENTS or any element of the LICENSED TECHNOLOGY that has been changed,abused or not used as authorized hereunder; (b) the bundling of LICENSEDTECHNOLOGY with software, hardware or other materials of LICENSEE and thirdparties;

 

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(c) use of the LICENSEDTECHNOLOGY that exceeds the scope of the licenses expressly granted in thisAgreement; and/or (d) LICENSEE's failure to use the LICENSED TECHNOLOGY or anyportion thereof in accordance with the provisions of this Agreement.

 

(b)**    Additional Rights.**    Ifthe use, sale or distribution of the OEM PRODUCTS or the VISTA PRODUCTS byLICENSEE, or its AFFILIATES or sublicensees is enjoined due to infringement ofthe LICENSED TECHNOLOGY in the Unites States, or if LICENSOR wishes to minimizeits potential liability in connection therewith, LICENSOR may, at its optionand expense, either: (a) substitute functionally equivalent non-infringingLICENSED TECHNOLOGY; (b) modify the infringing LICENSED TECHNOLOGY so that theOEM PRODUCTS or VISTA PRODUCTS no longer infringe, but remain functionallyequivalent; (c) obtain for LICENSEE the right to continue to use such LICENSEDTECHNOLOGY; or (d) if none of the foregoing is feasible, refund to LICENSEE apro rata portion of the royalties paid hereunder (as depreciated on a straightline basis over five (5) years from the EFFECTIVE DATE).

 

6.2**    Indemnification By LICENSEE.**    LICENSEE,at its own expense, shall: (i) defend, or at its option settle, any claim, suitor proceeding against LICENSOR arising from or in connection with (x)LICENSEE's breach of any of its warranties, representations or obligations inSection 8.2, 12.10, 12.11 and 12.12, (y) any LICENSEE modification,combination, adaptation, integration, incorporation, reproduction, sale, lease,rental or other commercialization, distribution or performance of the LICENSEDPRODUCTS, or (z) LICENSEE's negligence, tortious conduct or willful misconduct;and (ii) pay any final judgment entered or settlement against LICENSOR thereon,provided, however, that LICENSEE shall not be responsible for any compromise orsettlement made without its consent. LICENSEE shall have no obligation toLICENSOR pursuant to this Section 6.2 unless: (a) LICENSOR gives LICENSEEprompt written notice of the claim; (b) LICENSEE is given the right to controland direct the investigation, preparation, defense and settlement of the claim;and (c) LICENSOR fully cooperates with LICENSEE, at LICENSEE's expense, in suchdefense and settlement.

 

6.3   In the event the provisions of this ArticleVI conflict with similar provisions contained in the Asset Purchase Agreement,the provisions of the Asset Purchase Agreement shall control.

 

**VII.CONFIDENTIAL INFORMATION**

 

7.1**    Nondisclosure.**    RECIPIENTshall not, except as otherwise expressly provided herein, disclose, disseminateor otherwise allow access to the CONFIDENTIAL INFORMATION of DISCLOSER toanyone other than RECIPIENT's employees that have a need to know suchCONFIDENTIAL INFORMATION to implement this AGREEMENT and who are bound bywritten confidentiality obligations with provisions no less stringent thanthose contained in this Section VII. RECIPIENT shall prevent unauthorizeddisclosure or use of the CONFIDENTIAL INFORMATION of DISCLOSER. DISCLOSER andRECIPIENT shall execute any documents and otherwise shall take all necessarysteps to ensure that DISCLOSER and RECIPIENT shall each be able to enforceDISCLOSER's rights hereunder against RECIPIENT, its employees and all otherthird parties to whom RECIPIENT discloses DISCLOSER's CONFIDENTIAL INFORMATION,under the laws of each jurisdiction in which DISCLOSER's CONFIDENTIALINFORMATION is disclosed by RECIPIENT. RECIPIENT shall be responsible for anybreach of this Section VII by RECIPIENT's employees, contractors or agents.

 

7.2**    Ownership.**    Exceptas set forth herein, RECIPIENT acknowledges and agrees that DISCLOSER (or itslicensors) owns all rights, title and interests, including INTELLECTUALPROPERTY RIGHTS, in and to DISCLOSER's CONFIDENTIAL INFORMATION.

 

7.3**    Notification.**    IfRECIPIENT learns or believes that any person who has had access to theCONFIDENTIAL INFORMATION of DISCLOSER has violated or intends to violate this

 

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AGREEMENT, RECIPIENT shall immediately notify DISCLOSER and shallcooperate with DISCLOSER in seeking injunctive or other equitable reliefagainst any such person.

 

7.4**    Exceptions.**    RECIPIENTmay disclose the CONFIDENTIAL INFORMATION of DISCLOSER, if such disclosure isrequired by law, provided that RECIPIENT promptly notifies DISCLOSER to allowintervention by DISCLOSER (prior to the disclosure), cooperates with DISCLOSERto contest or minimize the disclosure (including application for a protectiveorder) at RECIPIENT's expense and limits such disclosure to the party entitledto receive the CONFIDENTIAL INFORMATION and to the scope of the legalrequirement. Notwithstanding the foregoing, any CONFIDENTIAL INFORMATIONdisclosed pursuant to this Section 7.4 shall otherwise continue to be treatedas CONFIDENTIAL INFORMATION hereunder.

 

7.5**    Confidentiality of AGREEMENT.**    Neitherparty will publicly disclose any term of this AGREEMENT or announce theexistence of this AGREEMENT without the prior written consent of the otherparty, except that each party may reveal the terms of this AGREEMENT (a) to itsaccountants, banks, financing sources, lawyers and other professional advisors,provided that such parties undertake in writing to keep such informationconfidential, or (b) as required by applicable laws and regulations includingthose of the U.S. Securities and Exchange Commission on the notification. Eachparty may also disclose the tax treatment and tax structure of the transactionscontemplated by this AGREEMENT and all materials of any kind (includingopinions or other tax analyses) that are provided to it relating to such taxtreatment and tax structure.

 

7.6**    Reproduction of CONFIDENTIALINFORMATION.**    CONFIDENTIAL INFORMATION shallnot be reproduced except as required to implement this AGREEMENT. Anyreproduction or derivative of any CONFIDENTIAL INFORMATION of DISCLOSER byRECIPIENT shall remain the property of DISCLOSER and shall contain allconfidential or proprietary notices or legends which appear on the original.

 

**VIII.REPRESENTATIONS AND WARRANTIES**

 

8.1**    Representations and Warrantiesby LICENSOR.**    LICENSOR represents, warrantsand covenants to LICENSEE:

 

(a)**    Corporate Power.**    LICENSORis duly organized and validly existing under the laws of Delaware and has fullcorporate power and authority to enter into this AGREEMENT and to carry out theprovisions hereof.

 

(b)**    Due Authorization.**    LICENSORis duly authorized to execute and deliver this AGREEMENT and to perform itsobligations hereunder. The person executing this AGREEMENT on LICENSOR's behalfhas been duly authorized to do so by all requisite corporate action.

 

(c)**    Binding Agreement.**    ThisAGREEMENT is a legal and valid obligation binding upon LICENSOR and enforceablein accordance with its terms. The execution, delivery and performance of thisAGREEMENT by LICENSOR does not conflict with any agreement, instrument orunderstanding, oral or written, to which it is a party or by which it may bebound, nor violate any material law or regulation of any court, governmentalbody or administrative or other agency having jurisdiction over it.

 

(d)**    Grant of Rights.**    LICENSORhas not, and will not during the term of this AGREEMENT, grant any right to anythird party that would conflict with the rights granted to LICENSEE hereunder.

 

(e)**    Validity.**    LICENSORis aware of no action, suit or inquiry or investigation instituted by anygovernmental agency that questions or threatens the validity of this AGREEMENT.

 

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(f)**    Ownership.**    ToLICENSOR's knowledge, it owns or holds valid and enforceable licenses to theLICENSED PATENTS and LICENSED TECHNICAL INFORMATION and has sufficient rightsand power to grant the licenses to LICENSEE that it purports to grant herein.

 

(g)**    Third Party Rights.**    LICENSORhas no knowledge of any third party INTELLECTUAL PROPERTY RIGHT that isinfringed by the use or commercialization of the LICENSED PRODUCTS ascontemplated hereby.

 

8.2**    Representations and Warrantiesby LICENSEE:**    LICENSEE represents, warrantsand covenants to LICENSOR:

 

(a)**    Corporate Power.**    LICENSEEis duly organized and validly existing under the laws of the State of Nevadaand has full corporate power and authority to enter into this AGREEMENT and tocarry out the provisions hereof.

 

(b)**    Due Authorization.**    LICENSEEis duly authorized to execute and deliver this AGREEMENT and to perform its obligationshereunder. The person executing this AGREEMENT on LICENSEE's behalf has beenduly authorized to do so by all requisite corporation action.

 

(c)**    Binding Agreement.**    ThisAGREEMENT is a legal and valid obligation binding upon LICENSEE and enforceablein accordance with its terms. The execution, delivery and performance of thisAGREEMENT by LICENSEE does not conflict with any agreement, instrument orunderstanding, oral or written, to which it is a party or by which it may bebound, nor violate any material law or regulation of any court, governmentalbody or administrative or other agency having jurisdiction over it.

 

8.3   EXCEPT FOR ANY EXPRESS WARRANTY GIVEN INSECTION 8.1 OR 8.2, NEITHER PARTY MAKES ANY WARRANTY, AND EACH PARTY EXPRESSLYDISCLAIMS ALL OTHER WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED OR ARISING OUT OFA COURSE OF CONDUCT OR COURSE OF DEALING, INCLUDING ALL WARRANTIES OF TITLE,PERFORMANCE, USE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE ORNON-INFRINGEMENT.

 

**IX.ASSIGNMENT**

 

9.1   Neither this AGREEMENT nor any right orobligation hereunder is assignable in whole or in part by any party without theprior written consent of the other party. Notwithstanding the foregoing, eitherparty may assign this AGREEMENT, without such consent to a third party inconnection with any merger, acquisition, consolidation, reorganization (inwhich a change of control occurs), CHANGE OF CONTROL of or by the assigningparty, or the sale of all, substantially all or a majority of such parties' assetsor voting securities. A “**CHANGE OF CONTROL**”occurs when over fifty percent (50%) of a party's then outstanding securitiesare acquired by a third party. This AGREEMENT shall inure to the benefit ofeach of the party's successors and assignees provided that such successors orassignees assume the party's obligations under this AGREEMENT.

 

**X. TERM ANDTERMINATION**

 

10.1**    Term.**    Subjectto Sections 10.2 and 10.3 hereinbelow, the term of this AGREEMENT is from theEFFECTIVE DATE until the five (5) year anniversary of the EFFECTIVE DATE (the “**TERM**”).

 

10.2**    Termination for Breach.**    Eachparty shall have the right to terminate this AGREEMENT if the other partybreaches this AGREEMENT and fails to cure such breach within thirty (30) daysfollowing the date the breaching party receives a written breach notice fromthe non-breaching party

 

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describing the breach; *provided, however,*that the foregoing cureright shall not apply for a breach of Sections II, IV and VII, whereupon thenon-breaching party may terminate this AGREEMENT immediately upon writtennotice to the breaching party without granting the breaching party the right tocure such breach.

 

10.3**    Termination for Bankruptcy.**    Eachparty shall have the right to terminate this AGREEMENT immediately upon writtennotice if the other party files a petition, action or other proceeding seekingrelief or protection under any bankruptcy laws, whether voluntary orinvoluntary; or the other party becomes insolvent, or is unable to pay itsdebts as due or ceases to conduct business in the normal course (however, ifsuch petition, action or proceeding is involuntary, then only if such petition,action or proceeding is not dismissed within sixty (60) days of filing);

 

10.4**    Post-Termination Obligations.**    Upontermination or expiration of this AGREEMENT:

 

(a)   nothing herein will be construed to releaseeither party of any obligation or liability maturing prior to the effectivedate of the termination or expiration of this AGREEMENT;

 

(b)   Any outstanding payments and the provisionsof Sections I, V, VI, VII, VIII, IX, XI, XII and Sections 3.4, 3.5, 3.6, 3.7,4.1, 4.2 and 10.4 shall survive any termination or expiration of this AGREEMENTby their terms for any reason.

 

(c)   Each party shall cease to use or exploit inany manner the CONFIDENTIAL INFORMATION of the other party or any elementsthereof in accordance with Section VII and shall return to the other party allCONFIDENTIAL INFORMATION (including all copies and derivatives, in any form,thereof) disclosed by the other party, and LICENSEE shall cease to use theCONFIDENTIAL INFORMATION of LICENSOR, provided that LICENSEE shall not beprohibited from using such CONFIDENTIAL INFORMATION in providing supportservices for the LICENSED PRODUCTS and selling all LICENSED PRODUCTS and partstherefor that it has on hand at the date of termination; and

 

(d)   Except as set forth in Section 3.4,LICENSEE shall immediately cease the manufacture of LICENSED PRODUCTS.

 

**XI.LIMITATION OF LIABILITY**

 

11.1TO THE MAXIMUM ALLOWED BY APPLICABLE LAW, IN NO EVENT SHALL LICENSOR BE LIABLEFOR ANY LOSS, INABILITY TO USE, INTERRUPTION OF BUSINESS, OR ANY INDIRECT,SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOSTPROFITS) ARISING OUT OF THE LICENSED TECHNOLOGY, THE LICENSED PRODUCTS, OROTHERWISE UNDER THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER INCONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY, OR OTHERWISE,EVEN IF LICENSEE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

11.2TO THE MAXIMUM EXTENT ALLOWED UNDER APPLICABLE LAW, IN NO EVENT SHALLLICENSOR'S AGGREGATE LIABILITY TO LICENSOR, OR ANY THIRD PARTY FOR ANY AND ALLCLAIMS ARISING FROM OR RELATING TO THIS AGREEMENT, WHETHER IN CONTRACT, TORT ORANY OTHER THEORY OF LIABILITY, EXCEED THE AMOUNTS PAID BY LICENSEE TO LICENSORHEREUNDER PRIOR TO THE DATE OF THE EVENT GIVING RISE TO SUCH LIABILITY. THISLIMITATION SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANYLIMITED REMEDY PROVIDED HEREIN.

 

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**XII.GENERAL**

 

12.1**    Integration, Amendments.**    ThisAGREEMENT and *Exhibits A*and *B*attached hereto, represent andconstitute the sole, final and entire agreement between the parties withrespect to the subject matter hereof, may only be amended in writing signed bythe duly authorized officers of both parties, and supersedes all prioragreements and understandings with respect to the matters covered by thisAGREEMENT.

 

12.2**    Notices.**    Anynotice, waivers or consents required by this AGREEMENT must be given byprepaid, first class, certified mail, return receipt requested, and addressedin the case of LICENSOR to:

 

Vista Medical Technologies,Inc.

2101 Faraday Avenue

Carlsbad, CA 92008

Facsimile: (760) 603-9170

Attention: John R. Lyon

 

or in the case of LICENSEEto:

Viking Systems, Inc.

7514 Girard Ave., Suite 1509

La Jolla, CA 92037

Facsimile No.: (619)839-3793

Attention: Thomas B. Marsh

 

or other addresses as may begiven from time to time under the terms of this notice provision.

 

12.3**    Governing Law.**    ThisAGREEMENT is entered into in and shall be governed, construed and enforced inall respects solely and exclusively under the laws of the State of California,USA without giving effect to any law which would result in the application of adifferent body of law. Any and all suits hereunder shall be brought andresolved solely and exclusively in, and the parties hereby irrevocably consentto the exclusive jurisdiction and proper venue of, the state and federal courtslocated in the County of San Diego, State of California, USA, and waive anyobjections thereto based on any ground including improper venue or ForumNon-Conveniens. The parties agree that any process directed to any of them inany such litigation may be served outside the State of California, USA, withthe same force and effect as if the service had been made within the State ofCalifornia, USA, and that service of process may be effected in accordance withSection 12.2 hereof. Any decision rendered by such court shall be binding,final and conclusive upon the parties, and a judgment thereon may be enteredin, and enforced by, any court having jurisdiction over the party against whichan award is entered or the location of such party's assets.

 

12.4**    Injunctive Relief.**    Notwithstandinganything to the contrary herein, each party shall be entitled to seekinjunctive or other equitable relief, wherever such party deems appropriate inany jurisdiction, in order to preserve or enforce such party's rights for anybreach or threatened breach of the other party of Sections II, IV or VII. Eachparty agrees that: (i) Section II, IV and VII are necessary and reasonable toprotect the other party and its business, (ii) any violation of theseprovisions could cause irreparable injury to the other party for which moneydamages would be inadequate, and (iii) as a result, the other party will beentitled to seek and obtain injunctive relief against the breach or threatenedbreach of the provisions of Section II, IV or VII without the necessity ofposting bond or proving actual damages. The parties agree that the remedies setforth in this Section 12.4 are in addition to and in no way preclude any other remediesor actions that may be available at law or under this AGREEMENT.

 

12.5**    Attorneys' Fees.**    Theprevailing party in any action or suit shall be entitled to recover all costsit incurred in connection therewith, including, without limitation, reasonableattorneys' fees.

 

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12.6**    No Waiver.**    Thefailure of either party to require performance by the other party of anyprovision hereof shall not affect its right to require such performance at anytime thereafter; nor shall the waiver by either party of a breach of anyprovision hereof be taken or held to be a waiver of the provision itself. Anysuch waiver or any amendment of this AGREEMENT must be in writing and signed byboth parties to be effective.

 

12.7**    Headings.**    Headingsincluded herein are for convenience only and will not be used to construe thisAGREEMENT.

 

12.8**    Severability.**    Ifone or more provisions in this AGREEMENT are ruled entirely or partly invalidor unenforceable by any court or governmental authority of competentjurisdiction, then: (i) the validity and enforceability of all provisions notruled to be invalid or unenforceable shall remain unaffected; (ii) the effectof such ruling shall be limited to the body making the ruling; (iii) theprovision(s) held wholly or partly invalid or unenforceable shall be deemedamended, and the parties shall reform the provision(s) to the minimum extentnecessary to render them valid and enforceable in conformity with the parties'intent as manifested herein; and (iv) if the ruling, or the controllingprinciple of law or equity leading to the ruling, is subsequently overruled,modified, or amended, then the provision(s) in question, as originally setforth in this AGREEMENT, shall be deemed valid and enforceable to the maximumextent permitted by the new controlling principle of law or equity.

 

12.9**    Independent Contractors.**    Therelationship between LICENSEE and LICENSOR is solely that of independentcontractors. Neither party nor its employees, agents or representatives shallbe considered employees, agents, partners, franchisees, joint venturers orrepresentatives of the other party. Neither party shall act or representitself, directly or by implication, as agent, party to a joint venture with theother party, partner or representative of the other, or in any manner assume orattempt to assume or create any obligation or liability of any kind, express orimplied, on behalf of, or in the name of, the other.

 

12.10**    Export Controls.**    LICENSEEunderstands that the LICENSED TECHNOLOGY is subject to the export control lawsand regulations of the U.S. or other applicable jurisdictions. LICENSEE agreesthat it will not export or re-export the LICENSED TECHNOLOGY in violation ofsuch laws or regulations.

 

12.11**    Corrupt Practices.**    LICENSEEshall not, directly or indirectly, make, offer or agree to make or offer onbehalf of LICENSOR, any loan, gift, donation or other payment, directly orindirectly, whether in cash or in kind, for the benefit of or at the directionof any candidate, committee, political party, political function or governmentor government subdivision, or any individual elected, appointed or otherwisedesignated as an employee or officer thereof, for the purposes of influencingany act or decision of such entity or individual or inducing such entity orindividual to do or omit to do anything in order to obtain or retain businessor other benefits in violation of the United States Foreign Corrupt PracticesAct.

 

12.12**    Boycott.**    LICENSEEshall not, directly or indirectly, take any action that would cause LICENSOR tobe in violation of United States anti-boycott laws under the United StatesExport Administration Act or the United States Internal Revenue Code, or any regulationthereunder.

 

12.13**    Counterparts.**    ThisAGREEMENT may be executed in one or more counterparts, each of which shall bean original and all of which shall constitute together the same document.

 

12.14**    Interpretation.**    ThisAGREEMENT has been negotiated by the parties and their respective counsel. ThisAGREEMENT will be fairly interpreted in accordance with its terms and withoutany strict construction in favor of or against any party. Any ambiguity willnot be interpreted against the drafting party.

 

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**IN WITNESS WHEREOF**, the parties hereto have caused their dulyauthorized representatives to execute this AGREEMENT. 

 
| VIKING SYSTEMS, INC. | VISTA MEDICAL  TECHNOLOGIES, INC. |
|----------------------|-----------------------------------|
|                 |                              |
|                 |                              |
| By:                  |                              |   | By: |   |
|                 | Thomas  B. Marsh, President       |   |   | John  R. Lyon, President |
|                 |                              |   |
| Date:                |                              |   | Date: |   |
|                      |                                   |  |  |  |  |  |  |

 

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**EXHIBIT A**

 

**LICENSEDTECHNOLOGY**

 

All “Company Intellectual Property,” as defined in the Asset PurchaseAgreement.

 

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**EXHIBIT B**

 

**LICENSEDPRODUCTS**

 

**VISTAPRODUCTS**

 

**OEMPRODUCTS**

 

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**EXHIBIT B**

**BILL OFSALE**

 

ThisBill of Sale, effective asof         , 2004, is beingexecuted and delivered by Vista Medical Technologies, Inc., a Delawarecorporation (“Vista”), to Viking Systems, Inc., a Nevada corporation(“Viking”), in connection with that certain Asset Purchase Agreement pursuantto which Vista has agreed to sell, and Viking has agreed to purchase, certainassets of Vista (the “Purchase Agreement”). Capitalized terms used herein butnot defined herein shall have the meanings ascribed to such terms in thePurchase Agreement.

 

WHEREAS,Vista has agreed to sell to Viking all of the Purchased Assets in exchange forthe purchase price described in Section 2.4 of the Purchase Agreement (the“Purchase Price”).

 

WHEREAS,Vista is executing and delivering this Bill of Sale to Viking for the purposeof selling to and vesting in Viking all right, title and interest in and to thePurchased Assets.

 

NOW,THEREFORE, in exchange for the Purchase Price, Vista hereby agrees as follows:

 

1.    Vista agrees to grant, sell, convey, assign, transfer and deliver to Viking,free and clear of any encumbrance or adverse claim of any kind whatsoever, allof its right, title, and interest in and to the Purchased Assets.

 

2.    From time to time after the date hereof, Vista agrees to execute and deliver toViking such instruments of sale, transfer, conveyance, assignment and delivery,and such consents, assurances, powers of attorney and other instruments as maybe reasonably requested by Viking in order to vest in Viking all right, goodand marketable title and interest of Vista in and to the Purchased Assets andotherwise in order to carry out the purpose and intent of this instrument.Vista covenants and agrees to warrant and defend the sale, transfer,assignment, conveyance, grant and delivery of the Purchased Assets hereby madeagainst all persons whomsoever, to take all steps reasonably necessary toestablish the record of Viking's title to the Purchased Assets.

 

3.    Without limiting Section 2 hereof, Vista hereby constitutes and appoints Vikingthe true and lawful agent and attorney in fact of Vista, with full power ofsubstitution and resubstitution, in whole or in part, in the name and stead ofVista but on behalf and for the benefit of Viking and its successors andassigns, from time to time:

 

a.    to demand, receive and collect any and all of the Purchased Assets and to givereceipts and releases for and with respect to the same, or any part thereof;

 

b.    to institute and prosecute, in the name of Vista or otherwise, any and allproceedings at law, in equity or otherwise, that Viking or its successors andassigns may deem proper in order to collect or reduce to possession any of thePurchased Assets and in order to collect or enforce any claim or right of anykind hereby assigned or transferred, or intended so to be; and

 

c.    to do all things legally permissible, required or reasonably deemed by Vikingto be required to recover and collect the Purchase Assets and to use Vista'sname in such manner as Viking may reasonably deem necessary for the collectionand recovery of same.

 

Vistahereby declaring that the foregoing powers are coupled with an interest and areand shall be irrevocable by Vista.

 

4.    This instrument shall be binding upon Vista, and its successors and assigns,for the uses and purposes set forth above.

 

5.    This instrument shall be governed by and construed in accordance with the lawsof the State of California applicable to contracts executed and performed insuch State, without giving effect to conflicts of laws principles.

 

[SIGNATURE PAGE TO FOLLOW]

 

-CONFIDENTIAL-

 

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INWITNESS WHEREOF, Vista has caused this Bill of Sale to be executed anddelivered on the date and year first written above. 

 
|   | VISTA MEDICAL  TECHNOLOGIES, INC. |
|--------|-----------------------------------|
|   |                              |
|   |                              |
|   | By:                               |   |
|   | Name:                             |   |
|   | Title:                            |   |

 
| THE STATE OF CALIFORNIA | ) |   |
|-------------------------|---|--------|
|                    | ) |   |
| COUNTY OF               | ) |   |

 

On               , 2004, beforeme,                        ,personallyappeared                                                                         , known personally to me (or proved to me on the basis of satisfactory evidence)to bethe                          of the above named corporation whose name is subscribed to the within instrumentand acknowledged to me that she/he executed the same in her/his authorizedcapacity, and that by her/his signature on the instrument the person, or theentity upon behalf of which she/he acted, executed the instrument.

 

WITNESS my hand and official seal. 

 

 
|   |                                    |
|--------|-----------------------------------------|
|   | NOTARY  PUBLIC—STATE OF CALIFORNIA |

 

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[SIGNATURE PAGE TO BILL OFSALE]

 

 

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**EXHIBIT C**

**GENERALASSIGNMENT**

 

**ASSIGNMENTAND ASSUMPTION AGREEMENT**

 

This**ASSIGNMENT AND ASSUMPTION AGREEMENT**(this “Agreement”) is made as of                            ,2004, by and between Vista Medical Technologies, Inc., a Delaware corporation(“Assignor”), and Viking Systems, Inc., a Nevada corporation (the “Assignee”).

 

**RECITALS:**

 

A.    Assignorand the Assignee have entered into an Asset Purchase Agreement dated as ofDecember 22, 2003 (the “Purchase Agreement”). Capitalized terms used herein butnot defined herein shall have the meanings ascribed to such terms in thePurchase Agreement

 

B.    Pursuantto the Purchase Agreement, Assignor has agreed to convey, transfer, assign anddeliver to Assignee all of the Purchased Assets, and Assignee has agreed toassume the Assumed Liabilities.

 

**AGREEMENT:**

 

Inconsideration of the promises and of the agreements contained herein and in thePurchase Agreement and for other good and valuable consideration, the receiptand sufficiency of which are hereby expressly acknowledged, the parties heretoagree as follows:

 

1.**    Assignment.**    Assignor,for itself and its successors and assigns forever, hereby assigns, transfersand conveys to Assignee all of its right, title and interest in, related to orarising out of, the Purchased Assets.

 

2.**    Assumption.**    TheAssignee, for itself and its successors and assigns forever, hereby accepts andassumes the due and punctual performance, discharge and observation of, andshall perform, discharge and observe, all of Assignor's obligations in, relatedto, or arising out of the Purchased Assets and the Assumed Liabilities.

 

3.**    Additional Rights andObligations.**    Assignor and Assignee herebyagree and acknowledge that this Agreement is being entered into pursuant to andsubject to the terms and conditions set forth in the Purchase Agreement andthat additional rights and obligations of the parties are expressly providedfor therein, and that the execution and delivery of this Agreement shall notimpair or diminish any of the rights or obligations of any of the parties tothe Purchase Agreement as set forth therein.

 

4.**    Reasonable Efforts;Cooperation.**    The parties shall use theirreasonable best efforts to take, or cause to be taken, all actions and to do,or cause to be done, all things reasonably necessary, proper or advisable toconsummate and make effective as promptly as practicable the provisionscontained herein and to cooperate with each other in connection with theforegoing.

 

5.**    Consents.**    Notwithstandinganything to the contrary in this Agreement, as to those Purchased Assets forwhich consent of third parties to assignment is required, the obtaining of suchconsents shall be a condition precedent to the assignment to Assignee byAssignor of its interests therein and to the assumption by Assignor ofAssignee's obligations thereunder.

 

6.**    Counterparts.**    ThisAgreement may be executed in counterparts and by facsimile, each of which shallbe deemed an original, and all such counterparts shall constitute one and thesame instrument. Any counterpart may be delivered by facsimile.

 

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7.**    Governing Law.**    ThisAgreement shall be governed by and construed in accordance with the laws of theState of California.

 

This Assignment and Assumption Agreement has been executed as of thedate first written above. 

 
|   | **VISTA  MEDICAL TECHNOLOGIES, INC.** |
|--------|---------------------------------------|
|   |                                  |
|   |                                  |
|   | By:                                   |   |
|   | Name:                                 |   |
|   | Title:                                |   |
|   |                                  |
|   | **VIKING  SYSTEMS, INC.**             |
|   |                                  |
|   |                                  |
|   | By:                                   |   |
|   | Name:                                 |   |
|   | Title:                                |   |

 

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**EXHIBIT D**

**REGISTRATIONRIGHTS AGREEMENT**

 

**VIKINGSYSTEMS, INC.**

**REGISTRATIONRIGHTS AGREEMENT**

 

THISREGISTRATION RIGHTS AGREEMENT (this “Agreement”) is entered into as ofthe    dayof              ,2004, by and among Viking Systems Inc., a Nevada corporation (the “Company”),and Vista Medical Technologies, Inc., a Delaware corporation (the “Holder”).

 

WHEREAS,Holder received shares of the Company's Common Stock pursuant to the terms ofthat certain Asset Purchase Agreement between the Company and Holder datedDecember 22, 2003 (the “Asset Purchase Agreement”).

 

WHEREAS,in connection with the Asset Purchase Agreement and the transactionscontemplated therein, the Company has agreed to grant to Holder the rightsdescribed herein.

 

NOW,THEREFORE, in consideration of the premises and for other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged,the parties agree hereto as follows:

 

1.*    General.*

 

1.1*    *Definitions*.*    As used in thisAgreement the following terms shall have the following respective meanings:

 

(a)   “Exchange Act” means the SecuritiesExchange Act of 1934, as amended.

 

(b)   “Holder” means any person owning of recordRegistrable Securities that have not been sold to the public or any assignee ofrecord of such Registrable Securities.

 

(c)   “Register,” “registered,” and“registration” refer to a registration effected by preparing and filing aregistration statement in compliance with the Securities Act, and thedeclaration or ordering of effectiveness of such registration statement ordocument.

 

(d)   “Registrable Securities” means (a) theShares and (b) any Common Stock of the Company issued as (or issuable upon theconversion or exercise of any warrant, right or other security which is issuedas) a dividend or other distribution with respect to, or in exchange for or inreplacement of, the Shares. Notwithstanding the foregoing, RegistrableSecurities shall not include any securities sold by a person to the publiceither pursuant to a registration statement or Rule 144 or sold in a privatetransaction in which the transferor's rights under Section 2 of this Agreementare not assigned.

 

(e)   “Registration Expenses” shall mean the feesand expenses of a single counsel for Holder selected by Holder (with theapproval of the Company, which approval shall not be unreasonably withheld) andall expenses incurred by the Company in complying with Section 2.1 hereof,including, without limitation, all registration and filing fees, printingexpenses, fees and disbursements of counsel for the Company, blue sky fees andexpenses and the expense of any special audits incident to or required by anysuch registration (but excluding the compensation of regular employees of theCompany which shall be paid in any event by the Company).

 

(f)   “SEC” or “Commission” means the Securitiesand Exchange Commission.

 

(g)   “Securities Act” shall mean the SecuritiesAct of 1933, as amended.

 

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(h)   “Selling Expenses” shall mean underwritingdiscounts and selling commissions applicable to the sale and the legal fees andexpenses of special counsel to Holder above and beyond the counsel provided forin the definition of Registration Expenses.

 

(i)    ”Shares”shall mean the Company's Common Stock issued pursuant to the Asset PurchaseAgreement and held by Holder or its permitted assigns.

 

(j)    ”SpecialRegistration Statement” shall mean (i) a registration statement relating to anyemployee benefit plan or (ii) with respect to any corporate reorganization ortransaction under Rule 145 of the Securities Act, including any registrationstatements related to the resale of securities issued in such a transaction or(iii) a registration related to stock issued upon conversion of debtsecurities.

 

2.*    Registration.*

 

2.1*     PiggybackRegistrations.*    The Company shall notify theHolder in writing at least thirty (30) days prior to the filing of anyregistration statement under the Securities Act for purposes of a publicoffering of securities of the Company (including, but not limited to,registration statements relating to secondary offerings of securities of theCompany, but excluding Special Registration Statements) and will afford Holderan opportunity to include in such registration statement all or part of theRegistrable Securities held by such Holder. If Holder desires to include in anysuch registration statement all or any part of its Registrable Securities,Holder shall, within twenty (20) days after the above-described notice from theCompany, so notify the Company in writing. Such notice shall state the intendedmethod of disposition of the Registrable Securities by Holder. If Holderdecides not to include all of its Registrable Securities in any registrationstatement thereafter filed by the Company, Holder shall nevertheless continueto have the right to include any Registrable Securities in any subsequentregistration statement or registration statements as may be filed by theCompany with respect to offerings of its securities, all upon the terms andconditions set forth herein.

 

(a)*    Underwriting.*    Ifthe registration statement under which the Company gives notice under thisSection 2.1 is for an underwritten offering, the Company shall so adviseHolder. In such event, the right of any Holder to be included in a registrationpursuant to this Section 2.1 shall be conditioned upon Holder's participationin such underwriting and the inclusion of Holder's Registrable Securities inthe underwriting to the extent provided herein. If Holder proposes todistribute its Registrable Securities through such underwriting, it shall enterinto an underwriting agreement in customary form with the underwriter or underwritersselected for such underwriting by the Company. Notwithstanding any otherprovision of this Agreement, if the underwriter determines in good faith thatmarketing factors require a limitation of the number of shares to beunderwritten, the number of shares that may be included in the underwritingshall be allocated, first, to the Company; and second, to all other sellingstockholders of the Company (including Holder) on a pro rata basis; provided,however in no event shall the number of shares to be included by Holder bereduced to a number less than 25% of the number of shares initially proposed tobe included by Holder. If Holder disapproves of the terms of any suchunderwriting, Holder may elect to withdraw therefrom by written notice to theCompany and the underwriter. Any Registrable Securities excluded or withdrawnfrom such underwriting shall be excluded and withdrawn from the registration.For any Holder which is a partnership or corporation, the partners, retiredpartners and stockholders of such Holder, or the estates and family members ofany such partners and retired partners and any trusts for the benefit of any ofthe foregoing person shall be deemed to be a single “Holder,” and any pro ratareduction with respect to such “Holder” shall be based upon the aggregateamount of shares carrying registration rights owned by all entities andindividuals included in such “Holder,” as defined in this sentence divided bythe total

 

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number of shares held by allstockholders proposed to be included as selling stockholders in theregistration statement.

 

(b)*    Right to TerminateRegistration.*    The Company shall have theright to terminate or withdraw any registration initiated by it under this Section2.1 prior to the effectiveness of such registration whether or not any Holderhas elected to include securities in such registration. The RegistrationExpenses of such withdrawn registration shall be borne by the Company inaccordance with Section 2.2 hereof.

 

2.2*     Expenses ofRegistration.*    Except as specifically providedherein, all Registration Expenses incurred in connection with any registration,qualification or compliance pursuant to Section 2.1 herein shall be borne bythe Company. All Selling Expenses incurred in connection with any registrationshereunder, shall be borne by Holder.

 

2.3*     Obligations of theCompany.*    Whenever required to effect theregistration of any Registrable Securities, the Company shall, as expeditiouslyas reasonably possible:

 

(a)   Prepare and file with the SEC aregistration statement with respect to such Registrable Securities and use allreasonable efforts to cause such registration statement to become effective andremain effective for a period of ninety (90) days or until Holder has completedthe distribution related thereto, whichever first occurs.

 

(b)   Prepare and file with the SEC suchamendments and supplements to such registration statement and the prospectusused in connection with such registration statement as may be necessary tocomply with the provisions of the Securities Act with respect to thedisposition of all securities covered by such registration statement for theperiod set forth in Section 2.3(a) above.

 

(c)   Furnish to Holder such number of copies ofa prospectus, including a preliminary prospectus, in conformity with therequirements of the Securities Act, and such other documents as Holder mayreasonably request in order to facilitate the disposition of RegistrableSecurities owned by it.

 

(d)   Use its reasonable efforts to register andqualify the securities covered by such registration statement under such othersecurities or blue sky laws of such jurisdictions as shall be reasonablyrequested by Holder; provided that the Company shall not be required inconnection therewith or as a condition thereto to qualify to do business or tofile a general consent to service of process in any such states orjurisdictions.

 

(e)   In the event of any underwritten publicoffering, enter into and perform its obligations under an underwritingagreement, in usual and customary form, with the managing underwriter(s) ofsuch offering. If Holder participates in such underwriting, it shall also enterinto and perform its obligations under such an agreement.

 

(f)   Notify Holder of Registrable Securitiescovered by such registration statement at any time when a prospectus relatingthereto is required to be delivered under the Securities Act of the happeningof any event as a result of which the prospectus included in such registrationstatement, as then in effect, includes an untrue statement of a material factor omits to state a material fact required to be stated therein or necessary tomake the statements therein not misleading in the light of the circumstancesthen existing.

 

(g)   Use its reasonable efforts to furnish, onthe date that such Registrable Securities are delivered to the underwriters forsale, if such securities are being sold through underwriters, (i) an opinion,dated as of such date, of the counsel representing the Company for the purposesof such registration, in form and substance as is customarily given tounderwriters in an underwritten public offering, addressed to the underwriters,if any, and (ii) a letter, dated

 

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as of such date, from theindependent certified public accountants of the Company, in form and substanceas is customarily given by independent certified public accountants tounderwriters in an underwritten public offering addressed to the underwriters.

 

2.4*     Termination ofRegistration Rights.*    All registration rightsgranted under this Section 2 shall terminate and be of no further force andeffect upon the earlier of (i) seven (7) years from the date hereof or (ii) atsuch time as SEC Rule 144 or another similar exemption under the Securities Actis available for the sale, without registration, of all of Holder's RegistrableSecurities during a three (3) month period.

 

2.5*     Furnish Information.*    Itshall be a condition precedent to the obligations of the Company to take anyaction pursuant to Section 2.1 that the selling Holders shall furnish to theCompany such information regarding themselves, the Registrable Securities heldby them and the intended method of disposition of such securities as shall berequired to effect the registration of their Registrable Securities.

 

2.6*     Indemnification.*    Inthe event any Registrable Securities are included in a registration statementunder Section 2.1:

 

(a)   To the extent permitted by law, the Companywill indemnify and hold harmless Holder, the partners, officers and directorsof Holder, any underwriter (as defined in the Securities Act) for Holder andeach person, if any, who controls Holder or underwriter within the meaning ofthe Securities Act or the Exchange Act, against any losses, claims, damages, orliabilities (joint or several) to which they may become subject under theSecurities Act, the Exchange Act or other federal or state law, insofar as suchlosses, claims, damages or liabilities (or actions in respect thereof) ariseout of or are based upon any of the following statements, omissions orviolations (collectively a “Violation”) by the Company: (i) any untruestatement or alleged untrue statement of a material fact contained in suchregistration statement, including any preliminary prospectus or finalprospectus contained therein or any amendments or supplements thereto, (ii) theomission or alleged omission to state therein a material fact required to bestated therein, or necessary to make the statements therein not misleading, or(iii) any violation or alleged violation by the Company of the Securities Act,the Exchange Act, any state securities law or any rule or regulationpromulgated under the Securities Act, the Exchange Act or any state securitieslaw in connection with the offering covered by such registration statement; andthe Company will pay as incurred to such Holder, partner, officer, director,underwriter or controlling person any legal or other expenses reasonablyincurred by them in connection with investigating or defending any such loss,claim, damage, liability or action; provided however, that the indemnityagreement contained in this Section 2.6(a) shall not apply to amounts paid in settlementof any such loss, claim, damage, liability or action if such settlement iseffected without the consent of the Company, which consent shall not beunreasonably withheld, nor shall the Company be liable in any such case for anysuch loss, claim, damage, liability or action to the extent that it arises outof or is based upon a Violation which occurs in reliance upon and in conformitywith written information furnished expressly for use in connection with suchregistration by such Holder, partner, officer, director, underwriter orcontrolling person of such Holder.

 

(b)   To the extent permitted by law, Holderwill, if Registrable Securities held by Holder are included in the securitiesas to which such registration, qualifications or compliance is being effected,indemnify and hold harmless the Company, each of its directors, its officersand each person, if any, who controls the Company within the meaning of theSecurities Act and any underwriter, against any losses, claims, damages orliabilities (joint or several) to which the Company or any such director,officer, controlling person or underwriter may become subject under theSecurities Act, the Exchange Act or other federal or state law,

 

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insofar as such losses,claims, damages or liabilities (or actions in respect thereto) arise out of orare based upon any Violation, in each case to the extent (and only to theextent) that such Violation occurs in reliance upon and in conformity withwritten information furnished by Holder under an instrument duly executed byHolder and stated to be specifically for use in connection with suchregistration; and Holder will pay as incurred any legal or other expensesreasonably incurred by the Company or any such director, officer, controllingperson or underwriter in connection with investigating or defending any suchloss, claim, damage, liability or action; provided, however, that the indemnityagreement contained in this Section 2.6(b) shall not apply to amounts paid insettlement of any such loss, claim, damage, liability or action if suchsettlement is effected without the consent of Holder, which consent shall notbe unreasonably withheld; provided further, that in no event shall anyindemnity under this Section 2.6 exceed the gross proceeds from the offeringreceived by Holder.

 

(c)   Promptly after receipt by an indemnifiedparty under this Section 2.6 of notice of the commencement of any action(including any governmental action), such indemnified party will, if a claim inrespect thereof is to be made against any indemnifying party under this Section2.6, deliver to the indemnifying party a written notice of the commencementthereof and the indemnifying party shall have the right to participate in, and,to the extent the indemnifying party so desires, jointly with any otherindemnifying party similarly noticed, to assume the defense thereof withcounsel mutually satisfactory to the parties; provided, however, that anindemnified party shall have the right to retain its own counsel, with thereasonable fees and expenses to be paid by the indemnifying party, ifrepresentation of such indemnified party by the counsel retained by theindemnifying party would be inappropriate due to actual or potential differinginterests between such indemnified party and any other party represented bysuch counsel in such proceeding. The failure to deliver written notice to theindemnifying party within a reasonable time of the commencement of any suchaction, if materially prejudicial to its ability to defend such action, shallrelieve such indemnifying party of any liability to the indemnified party underthis Section 2.6, but the omission so to deliver written notice to theindemnifying party will not relieve it of any liability that it may have to anyindemnified party otherwise than under this Section 2.6.

 

(d)   If the indemnification provided for in thisSection 2.6 is held by a court of competent jurisdiction to be unavailable toan indemnified party with respect to any losses, claims, damages or liabilitiesreferred to herein, the indemnifying party, in lieu of indemnifying suchindemnified party hereunder, shall to the extent permitted by applicable lawcontribute to the amount paid or payable by such indemnified party as a resultof such loss, claim, damage or liability in such proportion as is appropriateto reflect the relative fault of the indemnifying party on the one hand and ofthe indemnified party on the other in connection with the Violation(s) thatresulted in such loss, claim, damage or liability, as well as any otherrelevant equitable considerations. The relative fault of the indemnifying partyand of the indemnified party shall be determined by a court of law by referenceto, among other things, whether the untrue or alleged untrue statement of amaterial fact or the omission to state a material fact relates to informationsupplied by the indemnifying party or by the indemnified party and the parties'relative intent, knowledge, access to information and opportunity to correct orprevent such statement or omission; provided, that in no event shall anycontribution by Holder hereunder exceed the net proceeds from the offeringreceived by Holder except in the case of willful fraud of Holder.

 

(e)   The obligations of the Company and Holderunder this Section 2.6 shall survive completion of any offering of RegistrableSecurities in a registration statement and the termination of this Agreement.No indemnifying party, in the defense of any such claim or litigation, shall,except with the consent of each indemnified party, consent to entry of any

 

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judgment or enter into anysettlement which does not include as an unconditional term thereof the givingby the claimant or plaintiff to such indemnified party of a release from allliability in respect to such claim or litigation.

 

Notwithstandingthe foregoing, to the extent the indemnification provisions contained in theunderwriting agreement entered into in connection with the underwritten publicoffering are in conflict with the foregoing provisions, the provisions in theunderwriting agreement shall control.

 

2.7*     Limitation onSubsequent Registration Rights.*    After thedate of this Agreement, the Company shall not, without the prior writtenconsent of Holder, enter into any agreement with any holder or prospectiveholder of any securities of the Company that would grant such holder rightssenior to those granted to Holder hereunder with respect to the allocation ofshares in an underwriting agreement.

 

3.*    Miscellaneous.*

 

3.1*     *Governing*Law.*    ThisAgreement shall be governed by and construed under the laws of the State ofCalifornia as applied to *agreements*among California residents entered into and to be performed entirely withinCalifornia.

 

3.2*     Survival.*    Therepresentations, warranties, covenants, and agreements made herein shallsurvive any investigation made by Holder or the Company and the closing of thetransactions contemplated hereby. All statements as to factual matterscontained in any certificate or other instrument delivered by or on behalf ofthe Company pursuant hereto in connection with the transactions contemplatedhereby shall be deemed to be representations and warranties by the Companyhereunder solely as of the date of such certificate or instrument.

 

3.3*     Successors and Assigns.*    Exceptas otherwise expressly provided herein, the provisions hereof shall inure tothe benefit of, and be binding upon, the successors, assigns, heirs, executors,and administrators of the parties hereto and shall inure to the benefit of andbe enforceable by each person who shall be a holder of Registrable Securitiesfrom time to time; provided, however, that prior to the receipt by the Company ofadequate written notice of the transfer of any Registrable Securitiesspecifying the full name and address of the transferee, the Company may deemand treat the person listed as the holder of such shares in its records as theabsolute owner and holder of such shares for all purposes.

 

3.4*     Entire*Agreement*.*    This Agreement,the Asset Purchase Agreement and the other documents delivered pursuant theretoconstitute the full and entire understanding and agreement between the partieswith regard to the subjects hereof and no party shall be liable or bound to anyother in any manner by any representations, warranties, covenants andagreements except as specifically set forth herein and therein.

 

3.5*     Severability.*    Inthe event one or more of the provisions of this Agreement should, for anyreason, be held to be invalid, illegal or unenforceable in any respect, suchinvalidity, illegality, or unenforceability shall not affect any otherprovisions of this Agreement, and this Agreement shall be construed as if suchinvalid, illegal or unenforceable provision had never been contained herein.

 

3.6*     Amendment and Waiver.*

 

(a)   Except as otherwise expressly provided,this Agreement may be amended or modified only upon the written consent of theCompany and Holder Securities.

 

(b)   Except as otherwise expressly provided, theobligations of the Company and the rights of Holder under this Agreement may bewaived only with the written consent of Holder.

 

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3.7*     Delays or Omissions.*    Itis agreed that no delay or omission to exercise any right, power, or remedyaccruing to Holder, upon any breach, default or noncompliance of the Companyunder this Agreement shall impair any such right, power, or remedy, nor shallit be construed to be a waiver of any such breach, default or noncompliance, orany acquiescence therein, or of any similar breach, default or noncompliancethereafter occurring. It is further agreed that any waiver, permit, consent, orapproval of any kind or character on Holder's part of any breach, default ornoncompliance under the Agreement or any waiver on Holder's part of anyprovisions or conditions of this Agreement must be in writing and shall beeffective only to the extent specifically set forth in such writing. Allremedies, either under this Agreement, by law, or otherwise, shall becumulative and not alternative.

 

3.8*     Notices.*    Allnotices required or permitted hereunder shall be in writing and shall be deemedeffectively given: (a) upon personal delivery to the party to be notified, (b)when sent by confirmed electronic mail or facsimile if sent during normalbusiness hours of the recipient; if not, then on the next business day, (c)five (5) days after having been sent by registered or certified mail, returnreceipt requested, postage prepaid, or (d) one (1) day after deposit with anationally recognized overnight courier, specifying next day delivery, withwritten verification of receipt. All communications shall be sent to the partyto be notified at the address as set forth on the signature pages hereof or atsuch other address as such party may designate by ten (10) days advance writtennotice to the other parties hereto.

 

3.9*     Attorneys' Fees.*    Inthe event that any suit or action is instituted to enforce any provision inthis Agreement, the prevailing party in such dispute shall be entitled torecover from the losing party all fees, costs and expenses of enforcing anyright of such prevailing party under or with respect to this Agreement,including without limitation, such reasonable fees and expenses of attorneysand accountants, which shall include, without limitation, all fees, costs andexpenses of appeals.

 

3.10*     Titles and Subtitles.*    Thetitles of the sections and subsections of this Agreement are for convenience ofreference only and are not to be considered in construing this Agreement.

 

3.11*     Counterparts.*    ThisAgreement may be executed in any number of counterparts and by facsimile, eachof which shall be an original, but all of which together shall constitute oneinstrument.

 

**REMAINDEROF PAGE LEFT INTENTIONALLY BLANK**

 

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INWITNESS WHEREOF, the parties hereto have executed this REGISTRATION RIGHTS AGREEMENTas of the date set forth in the first paragraph hereof.

 
| **“Company”** | **“Holder”**            |
|-------------------------|-----------------------------------|
|                    |                              |
| Viking Systems, Inc.    | Vista Medical  Technologies, Inc. |
|                    |                              |
|                    |                              |
| By:                     |                              |   | By: |   |
|                    |                              |   |   |   |
| Name:                   |                              |   | Name: |   |
|                    |                              |   |   |   |
| Title:                  |                              |   | Title: |   |
|                    |                              |   |   |   |
| Address:                |                              |   | Address: |   |
|                    |                              |   |   |   |

 

 

SIGNATURE PAGE TO VIKINGSYSTEMS, INC.

REGISTRATION RIGHTSAGREEMENT

 

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**EXHIBIT E**

**INVENTORYPROCEDURE**

 

Methodologyof Vista to Viking inventory transfer (by warehouse category)

 

***M1***

 

Allmaterial in M1 will be categorized into two buckets based on the open A/Preport as of December 31, 2003.

 

Bucket1 will contain all material which has been paid for by Vista.

 

Bucket2 will contain all material which has not been paid for by Vista.

 

Ifmultiple lots exist determination of what has been paid for will be based onthe FIFO system.

 

Allmaterial in Bucket 1 will be transferred to M2 in the MRP system (however thematerial will not physically move.) All M2 inventory will be consigned toViking when the deal closes.

 

FromJan 1 on, all material will be issued from M2 until it is depleted. Viking willpay Vista, on a monthly basis, the delta between the value of the inventory(standard at closing) in M2 at the beginning of the month and the end of themonth for a period of 12 months. (It is understood that the MRP system willalways interrogate M2 inventory first.)

 

***CP***

 

CPcontains factory refurbished product for use in service replacement andloaners. The total book value as of Dec 16 is $136,184.13. Of that total$20,729.19 is active product and the balance is for discontinued product whichis in use by customers.

 

Itis proposed that the entire CP inventory be acquired by Viking for the value ofthe active product as of December 31, 2003.

 

***SM***

 

SM,which contains slow moving inventory, will be consigned to Viking at closing.Viking will pay Vista, on a monthly basis, the delta between the value of theSM inventory at the beginning of the month and the end of the month, for 12months.

 

***WIP***

 

WIPwill be valued based on the WIP Analysis report as of Dec 31, 2003.

 

Alist of Inventory on hand that has not been paid for will be developed from theOpen A/P Report as mentioned above.

 

Allitems on the list will be checked against M1 as mentioned above.

 

Thequantity on the unpaid list that is in M1 will be added to bucket 2, which hasinventory that has not been paid for by Vista.

 

Thequantity on the unpaid list that is greater than the M1 quantity will be theamount deducted from the WIP Analysis report value.

 

Theadjusted WIP value (WIP Analysis Report less any deductions) will then be addedto bucket 1, which is inventory that has been paid for by Vista.

 

Thevalue (standard) of inventory in WIP Bucket 1 will be consigned to Viking atclosing.

 

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Theinventory in WIP Bucket 2 will become the property of Viking at the time ofclosing and Viking will be responsible to pay the supplier.

 

***WIP Three CCD Salvage***

 

Vistacurrently has 200 Three CCD prism blocks in a salvage job at $0 value. Whensalvaged they will have the same value as a newly purchased unit, $875. Itrequires approx. 1 hr of labor, ($125) to salvage. Viking will pay Vista $400for every CCD which is salvaged.

 

***WIP CP***

 

Vistamaintains an inventory for service replacement and loaners. Typically thisinventory is refurbished to new product standards but sold at a discount toexisting customers whose product is out of warranty or that has been misusedand is in need of repair. Viking will take ownership at closing and pay 1/3 ofthe net profit derived from sale of this inventory once it is refurbished andsold.

 

***FINAL TRANSFER***

 

OnJanuary 1, 2005 all remaining material in M2 and SM will transfer to Vikingfrom Vista for $1.00.

 

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