Document:

<PAGE>

                                                                    Exhibit 10.2

***  Portions of this Exhibit have been omitted pending a confidential
     treatment request by the Company.

                        DEVELOPMENT AND LICENSE AGREEMENT

     THIS AGREEMENT ("Agreement") is made and entered into as of the Effective
Date by and between OPTICAL SENSORS INCORPORATED, a Delaware corporation
("Licensor" and sometimes "OSI"), with an address at 7615 Golden Triangle Drive,
Suite C, Minneapolis, Minnesota 55344, and NELLCOR PURITAN BENNETT, INC., a
Delaware corporation ("Licensee" and sometimes "NPB") and a division of Tyco
Healthcare Group LP, with an address at 4280 Hacienda Drive, Pleasanton,
California 94588.

                                   RECITALS:

     A. Licensor is the exclusive licensee of issued U.S. Patent No. 6,055,447
and U.S. Patent No. 6,216,024 B1, and related patents and applications owned by
the Institute of Critical Care Medicine ("ICCM"), a California nonprofit
corporation, with an address at 1695 North Sunrise Way, Building #3, Palm
Springs, California 92262, all such patents and applications relating to a
method and device for taking measurements in the alimentary canal region between
the stomach and the mouth, or in the respiratory canal region between the lungs
and face (including mouth and nasal regions) to assess or help assess systemic
hypoperfusion, each as listed in Exhibit A1 attached hereto; and OSI owns other
related patents and pending patent applications, each listed in Exhibit A2
attached hereto (collectively all patent and patent applications in Exhibits A1
and A2 being hereinafter referred to as "Patents" and "Patent Applications").

     B. Licensee desires to obtain from Licensor, and Licensor desires to grant
to Licensee, an exclusive, worldwide Field of Use sublicense and license under
the Patent Rights (as defined below), including but not limited to the Patents
and Patent Applications listed in Exhibits A1 and A2, on the terms and
conditions set forth in this Agreement.

     C. Licensee desires Licensor to complete development of the Model 3000, to
manufacture the Model 3000, and then transfer such manufacturing capability to
Licensee.

                                                                               1
<PAGE>

     D. Licensor desires to retain exclusive, worldwide right and license, with
the right to grant sublicenses, to practice the Patent Rights and to have made,
use, promote, market and sell products in connection with practicing the Patent
Rights that are not covered within the Field of Use.

     NOW THEREFORE, in consideration of the foregoing recitals and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:

     1. Definitions.

          a. "Affiliate" as used in this Agreement with respect to a person or
     entity means any corporation, company, partnership, joint venture, entity
     and/or firm which controls, is controlled by or is under common control
     with such person or entity.

          b. "Average Selling Price" as used in this Agreement means with
     respect to each country (i) the aggregate Net Sales of Sensors during a
     particular period sold for use in each country divided by (ii) the
     aggregate number of Sensors sold, net of returns, during the same period
     for use in each country. Average Selling Price shall be calculated
     separately for each country.

          c. "Date of First Commercial Sale" shall mean that date on which an
     initial transfer by Licensee of a Section 3.a(3) "manufactured" Model 3000
     Sensor and related Instrument is made to a third party in exchange for
     value, which Sensor and Instrument shall constitute "manufactured" product
     made after an "effective transfer" from development to manufacturing and
     after the Section 3.a(3) milestone has been met.

          d. "Effective Date" shall mean the date of complete execution of this
     Agreement.

          e. "Field Forward Military Applications" means specially hardened
     designs or products made to comply with non-civilian specifications
     delineated by the U.S. or a

                                                                               2
<PAGE>

     foreign military for the detection and monitoring of regional and/or
     systemic hypoperfusion of military personnel prior to and during combat
     from a location remote from a military critical care unit.

          f. "Field of Use" means applications for taking measurements in the
     alimentary canal region between the stomach and the mouth, or in the
     respiratory canal region between the lungs and face (including mouth and
     nasal regions) to assess or help assess systemic hypoperfusion, and
     specifically excludes all Field Forward Military Applications and all other
     applications not directly related to taking measurements in the alimentary
     and respiratory regions referred to herein to assess or help assess
     systemic hypoperfusion (e.g., measurements for regional tissue perfusion of
     any internal organ, appendage, etc.).

          g. "Gross Margin" as used in this Agreement means the difference
     between Net Sales of Sensors or Instruments and Licensee's direct cost of
     manufacturing Sensors or Instruments (i.e., direct material cost, direct
     labor cost and manufacturing overhead) or having third parties manufacture
     Instruments, as calculated in accordance with generally accepted accounting
     principles consistently applied as utilized by Licensee in its normal
     financial reporting. Freight costs for product shipped from OSI to Licensee
     shall be included in Licensee's direct cost of manufacturing regardless of
     Licensee's normal financial reporting standards. As of the date of this
     Agreement, Licensee calculates direct cost of manufacturing for its other
     products in accordance with the methodology described in Exhibit B.

          h. "ICCM License" shall mean the "patent license agreement" entered
     into as of July 20, 1998, between Institute of Critical Care Medicine and
     Licensor.

          i. "Instrument" as used in this Agreement means any device which
     connects to a Sensor and processes signals obtained therefrom to assess or
     help assess systemic hypoperfusion, and which is covered by a validly
     issued U.S. patent included in the Patent Rights. An Instrument can
     comprise a standalone monitor, an OEM board for sale

                                                                               3
<PAGE>

     to third parties who make monitors (which monitors shall not be considered
     "Instruments", just the OEM boards), and that portion of any multiparameter
     monitor dedicated to assessing or helping to assess systemic hypoperfusion
     using signals obtained from the alimentary canal region between the stomach
     and the mouth, or the respiratory canal region between the lungs and face
     (including mouth and nasal regions).

          j. "Know-How" shall mean any and all techniques, processes and
     apparatus for designing and/or making Instruments and/or Sensors, including
     but not limited to the Model 3000 system.

          k. "Major Countries" as used in this Agreement means each of the
     following geographic territories: United States, Japan, United Kingdom,
     France, Germany and Italy.

          l. "Model 3000" is a next generation Instrument and Sensor in
     development at OSI which constitutes an improvement to a model 2000
     Instrument and Sensor previously developed by OSI. The Model 2000 has been
     cleared by OSI to market by the U.S. Food and Drug Administration (FDA).

          m. "Net Sales" as used in this Agreement means the amount actually
     received by Licensee and its Affiliates from the sale of Sensors or
     Instruments, as the case may be, less the sum of the following deductions
     where applicable: cash, trade or quantity discounts, sales, use, tariff,
     import/export duties or other excise or similar taxes imposed upon
     particular sales, transportation and related insurance charges and
     allowances or credits to customers because of rejections or returns, as
     calculated in accordance with consistently applied and generally accepted
     accounting principles as utilized by Licensee in its normal financial
     reporting. In the event Sensors or Instruments are bundled with or included
     as part of another product (a "Combined Product"), the amount received by
     Licensee for the Sensor and/or Instrument shall be deemed to be that
     portion of the total amount received by Licensee for the Combined Product
     that the cost of the Sensor and/or Instrument bears to the total cost of
     the Combined Product. "Net Sales" shall not include any mark-up charged by
     sales agents of Licensee which are not Affiliates and shall only

                                                                               4
<PAGE>

     include amounts actually received by Licensee as specified herein.

          n. "Patent Rights" as used in this Agreement means all right, title
     and interest of Licensor and its Affiliates in (i) the Patents; (ii) any
     patents that issue on the Patent Applications; (iii) any patents issuing
     from any reissues, renewals, extensions, divisionals, continuations and
     continuations-in-part of the Patents and Patent Applications; (iv) any
     foreign patents corresponding to such patents; and (v) any patents issuing
     on any and all improvements, modifications, enhancements or new ideas
     developed or conceived by Licensor and/or ICCM, and their respective
     Affiliates, and in which Licensor and/or ICCM retain Field of Use rights in
     and to, and which is usable in connection with the Patents and the Patent
     Applications for use in the Field of Use.

          o. "Sensor" as used in this Agreement means any device which detects
     signals either in or around

               (1)  the alimentary canal between the stomach and the mouth;

               (2)  the mouth;

               (3)  the nasal passages; or

               (4)  the respiratory region between the lungs and face
                    (nose/mouth),

     to assess or help assess systemic hypoperfusion and that is covered by a
     validly issued U.S. patent included in the Patent Rights. Sensors can be
     disposable or reusable, and shall not include any part of an Instrument,
     which may connect to the Sensor to process electrical or optical signals
     from the Sensor.

          p. "Supplemental Agreement" means the agreement being executed
     contemporaneously herewith by Licensee and ICCM.

                                                                               5
<PAGE>

          q. "Supply Agreement" means the supply agreement between Licensor and
     Licensee being executed contemporaneously herewith.

          r. "Third Party Infringement" shall mean any activity by any third
     party that constitutes infringement of any of the Patent Rights.

          s. "Year 1" shall extend for one year and shall begin on the first day
     of the first calendar quarter after the Date of First Commercial Sale.

          t. "Year 2" shall extend for one year and begin upon termination of
     Year 1.

          u. "Year 3" shall extend for one year and begin upon termination of
     Year 2.

          v. "Year 4" shall extend for one year and begin upon termination of
     Year 3.

     2. License.

          a. Grant. Licensor hereby grants to Licensee an exclusive, worldwide,
     right and license to practice the Patent Rights and Know-How in the Field
     of Use to make, have made, develop, improve, use, promote, market and sell
     Sensors and Instruments, including the right to have third parties
     manufacture, sell and distribute on behalf of Licensee. Licensee shall
     inform Licensor of the identities of third parties that are selling
     Instruments or Sensors on behalf of Licensee, and Licensee shall inform
     Licensor of the identities of third parties that are manufacturing
     Instruments or Sensors on behalf of Licensee. Licensor hereby reserves the
     right to practice the Patent Rights to make or have made Sensors or
     Instruments in the Field of Use as necessary to perform under the Supply
     Agreement to supply Sensors and Instruments exclusively to Licensee.
     Licensor hereby reserves all rights to practice the Patent Rights and the
     Know-How outside the Field of Use.

                                                                               6
<PAGE>

          b. Conversion to Non-Exclusive License. If Licensee elects not to make
     Minimum Royalty Payments to Licensor for an entire year as permitted by
     Section 3.e, the license granted in Section 2.a may become, at the option
     of Licensor, non-exclusive upon sixty (60) days written notice if the past
     due Minimum Royalty Payments are not paid during this sixty (60) day
     period.

          c. Repurchase Rights. If Licensee elects not to make Minimum Royalty
     Payments for two (2) consecutive years as permitted by Section 3.e, OSI, on
     thirty (30) days notice, may purchase back from Licensee worldwide
     distribution, development and manufacturing rights for the sum of two
     million dollars ($2,000,000) plus fifty percent (50%) of Licensee's prior
     year's gross margin on worldwide Sensors and Instruments. This repurchase
     right shall expire if not exercised within six (6) months of Licensee's
     failure to make Minimum Royalty Payments for two (2) consecutive years.

     3. Payments; Royalties; Fees.

          a. Manufacturing Milestone Payments. In the first year after the
     Effective Date, Licensee shall pay Licensor the following product
     development and manufacturing development milestone payment amounts (which
     amounts are not license fees):

               (1) Seven hundred fifty thousand dollars ($750,000) upon complete
          execution of this Agreement (net ten (10) days).

               (2) Five hundred thousand dollars ($500,000) upon agreement in
          writing between Licensee and Licensor on detailed Model 3000 customer
          functional requirements which are consistent in detail with Nellcor's
          product development process for customer requirements. The parties
          expect such requirements to be agreed upon within one (1) month of the
          Effective Date. If such agreement cannot be reached within three (3)
          months of the Effective Date, Licensee may terminate this Agreement on
          thirty (30) days written notice and owe no additional

                                                                               7
<PAGE>

          monies hereunder.

               (3) Four hundred thousand dollars ($400,000) net forty-five (45)
          days after effectively transferring the design of the Model 3000 from
          the Licensor's development organization to the Licensor's
          manufacturing operation. An effective transfer will occur when the
          Licensor has demonstrated that its quality system, the product design
          of the Model 3000, and the processes involved in its manufacture are
          in compliance with the Quality System Regulation (QSR, 21 CFR Part
          820). Evidence of compliance will include ***. An effective transfer
          shall require that OSI pass all three audits referenced above, and
          successfully demonstrate completion of OSI's QSR procedure. If the
          Model 3000 as manufactured by Licensor is subject to a quality recall,
          all costs associated with the recall shall be borne *** percent (***%)
          by Licensor and *** percent (***%) by Licensee. Licensee shall be
          entitled to take a credit against Minimum Royalty Payments and running
          royalties for any Licensor recall costs paid or incurred by Licensee.

               (4) Three hundred fifty thousand dollars ($350,000) net
          forty-five (45) days after: the Date of First Commercial Sale,
          Licensor has demonstrated to Licensee's reasonable satisfaction a
          first pass yield of 95% while meeting the labor and material costs
          specified in the Supply Agreement on standard production lots of
          probes and monitors (minimum of 1,000 probes and 100 monitors
          required), Licensor obtains U.S. clearance to market or documentation
          satisfying FDA letter to file requirements, and Licensor has
          transferred all Know-How associated with such Model 3000 manufacturing
          to Licensee.

***  Portions of this Exhibit have been omitted pending a confidential
     treatment request by the Company.

                                                                               8
<PAGE>

          b. License Percentage Royalty to ICCM. Licensee shall pay to ICCM, on
     behalf of Licensor, a royalty on Net Sales of any Sensors and Instruments
     sold by Licensee equal to the amounts owed by OSI under Section 3(a) of the
     ICCM License.

          c. Percentage Royalty to Licensor in Patented Countries. Subject to
     royalty amounts being reduced as provided by subsection 3.d, in Year 1
     Licensee shall pay to Licensor a royalty on Net Sales of any Sensors sold
     by Licensee equal to *** percent (***%) of Net Sales of Sensors minus all
     amounts payable by Licensee to ICCM for Sensors under Section 3.b. In Year
     2 and thereafter, Licensee shall pay to Licensor a royalty on Net Sales of
     any Sensors sold by Licensee equal to the percentage set forth below (minus
     all amounts payable by Licensee to ICCM for Sensors under Section 3.b)
     which is dependent on Licensee's gross margin.

        Nellcor Sensor Gross Margin %, before                 Licensor Royalty %
      payment of Royalties to Licensor and ICCM                   on Sensors
      -----------------------------------------                   ----------

                     ***% +                                          ***%

                     ***%                                            ***%

                     ***%                                            ***%

                     ***%                                            ***%

                     ***%                                            ***%

                     ***%                                            ***%

                     ***%                                            ***%

                     ***%                                            ***%

                     ***%                                            ***%

                     ***%                                            ***%

                     ***%                                            ***%

***  Portions of this Exhibit have been omitted pending a confidential
     treatment request by the Company.

                                                                               9
<PAGE>

                     ***%                                            ***%

                     ***%                                            ***%

                     ***%                                            ***%

                     ***%                                            ***%

                 ***% or less                                        ***%

     Subject to royalty amounts being reduced as provided by subsection 3.d,
     royalties payable with respect to Net Sales of Sensors shall be calculated
     separately for each country based on the Average Selling Price in each
     country. Subject to royalty amounts being reduced as provided by subsection
     3.d, Licensee shall pay to Licensor a royalty on Net Sales of any
     Instruments sold by Licensee equal to *** percent (***%) of the aggregate
     Gross Margin with respect to Instruments that are sold by Licensee minus
     all amounts payable by Licensee to ICCM for Instruments under Section 3.b.
     Royalties under this Section 3.c shall by payable with respect to sales of
     Sensors and related Instruments only if a valid patent (or an application
     is pending as provided in subsection 3.d), included in the Patent Rights
     with claims covering the Sensor or Instruments, as the case may be, has
     issued (or is pending), and is in force in the country where the sales
     occur, prior to the date of sale.

          d. Percentage Royalty to Licensor in Non-Patented Countries. For sales
     of Sensors and Instruments in countries in which a valid patent, included
     in the Patent Rights, with claims covering the Sensor or Instruments, as
     the case may be, has not issued prior to the date of sale, royalties to
     Licensor, but not ICCM, shall be *** those set forth in Section 3.c.
     However, Licensor may file patent applications in non-patented countries,
     and if it does so, Licensee shall pay Licensor full royalties as defined in
     Section 3.c (rather than *** royalties) on Net Sales in those countries
     where the application is pending, so long as the Sensor or Instrument, as
     the case may be, is covered

***  Portions of this Exhibit have been omitted pending a confidential
     treatment request by the Company.

                                                                              10
<PAGE>

     by enforceable issued claims in a corresponding U.S. case. If, for some
     reason, the application(s) never issues as a patent in a reasonable period
     of time with claims covering the Sensor or Instruments, as the case may be,
     in the non-patented country(ies), Licensee shall deduct the *** percent
     (***%) overpayment, if any, in royalties for that country from future
     royalty, minimum and/or milestone payments.

          e. Minimum Royalty. Notwithstanding Sections 3.a-3.d, Licensee shall
     pay to Licensor, or its designee, a minimum royalty equal to:

                           Year                      Minimum Royalty
                           ----                      ---------------
                          Year 2                          $***
                          Year 3                          $***
                          Year 4                          $***

     (hereinafter, "Minimum Royalty Payment"). Prior to October 1, 2003, minimum
     royalties payable by Licensee during any year shall first be paid by
     Licensee to ICCM on behalf of Licensor to fulfill Licensor's minimum
     royalty payment obligation to ICCM under Section 3(b) of the ICCM License,
     with any remainder then being paid to OSI. Minimum royalties shall be paid
     in equal quarterly installments within forty-five (45) days of the end of
     each calendar quarter, beginning with the first calendar quarter of Year 2;
     provided that any royalties paid pursuant to Sections 3.b-3.d with respect
     to Net Sales received or Gross Margins earned by Licensee for any minimum
     royalty year shall be applied as a credit against the Minimum Royalty
     Payment for such year. Licensee may elect to stop making Minimum Royalty
     Payments. If Licensee makes such election for an entire year, Licensor
     shall have the right to convert the license granted to Licensee to a
     non-exclusive license pursuant to Section 2.b, and if such election extends
     over two (2) years Licensor shall have the right to repurchase the license
     rights pursuant to Section 2.c.

***  Portions of this Exhibit have been omitted pending a confidential
     treatment request by the Company.

                                                                              11
<PAGE>

          f. Payments. All royalties payable to Licensor and ICCM under this
     Agreement shall be paid within forty-five (45) days after the end of each
     calendar quarter to which such royalty payment relates. The Minimum Royalty
     Payment, if any, shall be paid within forty-five (45) days after the end of
     each calendar quarter. Each royalty payment shall be accompanied by a
     written statement, showing (i) aggregate Net Sales received by Licensee
     during such quarter in connection with the sale of Sensors; (ii) Gross
     Margin earned by Licensee during such quarter in connection with the sale
     or placement of Instruments; (iii) any sublicense fees received; and (iv)
     the amount of royalty and sublicense fees, as the case may be, payable to
     Licensor and ICCM with respect to each of the foregoing, on a country by
     country basis. Licensee shall submit such quarterly statements beginning
     with the first royalty payment made pursuant to Sections 3.b-3.d.

          g. Books and Records. Licensee agrees to keep for three (3) years
     complete and accurate books of account and records covering all
     transactions relating to this Agreement. Licensor, at its expense, shall
     have the right to have an independent accounting firm, mutually agreeable
     to both parties, one time in each calendar year on reasonable notice, to
     audit Licensee's books of account and records that related to the subject
     matter and terms of this Agreement. Licensor shall not have any right to
     audit any other books of account or records of Licensee. Such firm shall
     only disclose to Licensor (and copy Licensee) such information as is
     necessary to verify the accuracy of Licensee's statements.

     4. Licensee's Development and Commercialization Efforts.

     So long as the license granted herein remains exclusive, Licensee shall use
reasonable commercial efforts to develop and commercialize Sensors and
Instruments. Licensee shall be responsible for:

          a. funding and monitoring any clinical trial and/or outcome studies as
     Licensee in its sole discretion deems appropriate;

                                                                              12
<PAGE>

          b. R&D support and redesign of Sensors and Instruments (but not
     manufacturing engineering support during Year 1);

          c. manufacturing Sensors and Instruments and engineering manufacturing
     support after Year 1; and

          d. developing sales and marketing infrastructure.

     5. Licensor's Development and Commercialization Efforts.

          a. Licensor shall use reasonable commercial efforts to create Model
     3000 customer functional requirements which are agreeable to Licensee so as
     to complete the Section 3.a(2) milestone as soon as possible after the
     Effective Date.

          b. Licensor shall use reasonable commercial efforts to achieve the
     Model 3000 development to manufacturing transfer milestone set forth in
     Section 3.a(3).

          c. Licensor shall use reasonable commercial efforts to supply Licensee
     with manufactured Sensors and Instruments in accordance with the terms of
     the Supply Agreement, and to effectively transfer manufacturing equipment,
     processes and knowledge to Licensee during the term of the Supply
     Agreement.

          d. Other than the amounts set forth in Section 3 and in the Supply
     Agreement, Licensor shall not be entitled to any compensation whatsoever
     for development and manufacturing of Sensors and Instruments, or for
     providing support therefor. All amounts payable under Section 3.a are for
     development and manufacturing support, and are not prepaid royalties.

                                                                              13
<PAGE>

     6. Licensee's Representations and Warranties.

     Licensee hereby represents and warrants to Licensor that as of the date
hereof:

          a. Licensee is a corporation duly organized, validly existing and in
     good standing under the laws of the State of Delaware, and this Agreement
     has been duly authorized by all necessary corporate action.

          b. This Agreement is the legal, valid and binding obligation of
     Licensee, enforceable against Licensee in accordance with its terms.

          c. Neither the execution and delivery of this Agreement nor the
     compliance with the terms and conditions hereof will conflict with, result
     in a breach or violation by Licensee of or constitute a default under any
     of the terms, conditions or provisions of any contract, agreement or other
     instrument to which Licensee is or may be bound or affected.

          d. Licensee is under no obligation or subject to any judicial,
     administrative or other proceeding which would limit licensee's ability to
     fully perform its obligations hereunder.

     7. Licensor's Representations and Warranties.

     Licensor hereby represents and warrants to Licensee that as of the date
hereof:

          a. Licensor is a corporation duly organized, validly existing and in
     good standing under the laws of the State of Delaware, and this Agreement
     has been duly authorized by all necessary corporate action.

          b. This Agreement is the legal, valid and binding obligation of
     Licensor, enforceable against Licensor in accordance with its terms.

                                                                              14
<PAGE>

          c. Neither the execution and delivery of this Agreement nor the
     compliance with the terms and conditions hereof will conflict with, result
     in a breach or violation by Licensor of or constitute a default under any
     of the terms, conditions or provisions of any contract, agreement or other
     instrument to which Licensor is or may be bound or affected.

          d. The Patent Rights include all patents and patent applications that
     Licensor has any interest in and which are useable in connection with
     making, using or selling Sensors and/or Instruments in the Field of Use.

          e. Except for the non exclusive rights Nihon Kohden has in U.S. Patent
     No. 5,579,763 and foreign equivalents in conjunction with ISFET pCO2 and
     CO2 sensors, Licensor is the sole and exclusive licensee of the Exhibit A1
     Patent Rights and Licensor has not granted any licenses or any other rights
     in the Exhibit A1 Patent Rights to any party other than Licensee. Licensor
     is the sole and exclusive owner of the Exhibit A2 Patent Rights, free and
     clear of any license, security interests, known claims, encumbrances or
     known charges of any kind, and has full right, power and authority to enter
     into this Agreement and to grant to Licensee the rights to be granted
     hereunder. Licensor has not granted to any third party any rights of first
     refusal with respect to the licenses granted herein or any other rights to
     obtain a license from Licensor to practice the Patent Rights, other than as
     set forth in the ICCM License.

          f. Licensor is not under any obligations inconsistent with the
     provisions of this Agreement.

          g. To the best of Licensor's knowledge, (i) the Patent Rights are
     valid and enforceable, including inventorship, and (ii) the rights granted
     under this Agreement do not infringe any patent, copyright, trademark,
     license, trade secret or other intellectual property right of any third
     party. Licensor is not aware of any information which could render any of
     the claims of any of the Patent Rights invalid or unenforceable.

          h. There is no legal, administrative, arbitration, or other
     proceeding, suit, claim or action of any nature, judgment, decree,
     decision, injunction, writ or order pending or,

                                                                              15
<PAGE>

     to the knowledge of Licensor, threatened or contemplated by or against or
     involving Licensor or its shareholders, directors or officers (but only in
     their capacity as such), pertaining to the Patent Rights or this Agreement,
     whether at law or in equity, before or by any person, entity governmental
     or quasi-governmental, administrative or regulatory agency or any court,
     other than pending patent applications.

          i. OSI is in compliance with all, and not in breach of any of, the
     terms of the ICCM License, including but not limited to all royalty
     payments and development and commercialization obligations.

     8. Term and Termination.

          a. Term. The term of this Agreement shall commence on the Effective
     Date and shall remain in force, unless terminated earlier in accordance
     with Section 8.b, until the latest expiration date of a validly issued U.S.
     or foreign patent subject to this Agreement.

          b. Termination. Notwithstanding the provisions of Section 8.a, this
     Agreement may be terminated in accordance with the following provisions:

               (1) By Licensor under Section 3.a(2).

               (2) Upon mutual written agreement of the parties.

               (3) Either party may terminate this Agreement by giving notice in
          writing to the other party in the event the other party is in material
          breach of this Agreement, so long as the other party does not, in good
          faith, dispute the validity of the breach, and the other party shall
          have failed to cure such breach within ninety (90) days of receipt of
          written notice thereof from the first party, unless such breach cannot
          reasonably be cured within ninety (90) days, in which case the
          breaching party shall have undertaken good faith efforts to cure such
          breach within ninety (90) days. If the breach is disputed, in good
          faith, the Agreement

                                                                              16
<PAGE>

          can only be terminated on ninety (90) days notice after the dispute is
          resolved unless such breach cannot reasonably be cured within ninety
          (90) days, in which case the breaching party shall have undertaken
          good faith efforts to cure such breach within ninety (90) days.

               (4) Licensee may terminate this Agreement immediately if any
          material claim of ***.

               (5) Licensee may terminate this Agreement for any reason upon one
          hundred eighty (180) days notice anytime after December 31, 2002.

          c. Rights and Obligation on Termination. In the event of termination
     of this Agreement for any reason, the parties shall have the following
     rights and obligation:

               (1) Licensee shall remain responsible for any payment due to
          Licensor that has accrued prior to the effective date of termination.

               (2) The license granted to Licensee hereunder shall immediately
          terminate and be of no further force and effect for products not yet
          manufactured.

               (3) Sections 10, 11.a, 11.b and 12 shall survive termination of
          this Agreement.

               (4) Licensee, its Affiliates and sublicensees shall be permitted
          to sell any inventory of Sensors and Instruments on hand at the
          effective date of termination, provided that no provision of this
          Agreement shall prevent Licensee, its Affiliates or sublicensees from
          practicing the Patent Rights or selling Sensors and Instruments after
          termination of this Agreement if the relevant Patent Rights have
          expired.

***  Portions of this Exhibit have been omitted pending a confidential
     treatment request by the Company.

                                                                              17
<PAGE>

     9. Patent Prosecution and Maintenance.

          a. Existing Patents and Patent Applications and Licensor Improvements.
     Licensor shall pay when due all maintenance fees for the Patent Rights in
     accordance with applicable law and regulation. Licensor shall prosecute the
     Patent Applications and any other applications comprising the Patent
     Rights, at Licensor's expense. If Licensor prosecutes any such patent
     application and a valid patent issues thereon, then Licensor shall
     maintain, including payment of any maintenance fees, any patents that issue
     on such patent application that Licensor prosecuted. If Licensor (and ICCM)
     fails to prosecute or maintain any such patent or patent application,
     Licensor shall so notify Licensee in a timely manner, and Licensee shall
     have the right, but not the obligation, to prosecute and maintain any such
     patent or patent application, at Licensee's expense, and Licensor shall
     then promptly assign to Licensee ownership of such patent or patent
     application if owned by Licensor or assign its license to Licensee if the
     patent or patent application is licensed to Licensor. Licensor shall
     provide Licensee with copies of all relevant documentation on a
     confidential basis so that Licensee may undertake such prosecution or
     maintenance it assumes, and both parties shall keep the other informed and
     apprised of the continuing prosecution and maintenance with respect to all
     Patent Rights.

          b. Future Patents and Patent Applications Covering Licensee
     Improvements. Licensee shall have the right, but not the obligation, to
     prosecute and maintain any patent applications covering any modifications
     or improvements it creates to the Sensors and Instruments, at Licensee's
     expense. All such modifications and improvements shall be solely owned by
     Licensee. Licensee shall determine in its sole discretion whether any
     particular patent application shall be filed or prosecuted or any patent
     shall be maintained pursuant to this Section 9.b. Any such patent
     application and patent shall be in the name of Licensee and shall not be
     part of the Patent Rights.

                                                                              18
<PAGE>

     10. Infringement.

          a. Action by Licensor. When information comes to the attention of
     Licensor or Licensee to the effect that any of the Patent Rights have been
     or are threatened to be infringed by a third party, Licensor shall have the
     initial right, but not the obligation, at its expense, to take such action
     as Licensor may deem necessary to prosecute or prevent such Third Party
     Infringement, including the right to bring any suit, action or proceeding
     (or defend a declaratory judgement action) involving any such Third Party
     Infringement. Licensor shall notify Licensee promptly of the receipt of any
     such information and of the commencement of any such suit, action or
     proceeding. If Licensor determines that it is necessary or desirable for
     Licensee to join any such suit, action or proceeding, Licensee shall
     execute all documents and perform such other acts as may be reasonably
     required. In the event that Licensor brings a suit, any sums recovered in
     such suit or in settlement thereof shall be distributed as follows: (i)
     first to Licensor for reimbursement for all costs and expenses, including
     reasonable attorneys' fees, involved in such suit; (ii) second to Licensor
     for accrued and unpaid royalties, if any; and (iii) the balance, if any,
     *** percent (***%) to Licensee and *** percent (***%) to Licensor.

          b. Action by Licensee. If, within ninety (90) days after receipt of
     infringement information described in Section 10.a or after giving ninety
     (90) days notice to Licensee of such information, Licensor does not notify
     Licensee that Licensor has commenced suit against any infringer, Licensee
     shall have the right, but not the obligation, to bring suit (or defend a
     declaratory judgement action) for such alleged Third Party Infringement.
     Licensee may join Licensor and/or ICCM as party plaintiff (or declaratory
     judgement defendant), if appropriate, or if Licensor and/or ICCM is not
     joined Licensor and/or ICCM shall assign the relevant Patent Rights to
     Licensee. Licensor and ICCM shall execute all documents and take all other
     actions, including giving testimony, which may reasonably be required in
     connection with such suit, action or proceeding. Licensor hereby grants to
     Licensee the right to exclusive control of any such suit, action or

***  Portions of this Exhibit have been omitted pending a confidential
     treatment request by the Company.

                                                                              19
<PAGE>

     proceeding and the exclusive right to compromise, litigate, settle or
     otherwise dispose of any such suit, action or proceeding. In the event that
     Licensee brings a suit, any sums recovered in such suit or in settlement
     thereof shall be distributed as follows: (i) first to Licensee for
     reimbursement for all costs and expenses, including reasonable attorneys'
     fees, involved in such suit; (ii) second to Licensor for accrued and unpaid
     royalties, if any; and (iii) the balance, in any, *** percent (***%) to
     Licensee and *** percent (***%) to Licensor.

          c. Joint Action. If a third party infringes any Patent Rights and any
     relevant patent owned by Licensee, Licensor and Licensee may elect to
     jointly bring (or jointly defend in a declaratory judgement action) a suit,
     action or proceeding to stop all Third Party Infringement and infringement
     of patents owned by Licensee, and will equally share all costs and
     expenses, including reasonable attorneys' fees, involved in such suit. In
     the event that Licensor and Licensee jointly bring a suit, any sums
     recovered in such suit or in settlement thereof shall be distributed as
     follows: (i) first to Licensor and Licensee for reimbursement for all costs
     and expenses, including reasonable attorneys' fees, involved in such suit;
     (ii) second to Licensor for accrued and unpaid royalties; if any; and (iii)
     the balance, if any, *** percent (***%) to Licensee and *** percent (***%)
     to Licensor. If one party hereto elects not to join in such suit after
     ninety (90) days notice, the other party many proceed with the suit as
     provided in Section 10.a or 10.b, as the case may be.

          d. Enforcement of Licensee Patents. Licensee shall have sole authority
     and responsibility for enforcing Licensee-owned patents against
     infringement.

          e. Reduction of License Payments Due to Competitive Product and Suit.
     Notwithstanding the parties' efforts pursuant to Sections 10.a-10.c, if a
     competitor is selling or offering to sell a product that infringes any of
     the independent claims of U.S. Patent No. *** (or reissue or reexamination
     patents thereof) and which is competitive with Sensors or Instruments,
     then:

***  Portions of this Exhibit have been omitted pending a confidential
     treatment request by the Company.

                                                                              20
<PAGE>

               (1) if the Third Party Infringement is in a Major Country, the
          Minimum Royalty Payments shall be suspended as long as the Third Party
          Infringement continues, and will only resume when all such Third Party
          Infringement ceases in all Major Countries, the resumption being at
          the minimum royalty rate in effect at the time the suspension began;

               (2) if the Third Party Infringement is anywhere in the world and
          Licensee's fiscal annual Net Sales are decreased in any given country
          by *** percent (***%) or more of any prior fiscal annual level in the
          previous three (3) years in such given country, then the royalties
          owed to Licensor under Sections 3.c and 3.d for such country(ies)
          shall continue to accrue but the amount that is payable shall be
          reduced by *** with respect to sales in the country in which Net Sales
          have so decreased by *** percent (***%) so long as the Third Party
          Infringement continues in such country, and unpaid accrued amounts
          shall only be payable out of any sums recovered from actions brought
          under Sections 10.a-c, and in addition;

               (3) if Licensee brings a suit, action or proceeding (or defends a
          declaratory judgement action) associated with the Third Party
          Infringement, all royalties thereafter accruable to Licensor under
          Sections 3.c and 3.d (but not including amounts payable under Section
          3.b) shall be creditable against all costs and expenses, including
          reasonable attorneys' fees, and damages involved in such suit (and to
          the extent so credited such royalties shall not be payable to
          Licensor) until all such costs, expenses and damages have been
          recovered by Licensee using credited royalties and any settlement or
          judgement amount collected from the infringer. Ongoing Licensor
          royalties shall only restart and be payable to Licensor for Net Sales
          which result in royalties which exceed all such Licensee costs,
          expenses and damages.

***  Portions of this Exhibit have been omitted pending a confidential
     treatment request by the Company.

                                                                              21
<PAGE>

          f. Action Against Licensee. Licensor will cooperate with Licensee in
     the defense of any suit, action or proceeding against Licensee, or any
     Affiliate or sublicensee of Licensee, alleging the infringement of a patent
     or other intellectual property right owned by a third party by reason of
     the use of the Patent Rights in the manufacture, use, promotion or sale of
     Sensors and/or Instruments. Licensee shall give Licensor prompt notice of
     the commencement of any such suit, action or proceeding or claim of
     infringement. Licensor hereby grants to Licensee the right to exclusive
     control of any such suit, action or proceeding and the exclusive right to
     compromise, litigate, settle or otherwise dispose of any such suit, action
     or proceeding and shall provide all information and assistance necessary to
     defend or settle any such suit, action or proceeding. Licensee may join
     Licensor as a defendant, if necessary or desirable, and Licensor shall
     execute all documents and take all other actions, including giving
     testimony, which may reasonably be required in connection with the defense
     of such suit, action or proceeding. Licensee shall be solely responsible
     for all out-of-pocket defense costs (including attorney fees) incurred by
     Licensee with the defense of such suit, action or proceeding, and Licensee
     shall be entitled to retain any recovery associated with such suit, action
     or proceeding. Licensor shall be responsible to Licensee for half of any
     damages awarded to such third party in such suit, action or proceeding, or
     in settlement thereof. Licensor shall pay Licensee its share of such
     damages as follows:

          Within thirty (30) days of a final judgement or settlement, an amount
          not to exceed all royalties paid to Licensor during the period the
          suit, action or proceeding was pending, and to the extent any amount
          of Licensor's share of such damages remains, Licensee shall take a
          credit against all royalties thereafter payable to Licensor under
          Section 3.c (but not including amounts payable under Section 3.b)
          until all such Licensor's share of damages is paid.

          g. ***

***  Portions of this Exhibit have been omitted pending a confidential
     treatment request by the Company.

                                                                              22
<PAGE>

     11. Indemnification and Insurance.

          a. Indemnification by Licensor. Licensor shall indemnify, hold
     harmless, defend and protect Licensee and its Affiliates, sublicensees,
     successors, assigns, employees, representatives and agents from and against
     any and all claims, causes of action, costs, expenses, losses, damages and
     liabilities (including, without limitation, reasonable attorneys' fees)
     arising out of or resulting from (i) any breach by Licensor of this
     Agreement, (ii) any claim by ICCM that OSI is in breach of the ICCM License
     and which breach is cured by Nellcor, (iii) any claim that any rights
     within Patent Rights were granted by Licensor to any third party, or (iv)
     any unlawful misappropriation by Licensor of trade secrets or proprietary
     rights belonging to any third party. Licensee shall have the right to
     deduct any amount to which it is entitled to indemnification hereunder
     against royalties or other payments due under Sections 3.a, 3.c and 3.d as
     long as Licensee pays all such deducted amounts to a third party escrow
     agent, which is reasonably satisfactory to Licensee and Licensor, to be
     held until the indemnification claim is resolved.

          b. Indemnification by Licensee. Licensee shall indemnify, hold
     harmless, defend and protect Licensor and its Affiliates, successors,
     assigns, employees, representatives and agents, from and against any and
     all claims, causes of action, costs, expenses, losses, damages and
     liabilities (including, without limitation, reasonable attorneys' fees)
     arising out of or resulting from any breach by Licensee of this Agreement.

          c. OSI Breach of ICCM License. In addition to rights NPB has under
     Section 11.a, if OSI breaches the ICCM License more than once, and NPB
     chooses to cure such breaches, the ICCM License shall immediately revert
     from OSI and be assigned to NPB by OSI and NPB shall immediately assume all
     OSI rights and obligations under the ICCM License. In addition, if the cure
     of any single breach by OSI costs NPB one million dollars ($1,000,000) or
     more to correct, the ICCM License shall immediately revert from OSI and be
     assigned to NPB by OSI and NPB shall immediately assume all OSI rights and
     obligations under the ICCM License. NPB may only exercise its rights under
     this Section 11.c only if NPB is in compliance with this Agreement.

                                                                              23
<PAGE>

     12. Confidentiality.

          Each party agrees not to disclose to any third party or use the other
     party's Confidential Information, as defined in this Section 12, other than
     for purposes of this Agreement. Upon termination of this Agreement, all
     Confidential Information shall be returned to the disclosing party.
     "Confidential Information" means any information which is disclosed in any
     tangible form and is clearly labeled or marked as confidential, proprietary
     or its equivalent, or information which is disclosed orally or visually, is
     designated confidential, proprietary or its equivalent at the time of its
     disclosure and is reduced to writing and clearly marked or labeled as
     confidential, proprietary or its equivalent within thirty (30) days of
     disclosure; provided that "Confidential Information" shall not include
     information that (i) was in the receiving party's possession or was known
     to it prior to its receipt from the disclosing party; (ii) is or becomes
     public knowledge without the fault of the receiving party; (iii) is or
     becomes rightfully available on an unrestricted basis to the receiving
     party from a source other than the disclosing party; (iv) becomes available
     on an unrestricted basis to a third party from the disclosing party or from
     someone acting under its control; (v) is independently developed by the
     receiving party as demonstrated by its written records.

     13. Covenant Not to Compete

     So long as Licensee's license is in force and is exclusive, Licensor agrees
not to compete with Licensee by making and/or selling any product for any third
party or providing any service to any third party in the Field of Use. Licensor
retains the right to make and/or sell any existing or future product for any
third party or to provide service to any third party outside of the Field of
Use.

                                                                              24
<PAGE>

     14. Miscellaneous.

          a. Public Announcements. Each of the parties hereto agrees that it
     will not, without the prior written consent of the other party, make any
     public announcement of this Agreement or any of the terms and conditions of
     this Agreement, except for such disclosure to the public or to governmental
     agencies as its counsel shall deem necessary to comply with applicable law,
     rule or regulation. Notwithstanding the foregoing, either party may
     disclose publicly that Licensor has granted Licensee an exclusive,
     worldwide license to manufacture and sell Sensors and Instruments within
     the Field of Use.

          b. Assignment. Neither party may assign or otherwise transfer its
     rights and obligations under this Agreement without the prior written
     consent of the other party, except to (i) an Affiliate, provided that the
     original party to the Agreement remains obligated to perform under this
     Agreement or (ii) any successor in interest of all or substantially all of
     the business of such party relating to the licensed Patent Rights, whether
     by merger, operation of law, assignment, purchase or otherwise. Any
     prohibited assignment shall be null and void. All terms and conditions of
     this Agreement shall be binding on and inure to the benefit of the
     successors and permitted assigns of the parties.

          c. Relationship. This Agreement shall not constitute either party as
     the legal representative, partner, joint venturer or agent of the other
     party hereto, nor shall either party have the right or authority to assume,
     create or incur any liability or any obligation of any kind, express or
     implied, against or in the name of or on behalf of the other party hereto.

          d. Entire Agreement; Amendment. This Agreement, the Supplemental
     Agreement, the ICCM License and the Supplier Agreement constitute the
     entire agreement between the parties hereto relative to the subject matter
     hereof, and supersedes any and all prior agreements, written or oral,
     between the parties relating to such subject matter. No modifications or
     amendments of any of the terms hereof shall be valid or binding unless made
     in writing and signed by Licensor and Licensee.

          e. Waiver. No waiver of any breach of any provision of this Agreement
     shall constitute a waiver of any prior, concurrent or subsequent breach of
     the same or any other

                                                                              25
<PAGE>

     provision hereof, and no waiver shall be effective unless made in writing.

          f. Patent Recording. Licensor agrees to execute documents in the form
     given in Exhibit C for recording (at Licensee's expense) with the United
     States Patent Office for each patent included in the Patent Rights which
     issues in the United States. Licensor will cause such documents to be filed
     with the United States Patent Office for recording within thirty (30) days
     of the Effective Date of this Agreement or within thirty (30) days of
     issuance, whichever occurs later. Licensor further agrees to cooperate in
     executing and filing any additional forms necessary to perfect rights of
     Licensee granted herein. Licensee agrees to cooperate in executing and
     filing any additional forms desired by Licensor (at Licensor's expense) in
     the event the license to Licensee becomes nonexclusive or is terminated.

          g. Notices. Notice permitted or required to be given under this
     Agreement shall be deemed sufficient if given in writing by facsimile,
     commercial air delivery service or by registered or certified air mail,
     postage prepaid, return receipt requested, addressed to the respective
     addresses of the parties set forth below or at such other address as the
     respective parties may designate by like notice from time to time. Notices
     so given shall be effective upon the earlier of: (i) receipt by the party
     to which notice is given (which, in the instance of a facsimile, shall be
     deemed to have occurred at the time that the machine transmitting the
     facsimile verifies a successful transmission of the facsimile); (ii) on the
     fifth business day following the date such notice was deposited in the
     mail; or (iii) on the second business day following the date such notice
     was delivered to a commercial air delivery service. Notices shall be given
     as follows:

             If to Licensor:          Optical Sensors Incorporated
                                      7615 Golden Triangle Drive
                                      Suite C
                                      Minneapolis, Minnesota  55344
                                      Attn:  Chief Executive Officer
                                      Fax:  (952) 914-9441

             If to Licensee:          Nellcor Puritan Bennett, Inc.
                                      4280 Hacienda Drive
                                      Pleasanton, California  94588

                                                                              26
<PAGE>

                                      Attn:  President, Nellcor Business Unit
                                      Fax:  (925) 463-4420

             With a copy to:          Nellcor Puritan Bennett, Inc.
                                      4280 Hacienda Drive
                                      Pleasanton, California  94588
                                      Attn:  General Counsel
                                      Fax:  (925) 463-4420

          h. Severability. If any provision of this Agreement shall be held
     invalid or unenforceable by any court of competent jurisdiction, the
     remaining provisions of this Agreement shall remain in full force and
     effect. Further, should any provision of this Agreement be deemed
     unenforceable by virtue of its scope, such provision shall be deemed
     limited to the extent necessary to render the same enforceable.

          i. Governing Law. This Agreement will be construed in accordance with,
     and governed by, the laws of the State of California in all respects,
     including, without limitation, interpretation, performance, effect and
     remedies (without regard to the laws of conflict of any jurisdiction).

          j. Headings. The headings of sections and subsections of this
     Agreement have been inserted for the convenience of reference only and
     shall in no way restrict or otherwise modify the terms on this Agreement.

          k. Counterparts. This Agreement may be executed in one or more
     counterparts, each of which shall be deemed to be an original, but each of
     which together shall constitute one and the same document.

                                                                              27
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this License Agreement
as of the date and year written below.

                                 OPTICAL SENSORS INCORPORATED

                                 By
                                   ----------------------------------
                                   (Printed Name)
                                   (Title)

                                 Date:
                                      -------------------------------

                                 NELLCOR PURITAN BENNETT INCORPORATED

                                 By
                                   ----------------------------------
                                   (Printed Name)
                                   (Title)

                                 Date:
                                      --------------------------------

                                                                              28
<PAGE>

                                   EXHIBIT A1
                                   ----------

                         Patents and Patent Applications
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
OSI           Country    Patent No. or     Title                               Status
Reference No.            Appl. No.
-----------------------------------------------------------------------------------------------------------------------------
<S>           <C>        <C>               <C>                                 <C>
0379-0046     US         5,579,763         MEASUREMENT OF SYSTEMIC PERFUSION   Issued, 2nd Maintenance Fee due June 3,
                                                                               2004, no foreign filings
-----------------------------------------------------------------------------------------------------------------------------
***           ***        ****              ***                                 ***
-----------------------------------------------------------------------------------------------------------------------------
***           ***        ****              ***                                 ***
-----------------------------------------------------------------------------------------------------------------------------
0379-0046.22  US         6,055,447         MINIMALLY INVASIVE MEASUREMENT OF   Issued, 1st Maintenance Fee due October
                                           SYSTEMIC PERFUSION                  24, 2003
-----------------------------------------------------------------------------------------------------------------------------
0379-0046.23  US         6,216,024         METHOD AND DEVICE FOR ASSESSING     Issued, 1st Maintenance Fee due March 24,
                                           PERFUSION FAILURE IN A PATIENT      2002
-----------------------------------------------------------------------------------------------------------------------------
0379-0046.40  PCT Pub.   PCT/US98/20118    MINIMALLY INVASIVE MEASUREMENT OF   In National Phase in EPO, Australia,
from                     WO 99/16346       SYSTEMIC PERFUSION                  Canada, Japan, Filed September 25, 1998,
00379-0046.23                                                                  Published
-----------------------------------------------------------------------------------------------------------------------------
***           ***        ****              ***                                 ***
-----------------------------------------------------------------------------------------------------------------------------
***           ***        ****              ***                                 ***
-----------------------------------------------------------------------------------------------------------------------------
0379-0046.43  EPO        98948547.9        METHOD AND DEVICE FOR ASSESSING     Pending, Filed September 25, 1998,
                                           PERFUSION FAILURE IN A PATIENT      Designated France, Germany, UK, Italy,
                                                                               Netherlands, and Spain. Bibliographic
                                                                               data published July 19, 2000 under
                                                                               EP-A-1018933.
-----------------------------------------------------------------------------------------------------------------------------
0379-0046.44  Japan      2000-513493       METHOD AND DEVICE FOR ASSESSING     Pending, Filed September 25, 1998
                                           PERFUSION FAILURE IN A PATIENT
-----------------------------------------------------------------------------------------------------------------------------
0379-0046.24  US         6,258,046         METHOD AND DEVICE FOR ASSESSING     Issued,
                                           PERFUSION FAILURE IN A PATIENT BY
                                           MEASUREMENT OF BLOOD FLOW
-----------------------------------------------------------------------------------------------------------------------------
***           ***        ****              ***                                 ***
-----------------------------------------------------------------------------------------------------------------------------
0379-0046WO2  PCT Pub.   PCT.US00/08683    METHOD AND DEVICE FOR ASSESSING     In National Phase, entered during
                         WO 00/59372       PERFUSION FAILURE IN A PATIENT BY   September 2001 designating EPO, Japan,
                                           MEASUREMENT OF BLOOD FLOW           Australia, and Canada
-----------------------------------------------------------------------------------------------------------------------------
TBD           Austrailia NA                METHOD AND DEVICE FOR ASSESSING     NA
                                           PERFUSION FAILURE IN A PATIENT BY
                                           MEASUREMENT OF BLOOD FLOW
-----------------------------------------------------------------------------------------------------------------------------
TBD           Canada     NA                METHOD AND DEVICE FOR ASSESSING     NA
                                           PERFUSION FAILURE IN A PATIENT BY
                                           MEASUREMENT OF BLOOD FLOW
-----------------------------------------------------------------------------------------------------------------------------
TBD           EPO        NA                METHOD AND DEVICE FOR ASSESSING     NA
                                           PERFUSION FAILURE IN A PATIENT BY
                                           MEASUREMENT OF BLOOD FLOW
-----------------------------------------------------------------------------------------------------------------------------
TBD           Japan      NA                METHOD AND DEVICE FOR ASSESSING     NA
                                           PERFUSION FAILURE IN A PATIENT BY
                                           MEASUREMENT OF BLOOD FLOW
-----------------------------------------------------------------------------------------------------------------------------
0379-0048     US         6,071,237         pCO2 DETERMINATION IN THE TRACHEA   Issued, 1st Maintenance Fee due December
                                                                               6, 2003
-----------------------------------------------------------------------------------------------------------------------------
0379-0048.40  PCT Pub.   PCT/US00/04305    pCO2 DETERMINATION IN THE TRACHEA   In National Phase, entered during month of
                                                                               August 2001, designating EPO, Japan, Australia
                                                                               and Canada
-----------------------------------------------------------------------------------------------------------------------------
TBD           Austrailia NA                pCO2 DETERMINATION IN THE TRACHEA   NA
-----------------------------------------------------------------------------------------------------------------------------
TBD           Canada     NA                pCO2 DETERMINATION IN THE TRACHEA   NA
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

***     Portions of this Exhibit have been omitted pending a confidential
        treatment request by the Company.

                                                                              29
<PAGE>

<TABLE>
<CAPTION>

<S>           <C>        <C>                <C>                                <C>
-----------------------------------------------------------------------------------------------------------------------------
TBD           EPO        NA                pCO2 DETERMINATION IN THE TRACHEA   NA
-----------------------------------------------------------------------------------------------------------------------------
TBD           Japan      NA                pCO2 DETERMINATION IN THE TRACHEA   NA
-----------------------------------------------------------------------------------------------------------------------------
***           ***        ****              ***                                 ***
-----------------------------------------------------------------------------------------------------------------------------
***           ***        ****              ***                                 ***
-----------------------------------------------------------------------------------------------------------------------------
***           ***        ****              ***                                 ***
-----------------------------------------------------------------------------------------------------------------------------
***           ***        ****              ***                                 ***
-----------------------------------------------------------------------------------------------------------------------------
***           ***        ****              ***                                 ***
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

***     Portions of this Exhibit have been omitted pending a confidential
        treatment request by the Company.

                                                                              30
<PAGE>

                                   EXHIBIT A2
                                   ----------

                         Patents and Patent Applications

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
OSI           Country    Patent No. or     Title                               Status
Reference No.            Appl. No.
-----------------------------------------------------------------------------------------------------------------------------
<S>           <C>        <C>               <C>                                 <C>
0379-0031     US         5,672,515         SIMULTANEOUS DUAL EXCITATION /      Issued, 2nd Maintenance fee due March 30th,
                                           SINGLE EMISSION FLUORESCENT         2005.
                                           SENSING TECHNIQUE FOR pH
-----------------------------------------------------------------------------------------------------------------------------
0379-0031.40  PCT Pub.   PCT/US96/13791    SIMULTANEOUS DUAL EXCITATION /      In National Phase in EPO, Canada, and Japan,
                         WO 97/10495       SINGLE EMISSION FLUORESCENT         Filed August 27, 1996, Published
                                           SENSING TECHNIQUE FOR pH
-----------------------------------------------------------------------------------------------------------------------------
0379-0031.41  Canada     2,231,771         SIMULTANEOUS DUAL EXCITATION /      Pending, 1st Office Action Received
                                           SINGLE EMISSION FLUORESCENT
                                           SENSING TECHNIQUE FOR pH
-----------------------------------------------------------------------------------------------------------------------------
0379-0031.42  EPO        96929074.1        SIMULTANEOUS DUAL EXCITATION /      Pending, August 27, 1996 Filing Date.
                                           SINGLE EMISSION FLUORESCENT         Designated France, Germany, UK, Italy,
                                           SENSING TECHNIQUE FOR pH            Netherlands, and Spain. Bibliographic data
                                                                               published July 1, 1998 under EP-A-0850409
-----------------------------------------------------------------------------------------------------------------------------
0379-0031.43  Japan      9-511977          SIMULTANEOUS DUAL EXCITATION /      Pending, August 27, 1996 Filing Date.
                                           SINGLE EMISSION FLUORESCENT         Published October 26, 1999 under 11-512521.
                                           SENSING TECHNIQUE FOR pH            Request for examination not filed.
-----------------------------------------------------------------------------------------------------------------------------
0379.0034 &   US         5,714,121         OPTICAL CARBON DIOXIDE SENSOR AND   Issued, 1st maintenance fee due August 3,
 .10                                        ASSOCIATED METHODS OF MANUFACTURE   2001.
-----------------------------------------------------------------------------------------------------------------------------
0379.0034.40  PCT Pub.   PCT/US96/15353    OPTICAL CARBON DIOXIDE SENSOR       In National Phase in EPO, Australia, Canada,
                         WO 97/12227       AND ASSOCIATED METHODS OF           and Japan, Filed September 25, 1996, Published
                                           MANUFACTURE
-----------------------------------------------------------------------------------------------------------------------------
0379.0034.41  Austrailia 715,086           OPTICAL CARBON DIOXIDE SENSOR AND   Issued
                                           ASSOCIATED METHODS OF MANUFACTURE
-----------------------------------------------------------------------------------------------------------------------------
0379.0034.42  Canada     2,233,284         OPTICAL CARBON DIOXIDE SENSOR AND   Pending, Filed September 25, 1996, A Request
                                           ASSOCIATED METHODS OF MANUFACTURE   for Examination not filed.
-----------------------------------------------------------------------------------------------------------------------------
0379.0034.43  EPO        96933131.3        OPTICAL CARBON DIOXIDE SENSOR AND   Pending, Filed September 25, 1996, Designated
                                           ASSOCIATED METHODS OF MANUFACTURE   France, Germany, UK, Italy, Netherlands, and
                                                                               Spain. Bibliographic data published August 19,
                                                                               1998 under EP-A-0858594. Response to 1st office
                                                                               action filed September of 2000.
-----------------------------------------------------------------------------------------------------------------------------
0379.0034.44  Japan      9-513592          OPTICAL CARBON DIOXIDE SENSOR AND   Pending, Filed September 25, 1996, Published
                                           ASSOCIATED METHODS OF MANUFACTURE   on November 2, 1999 under 11-512819. Request
                                                                               for examination not filed.
-----------------------------------------------------------------------------------------------------------------------------
0379-0039     US         5,690,215         DEVICE FOR MAINTAING THE PARTIAL    Issued, 2nd Maintenance Fee due May 25, 2005.
                                           PRESSURE OF A DISSOLVED GAS IN A
                                           FLUID AND RELATED METHODS OF USE
-----------------------------------------------------------------------------------------------------------------------------
0379-0039.40  PCT Pub.   PCT/US97/08795    DEVICE FOR MAINTAING THE PARTIAL    In National Phase in EPO, Australia, Canada,
                         WO 98/01365       PRESSURE OF A DISSOLVED GAS IN A    Japan, Filed May 21, 1997, Published
                                           FLUID AND RELATED METHODS OF USE
-----------------------------------------------------------------------------------------------------------------------------
0379-0039.41  Austrailia 712,791           DEVICE FOR MAINTAING THE PARTIAL    Issued
                                           PRESSURE OF A DISSOLVED GAS IN A
                                           FLUID AND RELATED METHODS OF USE
-----------------------------------------------------------------------------------------------------------------------------
0379-0039.42  Canada     2,259,412         DEVICE FOR MAINTAING THE PARTIAL    Pending, Filed September 21, 1997, A Request
                                           PRESSURE OF A DISSOLVED GAS IN A    for Examination filed May of 2001.
                                           FLUID AND RELATED METHODS OF USE
-----------------------------------------------------------------------------------------------------------------------------
0379-0039.43  EPO        97928652.3        DEVICE FOR MAINTAING THE PARTIAL    Pending, Filed September 21, 1997, Designated
                                           PRESSURE OF A DISSOLVED GAS IN A    France, Germany, UK, Italy, Netherlands, and
                                           FLUID AND RELATED METHODS OF USE    Spain. Bibliographic data published July 21,
                                                                               1999 under EP-A-0929470.
-----------------------------------------------------------------------------------------------------------------------------
0379-0039.44  Japan      10-505185         DEVICE FOR MAINTAING THE PARTIAL    Pending, Filed September 21, 1997
                                           PRESSURE OF A DISSOLVED GAS IN A
                                           FLUID AND RELATED METHODS OF USE
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              31
<PAGE>

                                    EXHIBIT B
                                    ---------

     Methodology Currently Used for Calculating Direct Cost of Manufacturing

     At the beginning of each calendar year, Licensee projects total
manufacturing overhead costs, total purchased materials cost, and total direct
labor hours to produce product for sale for such year. Manufacturing overhead
costs consist of the costs of facilities, utilities, staff, travel and expenses
related to the production of product as accumulated in individual departmental
budgets. Total purchased materials costs are estimated by suppliers. Total
direct labor hours are estimated by extending engineered per unit direct labor
hours multiplied by the projected unit production of products. Total
manufacturing overhead costs are then divided by total direct labor hours to
arrive at a per direct labor hour manufacturing overhead rate. The average cost
of any individual product is determined by applying a direct labor rate and a
manufacturing overhead rate against the estimated direct labor hours for that
product, plus direct material costs. Total cost of sales for that product for
the year is determined by multiplying unit sales by the per unit standard cost.

                                                                              32
<PAGE>

                                    EXHIBIT C
                                    ---------

                                Notice of License

To Whom It May Concern

     Notice is hereby given by Optical Sensors Incorporated, having its
principal office at 7615 Golden Triangle Drive, Suite C, Minneapolis, Minnesota
55344 ("OSI"), and Nellcor Puritan Bennett, Inc., having its principle office at
4280 Hacienda Drive, Pleasanton, California 94588 ("Nellcor"), wherein OSI
granted Nellcor an exclusive Field of Use license to practice the invention
claimed by the following patent:

__________________, which was issued on ______________, entitled
____________________, including all divisionals, continuations,
continuations-in-part, reissues, reexaminations or extensions thereof and any
letters of patent that issue thereon.

OPTICAL SENSORS INCORPORATED

By:
    ------------------------------

Print Name:
            ----------------------

Title:
       ---------------------------

Date:
      ----------------------------

                                                                              33<PAGE>

                                                                    Exhibit 10.3

                          MUTUAL TERMINATION AGREEMENT

     This MUTUAL TERMINATION AGREEMENT (the "Agreement") is made and entered
into effective as of the 4th day of October, 2001, by and between Optical
Sensors Incorporated, a Delaware corporation (the "Company"), and Circle F
Ventures, LLC ("Circle F").

                                    RECITALS

     WHEREAS, Company and Circle F are parties to a Bridge Loan Agreement dated
July 26, 2001, which was made effective as of May 1, 2001 (the "Loan
Agreement"), to govern Circle F's advances of up to an aggregate in $1,500,000
in cash funds to the Company;

     WHEREAS, Company executed a Convertible Promissory Note dated July 26, 2001
in favor of Circle F representing its obligations to Circle F for such advances
under the Loan Agreement (the "Convertible Note");

     WHEREAS, Circle F has advanced, including those funds advanced on the
effective date hereof, a total of $1,154,000 to the Company under the Loan
Agreement; and

     WHEREAS, The parties desire to terminate the Loan Agreement in order to
limit the advances at $1,154,000, but still desire the terms of the Loan
Agreement and Convertible Note to govern such funds that have already been
advanced.

                                    AGREEMENT

     NOW, THEREFORE, in consideration of the covenants set forth in this
Agreement and for other good and valuable consideration, the parties agree as
follows:

     1. Termination of Loan Agreement. Except for the obligations identified in
Section 2 below, Company and Circle F hereby terminate the Loan Agreement.

     2. Post-Termination Obligations. Upon termination of the Loan Agreement,
Company and Circle F shall remain bound for the performance of all obligations
under the Loan Agreement related to $1,154,000 funds that have already been
advanced, all of which shall survive the termination of the Loan Agreement, and
Company shall remain bound to Circle F for the $1,154,000 in advances under the
Convertible Note.

     3. Miscellaneous. This Agreement, together with the Loan Agreement and the
Convertible Note, constitute the entire agreement of the parties relative to its
subject and shall not be waived, altered or rescinded in whole or in part,
except by an express writing by the parties. The provisions of this Agreement
are severable and the invalidity or unenforceability of any of them shall not
affect the remainder of this Agreement.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

Optical Sensors Incorporated                Circle F Ventures, LLC

By:                                         By:
    ------------------------------              --------------------------------

Title:                                      Title:
       ---------------------------                 -----------------------------

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