Document:

Exhibit 10.8

 

EQUIPMENT LEASE
AGREEMENT

 

 

by and between

 

 

BAXTER HEALTHCARE
CORPORATION, as Lessor

 

and

 

 

PHOTOGEN
TECHNOLOGIES INC., as Lessee

 

 

June   ,
2003

 

 

TABLE
OF CONTENTS

 

	
  1.

  	
  DEFINITIONS AND RULES
  OF CONSTRUCTION

  	
  1

  
	
  2.

  	
  LEASE.

  	
  6

  
	
  3.

  	
  TERM AND
  RENT; OBLIGATIONS UNCONDITIONAL.

  	
  6

  
	
  4.

  	
  PERSONAL PROPERTY;
  TITLE AND LIENS.

  	
  7

  
	
  5.

  	
  INSTALLATION,
  DEINSTALLATION, MAINTENANCE, REPAIR AND INSPECTIONS

  	
  8

  
	
  6.

  	
  USE

  	
  9

  
	
  7.

  	
  QUIET ENJOYMENT

  	
  9

  
	
  8.

  	
  ACCEPTANCE,
  WARRANTIES, LIMITATION OF LIABILITY.

  	
  9

  
	
  9.

  	
  REPRESENTATIONS AND WARRANTIES

  	
  10

  
	
  10.

  	
  COVENANTS OF LESSEE

  	
  12

  
	
  11.

  	
  ASSIGNMENT AND TRANSFER.

  	
  13

  
	
  12.

  	
  INSURANCE

  	
  14

  
	
  13.

  	
  LOSS AND DAMAGE

  	
  14

  
	
  14.

  	
  TAXES AND FEES.

  	
  15

  
	
  15.

  	
  LESSEE’S FAILURE TO PAY TAXES,
  INSURANCE, ETC

  	
  16

  
	
  16.

  	
  DEFAULT AND REMEDIES.

  	
  16

  
	
  17.

  	
  TAX INDEMNITY.

  	
  18

  
	
  18.

  	
  INDEMNITY.

  	
  18

  
	
  19.

  	
  RETURN OF EQUIPMENT.

  	
  19

  
	
  20.

  	
  PURCHASE OPTION.

  	
  21

  
	
  21.

  	
  MISCELLANEOUS.

  	
  22

  
	
  22.

  	
  ADDITIONAL PROVISIONS

  	
  23

  
	
  SCHEDULE A 
  EQUIPMENT

  
	
  SCHEDULE B 
  UNAMORTIZED LEASE BALANCE

  
	
  SCHEDULE C 
  FINANCING STATEMENT

  

 

 

EQUIPMENT
LEASE AGREEMENT

 

THIS EQUIPMENT LEASE AGREEMENT is made as of
June   , 2003 by and between BAXTER HEALTHCARE CORPORATION, a
Delaware corporation, and PHOTOGEN TECHNOLOGIES INC., a Nevada corporation.

 

1.                                       DEFINITIONS AND RULES OF
CONSTRUCTION.  Unless the
context shall otherwise require, capitalized terms used herein, but not
otherwise defined herein, shall have the respective meanings specified below:

 

“Affiliate”: 
with respect to a specified Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified.

 

“Applicable Law”: 
any Law that may apply to (i) Lessee or its properties and operations,
(ii) the acquisition, operation, modification, maintenance, ownership, leasing
or use, transport, relocation or disposal of the Equipment, or (iii) any
transaction contemplated under any Lease Document, including in each case any
Environmental Law, federal or state securities Law, commercial Law (pertaining
to the rights and obligations of sellers, purchasers, debtors, secured parties,
or to any other pertinent matter), zoning, sanitation, siting or building Law,
energy, occupational safety and health practices Law or the Employee Retirement
Income Security Act of 1974, as amended, and any Laws promulgated thereunder or
related thereto.

 

“Basic Rent”: 
the rental installments due from Lessee pursuant to Section 3(b) hereof
on each Basic Rent Payment Date for the Term.

 

“Basic Rent Payment Date”:  June    , 2003, and the      
day of each succeeding month, through and including May    ,
2006.

 

“Business Day”: 
any day, other than a Saturday, Sunday or legal holiday for commercial
banks under the laws of the State of California.

 

“Claims”: 
claims, actions, suits, administrative proceedings, controversies,
liabilities, losses, damages, costs and expenses (including reasonable
attorneys’ fees).

 

“Code”:  the
United States Internal Revenue Code of 1986, as amended.

 

“Commencement Date:” 
June    , 2003.

 

“Control”:  the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ability to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled” have meanings
correlative thereto.

 

“Default”:  an
event that, but for the lapse of time or the giving of notice or both, would
constitute an Event of Default.

 

 

“Early Purchase Date”:  the date, if any, designated in an Option Notice given by Lessee
pursuant to Section 20 for Lessee’s exercise of the Purchase Option prior to
the Term Expiration Date.

 

“Equipment”: 
the property described on Schedule A attached hereto, together with all
appliances, parts, instruments, accessories and furnishings that are from time
to time incorporated in the Equipment, or having been so incorporated, are
later removed therefrom, unless title thereto is expressly released by Lessor;
all Software owned by Lessor; all contained raw materials, and contained
lubricants or cleansers; and all replacements and substitutions of, and
non-severable additions, improvements and accessions to any and all of the
foregoing; and all books, records, maintenance logs and similar general
intangibles relating thereto; and, when used in the context of Lessor’s title to
the Equipment (whether relating to the creation, grant, perfection, release,
priority, enforcement or application of proceeds thereof), shall also include
all other property in which Lessor is granted a security interest hereunder or
under the Rental Schedule.

 

“Environmental Laws”: 
Laws relating in any way to the environment, preservation or reclamation
of natural resources, the management, release or threatened release of any
Hazardous Material or to health and safety matters.

 

“Environmental Liability”:  any liability, contingent or otherwise (including any liability
for damages, costs of environmental remediation, fines, penalties or
indemnities), of Lessee or those Affiliates of Lessee that Lessee controls
directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage,
treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous
Materials, (d) the release or threatened release of any Hazardous Materials
into the environment or (e) any contract, agreement or other consensual
arrangement pursuant to which liability is assumed or imposed with respect to
any of the foregoing.

 

“Event of Default”: 
any event of default as specified in Section 16(a) of this Lease
Agreement.

 

“Financing Statement”:  a financing statement on Form UCC-1 pursuant to the UCC.

 

“GAAP”: 
generally accepted accounting principles, applied consistently.

 

“Governmental Authority”:  any federal, state, county, municipal, regional or other
governmental authority, agency board, body, instrumentality or court, in each
case either domestic or foreign.

 

“Hazardous Materials”:  all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum
or petroleum distillates, asbestos or asbestos-containing materials,
polychlorinated biphenyls, radon gas, infectious or medical wastes and all
other substances or wastes of any nature listed or regulated pursuant to any
Environmental Law.

 

“Imposition”: 
any title, recordation, documentary stamp or other license or other
fees, taxes, assessments, charges or withholdings of any nature (together with
any penalties or fines 

 

2

 

thereon) arising at any time upon or relating to the Equipment or to
this Lease Agreement, or the delivery, acquisition, sale, purchase, ownership,
use, operation, leasing, return or other disposition of such Equipment or upon
the Rent payable thereunder, including but not limited to sales or use taxes,
personal property taxes, privilege or excise taxes, franchise taxes, and ad
valorem or value-added taxes, excluding, however, income taxes measured solely
by the net income of Lessor or any Transferee, whether the same be assessed to
Lessor (or any Transferee) or Lessee.

 

“Indebtedness”: 
of any Person means, without duplication, (a) all obligations of such
Person for borrowed money or with respect to deposits or advances of any kind,
(b) all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (c) all obligations of such Person upon which interest
charges are customarily paid, (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property
acquired by such Person, (e) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding accounts payable
incurred in the ordinary course of business not more than 90 days past due),
(f) all Indebtedness of others secured by any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, (g) all guarantees by such Person of Indebtedness of others, (h)
all capital lease obligations of such Person, (i) all obligations, contingent
or otherwise, or such Person as an account party in respect of letters of
credit and letters of guaranty, and (j) all obligations, contingent or
otherwise, of such Person in respect of bankers’ acceptances.

 

“Law”:  any law,
rule, regulation, guidance, ordinance, order, code, common law, interpretation,
judgment, directive, decree, treaty, injunction, writ, determination, Permit or
similar norm, decision or binding agreement issued, promulgated or entered into
by any Governmental Authority.

 

“Lease Agreement”: 
this Equipment Lease Agreement, as from time to time amended.

 

“Lease Documents”: 
collectively, this Lease Agreement, and any and all instruments,
documents, certificates and agreements delivered pursuant hereto.

 

“Lessee”: Photogen Technologies Inc., a Nevada
corporation, and its successors and permitted assigns.

 

“Lessor”: 
Baxter Healthcare Corporation, a Delaware corporation, and its
successors and assigns.

 

“Lessor’s Cost”: 
with respect to the Equipment set forth on Schedule A, the amount
specified as such thereon.

 

“Lessor’s Lien”: 
any Lien arising as a result of (i) Claims against Lessor not related to
the transactions contemplated by this Lease Agreement, (ii) any act or omission
of Lessor which is not related to the transactions contemplated by this Lease
Agreement or is in violation of any of the terms of this Lease Agreement, (iii)
Claims against Lessor with respect to Impositions or any Laws or Claims against
which Lessee is not required to indemnify Lessor, (iv) Claims against Lessor
arising out of any transfer by Lessor of all or any portion of the interests of
Lessor in the Equipment or this Lease Agreement other than a transfer pursuant
to the terms hereof;

 

3

 

provided, however, that any Lien which is attributable solely to Lessor
and would otherwise constitute a Lessor’s Lien hereunder shall not constitute a
Lessor’s Lien so long as (1) the existence of such Lien poses no material risk
of seizure of the Equipment, (2) the existence of such Lien does not interfere
in any way with the use or operation of the Equipment by Lessee pursuant to the
terms hereof, and (3) Lessor is diligently contesting such Lien.  No lien of a Transferee will be deemed a
Lessor’s Lien.

 

“Lien”:  any
mortgage, pledge, lease, sublease, security interest, attachment, charge,
encumbrance or right or claim of others whatsoever (including any conditional
sale or other retention agreement).

 

“Lusk Facility”: 
the building located at 6175 Lusk Boulevard, San Diego, California.

 

“Option Notice”: 
as set forth in Section 20 of this Lease Agreement.

 

“Overdue Fee”: 
an amount equal to 1-1/2% per month, or the highest rate permitted by
Law, whichever is lower.

 

“Payment Dates”: 
the Basic Rent Payment Dates and, if applicable, the Renewal Rent
Payment Dates as set forth in the applicable Rental Schedule.

 

“Permit”:  any
action, approval, certificate of occupancy, consent, waiver, exemption,
variance, franchise, order, permit, authorization, right or license, or other
form of legally required permission, of or from a Governmental Authority.

 

“Permitted Lien”: 
(a) Lessor’s and Lessee’s respective rights, titles and interests in the
Equipment, (b) Liens for the benefit of mechanics, materialmen, laborers,
employees or suppliers and similar Liens arising by operation of Law and
incurred by Lessee in the ordinary course of business for sums that are not yet
delinquent or are being contested in good faith by negotiations or by
appropriate proceedings that suspend the collection and enforcement thereof
(provided that the existence of such Lien while such negotiations or
proceedings are pending does not involve any substantial risk (as determined by
Lessor in its discretion) of the sale, forfeiture or loss of the Equipment, and
for which adequate reserves have been provided in accordance with GAAP), and
(c) Liens arising out of any judgments or awards against Lessee that have been
adequately bonded to protect Lessor’s interest or with respect to which a stay
of execution has been granted pending an appeal or a proceeding for review,
except to the extent that they extend beyond the Term.

 

“Person”:  any
individual, corporation, partnership, limited liability company, joint venture,
or other legal entity or a Governmental Authority.

 

“Purchase Option”: 
as set forth in Section 20 of this Lease Agreement.

 

“Purchase Option Price”:  as set forth in Section 20 of this Lease Agreement.

 

“Rent”: 
collectively, the Basic Rent and the Supplemental Rent.

 

“Rental Schedule”: 
Schedule A attached hereto.

 

4

 

“Software”: 
the current version of any software used by Lessee in the operation of
the Equipment.

 

“Stipulated Loss Value”:  with respect to each item of Equipment, the dollar amount set
forth on Schedule A attached hereto.

 

“Supplemental Rent”: 
all amounts, liabilities and obligations (other than Basic Rent) that
Lessee assumes or agrees to pay to Lessor, including, without limitation,
Stipulated Loss Value, Impositions, and payments constituting indemnities,
reimbursements, expenses, the Overdue Fee and other charges payable pursuant to
the terms of this Lease Agreement.

 

“Supplier”: 
the manufacturer of the Equipment and each vendor in the chain of title
of the Equipment.

 

“Supply Contract”: 
any written contract from the Supplier of the Equipment or any item
thereof, pursuant to which Lessor or any Person in the chain of title of the
Equipment has purchased such Equipment (or item thereof).

 

“Tax Benefits” as set forth in Section 17 of this
Lease Agreement.

 

“Tax Loss”:  as
set forth in Section 17 of this Lease Agreement.

 

“Term”:  the
period from and including the Commencement Date through and including the Term
Expiration Date.

 

“Term Expiration Date”:  the third anniversary of the Commencement Date.

 

“Total Loss”: 
for any item of Equipment, the occurrence of any of the following:  (i) the actual or constructive total loss of
such item of Equipment; or (ii) the loss, disappearance, theft or destruction
of such item of Equipment; or (iii) damage to such item of Equipment to such
extent as shall make repair thereof uneconomical, or shall render any item of
Equipment permanently unfit for normal use, for any reason whatsoever; or (iv)
the condemnation, confiscation, requisition, seizure, forfeiture or other
taking of title to or use of such item of Equipment;

 

“Transfer”: 
any transfer or other agreement pursuant to which Lessor or any
Transferee has transferred or agreed to pay any Person the Rent, or a portion
thereof, received from Lessee pursuant to a lease, which obligation may be
secured by Lessor’s interest in this Lease Agreement and the Equipment.

 

“Transferee”: 
any Person to whom Lessor or any subsequent transferee thereof has
assigned any or all of its rights, obligations, title and/or interest under a
Lease, including any Affiliate and any financial institution that may have
provided financing to Lessor to acquire the Equipment or any item thereof.

 

“Unamortized Lease Balance”:  for an Early Purchase Date falling within the monthly period
beginning on a date set forth on Schedule B attached hereto, the Unamortized
Lease Balance is equal to the dollar amount set forth opposite such date on
Schedule B.

 

5

 

“Uniform Commercial Code” or “UCC”:  the Uniform Commercial Code as in effect in
the State of California or in any other pertinent jurisdiction; and any
reference to an article or section thereof shall mean the corresponding article
or section (however named) of any such other applicable version of the Uniform
Commercial Code.

 

Any defined term used in the singular preceded by
“any” indicates any number of the members of the relevant class.  Any Lease Document or other agreement or
instrument referred to herein means such agreement or instrument as
supplemented and amended from time to time. 
Any reference to Lessor or Lessee shall include their permitted
successors and assigns.  Any reference
to a Law or Permit shall also mean such Law or Permit as amended, superseded or
replaced from time to time.  Unless
otherwise expressly provided to the contrary in this Lease Agreement, all
actions that Lessee takes or is required to take under this Lease Agreement or
any other Lease Document shall be taken at Lessee’s sole cost and expense.

 

2.                                       LEASE.

 

Lessee hereby agrees to lease from Lessor, and Lessor
agrees to lease to Lessee, the Equipment set forth and described on Schedule A
to this Lease Agreement.  Lessee agrees
that it shall, pursuant to the terms hereof, comply with all of the terms and
conditions herein.

 

3.                                       TERM AND RENT; OBLIGATIONS
UNCONDITIONAL.

 

(a)                                  The
Equipment is leased for the Term, unless and until the Term of this Lease
Agreement shall sooner terminate pursuant to the terms hereof.  The Term shall commence on the Commencement
Date and shall expire at midnight on the Term Expiration Date.  Upon execution of this Lease Agreement,
Lessee shall pay to Lessor, in lawful money of the United States, the sum of
Seventy Five Thousand Dollars ($75,000.00), by wire transfer to Lessor’s
account, which payment is in addition to, and will not be applied as a credit
toward, Basic Rent, Supplemental Rent, or any other amount payable by Lessee
hereunder.

 

(b)                                 Lessee
shall pay to Lessor or an agent designated by Lessor or any Transferee in
writing, in lawful money of the United States, on each Basic Rent Payment Date
the sum of Ten Thousand, Five Hundred Dollars ($10,500.00) as fixed rent for
the Equipment during the Term, by wire transfer to Lessor’s account or to such other
Person’s account, as Lessor, from time to time, may designate in writing.

 

(c)                                  Lessee
shall also pay to Lessor or an agent designated by Lessor or any Transferee in
writing, in lawful money of the United States, all Supplemental Rent.  Supplemental Rent shall be paid when due or
within 30 days following Lessor’s demand therefor if there is no due date
therefor.  If Lessee shall fail to pay
any Supplemental Rent, Lessor shall have the right to pay the same and shall
have all rights, powers and remedies for reimbursement from Lessee with respect
thereto as are provided herein (including, without limitation, Sections 14 and
15 hereof) or by Law in the case of non-payment of Basic Rent.  Lessee shall also pay to Lessor the Overdue
Fee on all overdue Rent from the due date thereof until paid.  Lessee shall perform all of its obligations
under this Lease Agreement at its sole cost and expense, and shall pay all Rent
when due, without further notice or demand.

 

6

 

(d)                                 THIS
LEASE AGREEMENT IS A NET LEASE AND LESSEE ACKNOWLEDGES AND AGREES THAT LESSEE’S
OBLIGATION TO PAY ALL RENT AND OTHER SUMS PAYABLE HEREUNDER, AND THE RIGHTS OF
LESSOR IN AND TO SUCH PAYMENTS, SHALL BE ABSOLUTE AND UNCONDITIONAL AND SHALL
NOT BE SUBJECT TO ANY ABATEMENT, REDUCTION, SETOFF, DEFENSE, COUNTERCLAIM OR
RECOUPMENT DUE TO OR ALLEGED TO BE DUE TO, OR BY REASON OF, ANY PAST, PRESENT
OR FUTURE CLAIMS THAT LESSEE MAY HAVE AGAINST LESSOR, ANY TRANSFEREE, THE
SUPPLIER OF THE EQUIPMENT OR ANY PERSON FOR ANY REASON WHATSOEVER, INCLUDING
WITHOUT LIMITATION, ANY LESSOR’S LIEN OR ANY DESTRUCTION OF THE EQUIPMENT.  EACH PAYMENT OF RENT SHALL BE FINAL AND
IRREVOCABLE.

 

(e)                                  All
Rent and other amounts payable under this Lease Agreement including all amounts
payable under Section 18 hereof shall be payable notwithstanding the fact that
an item of Equipment shall have suffered a Total Loss unless, pursuant to the
provisions of Section 13 hereof, Lessor shall have received the Stipulated Loss
Value with respect to any such item of Equipment.

 

4.                                       PERSONAL PROPERTY; TITLE AND LIENS.

 

(a)                                  Lessee
covenants and agrees that the Equipment is, and shall at all times be and
remain, personal or movable property and not fixtures.  If requested by Lessor, Lessee shall obtain
prior to delivery of any item of Equipment or at any other time reasonably
requested by Lessor, a certificate in form satisfactory to Lessor from all
parties with a real property interest in the premises where the Equipment may
be located waiving any Lien or Claim with respect to the Equipment.

 

(b)                                 During
the Term of this Lease Agreement and until and unless Lessee acquires such
Equipment pursuant to the terms of this Lease Agreement, Lessor shall be and
remain the owner of and retain title to such Equipment. In furtherance thereof,
to the extent that this Lease Agreement is not deemed to be a “true lease” and
instead shall constitute a “lease intended as security” under Applicable Law,
in order to secure the prompt payment and performance as and when due of all of
Lessee’s obligations under each Rental Schedule and all other Indebtedness of
Lessee to Lessor, whether now existing or hereafter arising, Lessee hereby
grants to Lessor a first priority security interest in the Equipment leased
hereunder together with all proceeds (cash and non-cash) thereof, including the
proceeds of all insurance policies on the Equipment, and all books, records,
disks, and related data processing software related thereto.  Lessee agrees that, with respect to the
Equipment, Lessor shall have all of the rights and remedies of a first priority
secured party under the UCC.  Lessor
shall be entitled to file a UCC-1 financing statement in the form of Schedule C
attached hereto in connection with perfecting the security interest granted by
Lessee to Lessor.

 

(c)                                  Lessee
shall not directly or indirectly create, incur, assume or suffer to exist any
Lien on or with respect to any of the Equipment, title thereto or any interest
therein, except Permitted Liens and Lessor’s Liens.  Lessee shall notify Lessor within thirty (30) days in writing
upon receipt of notice of any Lien affecting the Equipment in whole or in part,
and shall, at its own cost and expense, defend Lessor’s title therein against
all Persons holding or claiming 

 

7

 

to hold such a Lien on
the Equipment; and any losses, expenses or costs suffered by Lessor as a result
thereof shall be covered by Lessee’s indemnity in Section 18 hereof.

 

(d)                                 To
the extent permitted by Law or by contract, Lessee shall, and does hereby,
transfer and assign to Lessor all intellectual property rights to any Software
that may be acquired by Lessee during the Term, all at Lessee’s sole cost and
expense.

 

(e)                                  At
all times, and at its sole cost and expense, Lessee shall cause appropriate
Financing Statements and continuation statements to be recorded and filed and
to be kept recorded and filed in such manner and in such places, shall pay all
such recording, filing or other taxes, fees and other charges, and shall comply
with all such statutes and regulations, as may be required by Applicable Law in
order to establish, preserve, perfect and protect the title and interests of
Lessor in the Equipment and the rights of Lessor thereunder.  Lessor may record or file as such a
financing statement or statements, a carbon, photographic or other reproduction
of this Lease Agreement.  Lessee hereby
appoints Lessor its true and lawful attorney-in-fact with full power of substitution,
in its name or in the name of Lessee or otherwise, for the sole benefit of
Lessor but at the sole expense of Lessee to sign and file or record any
Financing Statement or other document in order to perfect or protect Lessor’s
rights and interests in the Equipment.

 

(f)                                    At
all times, and at its sole cost and expense, Lessee shall cause applicable
federal, state and other right-to-know reports, manifests and notices of
releases or threats of release to be recorded and filed and to be kept recorded
and filed in such manner and in such places, shall pay all such recording,
filing or other Impositions, and shall comply with all such Laws, as may be
required by Applicable Law.  Upon
request, Lessee shall permit Lessor or its agent to inspect said reports, manifests
and notices at all reasonable times during normal business hours of Lessee.

 

5.                                       INSTALLATION, DEINSTALLATION, MAINTENANCE, REPAIR
AND INSPECTIONS.  At all times
during the Term of this Lease Agreement, Lessee shall be solely responsible, at
its own expense, for the delivery, installation, maintenance, repair, use,
possession, operation, storage, deinstallation, decontamination, drayage,
transport and disposal of the Equipment by a party reasonably acceptable to
Lessor, and shall keep the Equipment in good repair, condition and working order,
and shall furnish any and all parts, mechanisms and devices required to keep
the Equipment in good repair, condition and working order, reasonable wear and
tear excepted, all at the expense of Lessee. 
Lessee shall not make or suffer to be made alterations to the Equipment
which materially reduce its value.  All
parts furnished and all additions made to the Equipment shall immediately upon
the installation thereof be deemed part of the Equipment and become the property
of Lessor subject to the terms of this Lease Agreement, unless any of the
foregoing can be severed from the Equipment without materially decreasing its
value.  At all times during the Term of
this Lease Agreement, Lessee shall maintain at its own cost and expense in
effect a comprehensive maintenance and servicing agreement with respect to each
item of the Equipment with the Supplier or such other party as may be
acceptable to Lessor.  Upon request and
subject to such Person’s compliance with any clean room or other special
procedures generally applicable to the Equipment, Lessee shall permit Lessor or
its agent to inspect the Equipment at all reasonable times during normal
business hours of Lessee and to inspect any documents and records, including
maintenance records, relating to the Equipment and make abstracts or copies
thereof.

 

8

 

6.                                       USE.  Lessee shall
use the Equipment in a careful and proper manner and shall comply with and
conform to all Applicable Laws, insurance requirements and the operating and
maintenance instructions of the Supplier.

 

7.                                       QUIET ENJOYMENT.  So long as no Event of Default has occurred and is continuing
hereunder and subject to Section 6 hereof, Lessor warrants peaceful and quiet
use and enjoyment of the Equipment by Lessee against acts of Lessor, any
Transferee or any Person claiming through or under or acting on behalf of any
Transferee.

 

8.                                       ACCEPTANCE, WARRANTIES, LIMITATION OF LIABILITY.

 

(a)                                  LESSEE
HEREBY ACKNOWLEDGES AND AGREES THAT: 
THE EQUIPMENT, AND THE RIGHTS, TITLE AND INTEREST BEING CONVEYED HEREIN
WITH RESPECT THERETO, ARE BEING CONVEYED AND DELIVERED TO LESSEE “AS IS” AND
“WHERE IS” WITHOUT ANY RECOURSE TO LESSOR AND LESSOR HAS NOT MADE, AND HEREBY
DISCLAIMS, LIABILITY FOR, AND LESSEE HEREBY WAIVES ALL RIGHTS AGAINST LESSOR
RELATING TO, ANY AND ALL WARRANTIES, GUARANTIES, REPRESENTATIONS OR OBLIGATIONS
OF ANY KIND WITH RESPECT THERETO, EITHER EXPRESS OR IMPLIED OR ARISING BY
APPLICABLE LAW OR OTHERWISE, INCLUDING (A) ANY EXPRESS OR IMPLIED WARRANTIES,
GUARANTIES, REPRESENTATIONS OR OBLIGATIONS OF, ARISING FROM OR IN (1)
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, (2) COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, (3) QUALITY OF WORKMANSHIP OR
THE PROVISIONS OF ANY SUPPLY CONTRACT WITH SUPPLIER OR (4) TORT (WHETHER OR NOT
ARISING FROM THE ACTUAL, IMPLIED OR IMPUTED NEGLIGENCE OF LESSOR OR STRICT
LIABILITY) OR UNDER THE UCC OR OTHER APPLICABLE LAW WITH RESPECT TO THE
EQUIPMENT, INCLUDING TITLE THERETO (INCLUDING ANY WARRANTY OF GOOD OR
MARKETABLE TITLE OR FREEDOM FROM LIENS), FREEDOM FROM TRADEMARK, PATENT OR
COPYRIGHT INFRINGEMENT, LATENT DEFECTS (WHETHER OR NOT DISCOVERABLE),
CONDITION, MANUFACTURE, DESIGN, SERVICING OR COMPLIANCE WITH APPLICABLE LAW AND
(B) ALL OBLIGATIONS, LIABILITY, RIGHTS AND REMEDIES, HOWSOEVER ARISING UNDER
ANY APPLICABLE LAW WITH RESPECT TO THE MATTERS WAIVED AND DISCLAIMED, INCLUDING
FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO THE EQUIPMENT, OR ANY
LIABILITY OF LESSEE OR LESSOR TO ANY THIRD PARTY, OR ANY OTHER DIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES; all such risks, as between Lessor and
Lessee, are to be borne by Lessee; Lessee acknowledges and agrees that the
Equipment has been selected by Lessee on the basis of its own judgment, and
Lessee has not asked for, been given or relied upon the skill or opinion of, or
any statements, representations, guaranties or warranties by, Lessor or its
agents or representatives in relation thereto. 
Lessee understands and acknowledges that Lessor is not in the business
of operating, transporting, disposing, manufacturing, assembling or supplying
Equipment or otherwise in the business of being a vendor but is instead solely
providing financial accommodations, including lease financing.  The Equipment is not to be used, and is not
being acquired hereby, for use in any respect for Lessee’s or any other
Person’s personal or family purposes and, as such, the Equipment does not
constitute “consumer goods” as such term is defined under Applicable Law.

 

9

 

Lessor’s agreement to
enter into this Lease Agreement is in reliance upon the freedom from liability
or responsibility for the matters waived and disclaimed herein.  THE PROVISIONS OF THIS SECTION 8 HAVE BEEN
NEGOTIATED BY LESSOR AND LESSEE AND, EXCEPT FOR ANY EXPRESS WARRANTIES MADE BY
LESSOR IN THIS LEASE AGREEMENT, ARE INTENDED TO CONSTITUTE A COMPLETE EXCLUSION
AND NEGATION OF ANY REPRESENTATIONS, GUARANTIES, OBLIGATIONS OR WARRANTIES OR
LESSOR, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT AND THE RIGHTS, TITLE
AND INTEREST BEING CONVEYED HEREIN WITH RESPECT THERETO THAT MAY ARISE PURSUANT
TO ANY APPLICABLE LAW NOW OR HEREAFTER IN EFFECT.

 

(b)                                 Lessor
and Lessee agree that, provided that no Default or Event of Default has
occurred and is continuing hereunder, Lessor: 
(i) shall cooperate fully with Lessee with respect to the resolution of
any Claims by Lessee against any Supplier with respect to an item of Equipment,
in good faith and by appropriate proceedings at Lessee’s expense, (ii) subject
to the initial proviso of this sentence, hereby licenses to Lessee, for and
during the Term of this Lease Agreement, any applicable warranties, indemnities
or other rights under any Supply Contracts (excluding any refunds or other
similar payments reflecting a decrease in the value of any such Equipment,
which amount shall be received by and paid to Lessor, and applied by Lessor to
reduce Lessee’s obligations to pay Rent for such Equipment), and (iii) hereby
authorizes Lessee to obtain all services, warranties or amounts from the
Supplier of such Equipment to be used to repair such Equipment (and such
amounts shall be used by Lessee to repair such Equipment).  Lessee understands, acknowledges and agrees
that neither Supplier nor its salesmen or agents is an agent of Lessor or
authorized to waive, alter or add to any provision of this Lease Agreement.

 

9.                                       REPRESENTATIONS AND WARRANTIES.  Lessee represents and warrants for the
benefit of Lessor as of the date of acceptance of any item of Equipment for
lease under this Lease Agreement:

 

(a)                                  Lessee
is a corporation duly organized, validly existing and in good standing under
the laws of Nevada and is duly qualified to do business and is in good standing
in the jurisdiction(s) where the Equipment shall be located and has adequate
corporate power and authority to enter into and perform the Lease Documents.

 

(b)                                 Each
of the Lease Documents has been duly authorized, executed and delivered by
Lessee and constitutes a valid, legal and binding agreement of Lessee
enforceable in accordance with its terms.

 

(c)                                  The
entering into and performance of each of the Lease Documents by Lessee shall
not violate any Applicable Law or any provision of Lessee’s charter or bylaws
or result in any breach of, or constitute a default under, or result in the
creation of any Lien upon any assets of Lessee leased hereunder or on the
Equipment pursuant to any instrument or Applicable Law to which Lessee is a
party or by which it or its assets may be bound.

 

(d)                                 There
are no pending or threatened actions or proceedings to which Lessee is a party,
or otherwise affecting Lessee or the Equipment, before any Government
Authority, which if determined against Lessee, either individually or in the
aggregate, would adversely 

 

10

 

affect the financial
condition of Lessee, or the ability of Lessee to perform its obligations under,
or comply with the terms of, the Lease Documents.

 

(e)                                  Lessee
is not in default under any obligation for the payment of borrowed money, for
the deferred purchase price of property or for the payment of any rent under
any lease agreement which, either individually or in the aggregate, would
adversely affect the financial condition of Lessee, or the ability of Lessee to
perform its obligations under, or comply with the terms of, the Lease
Documents.

 

(f)                                    No
consent, approval or other authorization of or by any Governmental Authority is
required in connection with the execution, delivery or performance by Lessee
of, or the consummation by Lessee of the transactions contemplated by, the
Lease Documents.

 

(g)                                 With
respect to the Equipment, under the Applicable Law of the state(s) in which
such Equipment is to be located, such Equipment consists solely of personal property
and not fixtures.

 

(h)                                 The
financial statements of Lessee that have been provided to Lessor have been
prepared in accordance with GAAP, and fairly present Lessee’s financial
condition and the results of its operations as of the date of and for the period
covered by such statements.

 

(i)                                     The
address of Lessee as set forth on the signature page hereof is the chief place
of business and chief executive office of Lessee; and Lessee does not conduct
business under any trade, assumed or fictitious name.  Lessee is a corporation formed under the laws of the State of
Nevada.

 

(j)                                     With
respect to the Equipment, no filing, recordation or registration of any
document or instrument, including any Financing Statement, was or is necessary
in order to cause Lessor to have good, valid and enforceable title and/or a
first priority security interest with respect thereto.

 

(k)                                  Lessee
has filed all tax returns which are required to be filed, and, if applicable,
Lessee has paid, or made adequate provision for the payment of, all taxes which
have or may become due pursuant to said returns, as a result of any matters
raised by audits or for other causes known to Lessee.  Lessee knows of no basis for any material additional assessments
with respect to any fiscal year subject to audit for which adequate reserves
have not been established.

 

(l)                                     Lessee
has obtained all Permits necessary to possess and use the Equipment in
compliance with and as contemplated by this Lease Agreement.

 

(m)                               If
requested by Lessor, Lessee shall provide to Lessor from time to time an
opinion of counsel and other supporting documents to the foregoing effect and
with respect to such other legal matters as Lessor may reasonably request and
as related to the purposes of this Lease Agreement.

 

(n)                                 Lessee
is the sole “Operator” and Lessor is not an “Operator”, as that term may be
defined or used by Applicable Law, of the Equipment.

 

11

 

(o)                                 The
Equipment is and will at all times be located at the Lusk Facility.

 

(p)                                 Lessee
possesses all rights to the Software that are required for the operation and
use of the Equipment and such rights extend through the Term Expiration Date.

 

10.                                 COVENANTS OF LESSEE.  Lessee covenants and agrees as follows:

 

(a)                                  Lessee
shall furnish Lessor (i) within one hundred five (105) days after the end of
each fiscal year of Lessee, a balance sheet of Lessee as at the end of such
year, and the related statements of income and retained earnings and cash flows
of Lessee for such fiscal year, prepared in accordance with GAAP, all in
reasonable detail and certified by independent certified public accountants of
recognized standing selected by Lessee; (ii) within forty five (45) days after
the end of each quarter of Lessee’s fiscal year a balance sheet of Lessee as at
the end of such quarter, and the related statement of income and retained
earnings and cash flows of Lessee for such quarter, prepared in accordance with
GAAP.  Lessee may discharge its obligations
under this Section 10(a) by furnishing to Lessor within ten (10) days after the
date on which they are filed, all regular periodic reports, forms and other
filings required to be made by Lessee to the Securities and Exchange
Commission.

 

(b)                                 Lessee
shall execute and deliver to Lessor or Lessor’s designee upon Lessor’s request
such further and additional documents, instruments and assurances as Lessor
deems reasonably necessary (a) to acknowledge and confirm, for the benefit of
Lessor or any Transferee, all of the terms and conditions of all or any part of
this Lease Agreement and Lessor’s or Transferee’s rights with respect thereto,
and Lessee’s compliance with all of the terms and provisions thereof, and (b)
Lessee shall promptly execute and deliver to Lessor such further documents and
take such further action as Lessor or Transferee may require in order to more
effectively carry out the intent and purpose of this Lease Agreement.

 

(c)                                  Lessee
shall provide written notice to Lessor: 
(i) thirty (30) days prior to any change in the name, address, or state
of incorporation of Lessee; (ii) promptly upon the occurrence of any Default or
Event of Default; (iii) of the commencement of proceedings under Federal
bankruptcy laws or any other insolvency laws (as now or hereafter in effect)
involving Lessee or any Person (other than Lessor) holding an interest in the
Equipment; (iv) promptly upon Lessee becoming aware of (1) any alleged material
violation of Applicable Law, or (2) any threatened or actual suspension,
revocation or rescission of any Permit necessary for Lessee to be in compliance
with the terms hereof; or (3) any pending or threatened Claim affecting the
Equipment, in whole or in part, or Lessee’s ability to meet its obligations
hereunder; and in each case shall proceed to remedy such situation and keep
Lessor informed of all such action taken by Lessee to so do; (v) promptly upon
receipt of the same, copies of all notices, certificates, documents and
instruments received by Lessee which materially affect the Equipment or the
Software; (vi) promptly after any of the Equipment becomes lost, stolen,
destroyed, materially damaged or worn out; (vii) promptly after the termination
of any license or right to use the Software; and (viii) thirty (30) days prior
to any relocation of any item of Equipment from the Lusk Facility.

 

12

 

(d)                                 Lessee
shall not attach or incorporate the Equipment to or in any other item of
equipment or any realty in such a manner that the Equipment may be deemed to
have become an accession to or a part of such other item of equipment or
realty.

 

(e)                                  Upon
Lessor’s request, Lessee shall cause each principal item of the Equipment to be
marked at all times, in a plain, distinct and legible manner, with the name of
Lessor and any collateral Transferee, indicating their interest therein and the
name of Lessee, indicating that it is the sole “Operator”, as that term may be
defined by Applicable Law.

 

(f)                                    Lessee
agrees not to claim any Tax Benefits with respect to any Equipment and agrees
that it will (i) refrain from withholding, from payments made by Lessee to
Lessor or any Transferee under any Lease Document, any Federal income tax under
any section of the Code (including, without limitation, Section 1442) provided
that Lessee receives from any Transferee that is a foreign corporation (and
from Lessor, if Lessor is a foreign corporation) the statement described in
Section 881(c)(2)(B)(ii) of the Code, and (ii) timely file all required
information and other returns required under Federal income tax regulations
implementing and interpreting Section 881(c) of the Code.

 

11.                                 ASSIGNMENT AND TRANSFER.

 

(a)                                  WITHOUT
THE PRIOR WRITTEN CONSENT OF LESSOR, LESSEE SHALL NOT ASSIGN ANY OF ITS RIGHTS
NOR DELEGATE ANY OF ITS OBLIGATIONS HEREUNDER, SUBLEASE THE EQUIPMENT OR
OTHERWISE PERMIT THE EQUIPMENT TO BE OPERATED OR USED BY, OR TO COME INTO OR
REMAIN IN THE POSSESSION OF, ANY PERSON OTHER THAN LESSEE.  No assignment or sublease, whether
authorized in this Section 11 or in violation of the terms hereof, shall
relieve Lessee of its obligations hereunder and Lessee shall remain primarily
liable hereunder.

 

(b)                                 Lessor
may transfer its rights, obligations, title and/or interest in the Equipment
and each of the Lease Documents to one or more Transferees as collateral
security or otherwise.  Lessee hereby
acknowledges and agrees that in the event Lessor or such other Transferee has
transferred its interest herein (i) no Transferee(s) shall be obligated to
perform any duty, covenant or condition required to be performed by Lessor
under the terms of this Lease Agreement and Lessee agrees not to hold or
attempt to hold such Transferee liable for any of Lessor’s obligations
hereunder, and (ii) no such assignment shall relieve Lessor of its obligations
hereunder unless specifically assumed by the Transferee.

 

(c)                                  Upon
written notice from Lessor of a Transfer of an interest herein, Lessee shall
promptly record such Transfer in its books and records, including the name(s)
and address(es) of the Transferee(s) and Lessee agrees to deliver all consents,
certificates, estoppels, opinions of counsel and other documents Lessor may
reasonably request in connection with such Transfer prior to the scheduled
dates thereof.  If and to the extent
that Lessor has assigned any of its rights and/or obligations hereunder, from
and after such date, all references herein to Lessor shall mean and include the
Transferee.

 

(d)                                 LESSEE
HEREBY WAIVES AS AGAINST ANY SUCH TRANSFEREE(S) OF LESSOR, ITS SUCCESSORS AND
ASSIGNS, ANY CLAIM OR

 

13

 

DEFENSE THAT
LESSEE MAY NOW OR HEREAFTER HAVE AS AGAINST LESSOR, WHETHER FOR BREACH OF THIS
LEASE AGREEMENT, BREACH OF WARRANTY OR OTHERWISE.

 

12.                                 INSURANCE. 
Commencing with the Commencement Date and until the Equipment has been
returned to, and accepted by, Lessor in compliance with the terms of this Lease
Agreement, Lessee shall procure and maintain insurance in such amounts and upon
such terms and with such companies as Lessor and any collateral Transferee may
approve, at Lessee’s expense, provided that in no event shall such insurance be
less than the following coverages and amounts: (a) Worker’s Compensation and
Employers Liability Insurance, in the full statutory amounts provided by law;
(b) Comprehensive General Liability Insurance including product/completed
operations and contractual liability coverage, with minimum limits of
$1,000,000 each occurrence, and Combined Single Limit Body Injury and Property
Damage, $1,000,000 aggregate, where applicable; and (c) All Risk Physical
Damage Insurance, including earthquake and flood, on each item of Equipment, in
an amount not less than the greater of the Stipulated Loss Value of the
Equipment or (if applicable) its full replacement value.  Lessor and any collateral Transferee shall
be included as an additional insured and loss payee as its interest may
appear.  Such policies shall be endorsed
to provide that the coverage afforded to Lessor shall not be rescinded,
impaired or invalidated by any act or neglect of Lessee.  Lessee agrees to waive Lessee’s right and
its insurance carrier’s rights of subrogation against Lessor for any and all
loss or damage.  All policies shall be
endorsed or contain a clause requiring the insurer to furnish Lessor and any
collateral Transferee with at least thirty (30) days’ prior written notice of
any material change, cancellation or non-renewal of coverage.  Prior to the Commencement Date, Lessee shall
furnish Lessor and any collateral Transferee with a certificate of insurance or
other evidence satisfactory to Lessor and any collateral Transferee that such
insurance coverage is in effect, together with a copy of each such policy, if
so requested by Lessor and any collateral Transferee, provided, however, that
Lessor and any collateral Transferee shall be under no duty either to ascertain
the existence of or to examine such insurance coverage or to advise Lessee in
the event such insurance coverage should not comply with the requirements
hereof.  In case of failure of Lessee to
procure or maintain insurance, Lessor and any collateral Transferee may at its
option obtain such insurance, the cost of which will be paid by Lessee.  Lessee hereby irrevocably appoints Lessor
and any collateral Transferee as Lessee’s attorney-to-fact to file, settle or
adjust, and receive payment of claims under any such insurance policy and to
endorse Lessee’s name on any checks, drafts or other instruments on payment of
such claims.  Lessee further agrees to
give Lessor and any collateral Transferee prompt notice of any damage to or
loss of, the Equipment, or any item thereof.

 

13.                                 LOSS AND DAMAGE.  Lessee hereby assumes and shall bear the entire risk of loss,
damage, theft or destruction, partial or complete, whether or not insured
against, of the Equipment from any and every cause whatsoever from the date of
delivery of the Equipment to Lessee.  No
loss, damage, theft or destruction of the Equipment or any part thereof shall
relieve Lessee of any obligation under this Lease Agreement, which shall
continue in full force and effect.  In
the event that an item of Equipment shall become subject to a Total Loss,
Lessee shall inform Lessor and any collateral Transferee in writing in regard
thereto within ten (10) days after such Total Loss and Lessee shall pay to Lessor,
in cash, an amount equal to the Stipulated Loss Value thereof not later than
thirty (30) days after the Total Loss; provided, however, that such amount
shall be reduced if and to the extent that Lessor or any Transferee has
received proceeds

 

14

 

from the insurance
required to be maintained by Lessee pursuant to Section 12 hereof as a result
of such Total Loss, and Lessor agrees that if such insurance proceeds are paid
to Lessor after Lessee has paid the Stipulated Loss Value in full, Lessor shall
within ten (10) days thereafter reimburse to Lessee the proceeds thereof, such
reimbursement not to exceed the Stipulated Loss Value amount paid by Lessee
related to such Total Loss.  In no event
will there by any abatement or other adjustment of the Basic Rent or any other
amount payable hereunder by Lessee by reason of any Total Loss, notwithstanding
that Lessor may have received the applicable Stipulated Loss Value in whole or
in part.

 

14.                                 TAXES AND FEES.

 

(a)                                  Lessee
shall file any necessary reports and returns for, shall pay promptly when due,
shall otherwise be liable to reimburse Lessor for, and agrees to indemnify and
hold Lessor harmless from, all Impositions.

 

(b)                                 If
any report, return or property listing relating to any Imposition is, by Law,
required to be filed by, assessed or billed to or paid by, Lessor, Lessee shall
do all things required to be done by Lessor (to the extent permitted by Law) in
connection therewith and is hereby authorized by Lessor to act on behalf of
Lessor in all respects in relation thereto, including the contest or protest,
in good faith and by appropriate proceedings, of the validity of any
Imposition, or the amount thereof; provided, however, that Lessor hereby
unconditionally reserves the right to revoke such authorization and such
revocation shall not affect Lessee’s indemnity or other obligations under this
Lease Agreement, including, without limitation, this Section 14 and Section 18
hereof.  Lessor agrees fully to cooperate
with Lessee in any such contest, and Lessee agrees promptly to indemnify Lessor
for all reasonable expenses incurred by Lessor in the course of such
cooperation.  An Imposition or claim
therefor shall be paid by Lessee, subject to refund proceedings, if failure to
pay would adversely affect the title or rights of Lessor in the Equipment or
otherwise hereunder.  Provided that no
Default or Event of Default has occurred and is then continuing, if Lessor
obtains a refund of any Imposition that has been paid (by Lessee, or by Lessor
and for which Lessor has been fully reimbursed by Lessee), Lessor shall
promptly pay to Lessee the amount of such refund actually received net of any
applicable taxes.  Lessee shall cause all
billings of such charges to Lessor to be made to Lessor in care of Lessee and
shall, in preparing any report or return required by Law, show the ownership of
the Equipment in Lessor, and shall send a copy of any such report or return to
Lessor.  If Lessee fails to pay any such
charges when due, except any Imposition being contested in good faith and by
appropriate proceedings (as above provided) for a reasonable period of time,
Lessor at its option may do so pursuant to Section 15, in which event the
amount so paid shall be payable by Lessee as Supplemental Rent as provided in
Section 15.

 

(c)                                  The
provisions of this Section 14 shall not apply to any Impositions (i) that
Lessee is contesting in good faith, by appropriate proceedings and as otherwise
permitted pursuant to the provisions of this Lease Agreement until the
conclusion of such contest; except that Lessee’s right to contest any
Imposition is conditioned upon the existence of such Imposition during any such
contest not causing any material danger, as determined by Lessor in its
reasonable discretion, of the sale, forfeiture or loss of the Equipment.

 

15

 

15.                                 LESSEE’S FAILURE TO PAY TAXES,
INSURANCE, ETC.  Should Lessee fail
to pay any Imposition or make any insurance or other payment or do any act
required to be performed by Lessee as herein provided, Lessor shall have the
right, but not the obligation and without releasing Lessee from any obligation
hereunder, to make or do the same, and to pay, purchase, contest or compromise
any Imposition that in the judgment of Lessor affects the Equipment, and, in
exercising any such rights, incur any liability and expend whatever amounts in
its reasonable discretion Lessor may deem necessary therefor.  All sums so incurred or expended by Lessor
(including any penalty incurred as a result of Lessee’s failure to perform such
obligation or make such payment) shall be due and payable by Lessee upon demand
therefor and shall be payable as Supplemental Rent.

 

16.                                 DEFAULT AND REMEDIES.

 

(a)                                  The
occurrence of any of the following events shall constitute an event of default
hereunder, and shall permit Lessor to exercise the remedies provided in Section
16(b) below, including the termination of Lessee’s right to possession of the
Equipment:

 

(i)                                     Lessee
shall fail to make any payment of Basic Rent within five (5) days of the date
when due or Supplemental Rent within ten (10) days of the date when due; or

 

(ii)                                  Lessee
shall fail to obtain or maintain any insurance required under this Lease
Agreement or a Lien (other than a Permitted Lien or Lessor’s Lien) shall be
placed on any Equipment; or

 

(iii)                               Lessee shall fail to
perform or observe any other covenant, condition or agreement under this Lease
Agreement, and such failure shall continue for fifteen (15) days after notice
thereof to Lessee; or

 

(iv)                              the
removal or other relocation of any of the Equipment from the Lusk Facility; or

 

(v)                                 any
representation or warranty made by Lessee herein or in any certificate,
agreement, statement or document hereto or hereafter furnished to Lessor in
connection herewith, including without limitation, any financial information
disclosed to Lessor, shall prove to be false or incorrect in any material
respect; or

 

(vi)                              the
commencement of any bankruptcy, insolvency, arrangement, reorganization,
receivership, liquidation or other similar proceeding by or against Lessee or
any of its properties or businesses, or the appointment of a trustee, receiver,
liquidator or custodian for Lessee or any of its properties of business, which
appointment shall remain unstayed for forty-five (45) days, or if Lessee
suffers the entry of an order for relief under Title 11 of the United States
Code; or the making by Lessee of a general assignment or deed of trust for the
benefit of creditors; or

 

(vii)                           Lessee shall fail to perform
or observe any of its obligations for the benefit of Lessor under the Agreement
Re Retained Equipment of even date herewith; or

 

16

 

(viii)                        Lessee shall terminate its
existence by merger, consolidation, sale of substantially all of its assets or
otherwise; or

 

(ix)                                An
event of default shall occur under Lessee’s lease of the Lusk Facility; or

 

(x)                                   Lessor
shall determine, in its sole discretion and in good faith, that there has been
a material adverse change in the financial condition of the Lessee since the
date of this Lease Agreement, or that Lessee’s ability to make any payment
hereunder promptly when due or otherwise comply with the terms of this Lease
Agreement or any other agreement between Lessor and Lessee is impaired.

 

(b)                                 Upon
the occurrence of an Event of Default, Lessor may, in its sole discretion,
exercise one or more of the following remedies with respect to any or all of
the Equipment:

 

(i)                                     cause
Lessee to promptly return, at Lessee’s expense, any or all Equipment to such
location as Lessor may designate anywhere in the continental United States in
accordance with the terms of Section 19 of this Lease Agreement, or Lessor, at
its option, may enter upon the premises where the Equipment is located and take
immediate possession of the same by summary proceedings or otherwise, all
without liability to Lessor for or by reason of damage to property or such
entry or taking possession except for Lessor’s gross negligence or willful misconduct;
(ii) sell any or all Equipment at public or private sale or otherwise dispose
of, hold, use, operate, lease to others or keep idle the Equipment, all as
Lessor in its sole discretion may determine and all free and clear of any
rights of Lessee; (iii) remedy such default, including making repairs or
modifications to the Equipment, for the account and expense of Lessee, and
Lessee agrees promptly to reimburse Lessor for all of Lessor’s costs and
expenses; (iv) by written notice to Lessee, terminate this Lease Agreement,
declare immediately due and payable and recover from Lessee, as liquidated
damages for loss of Lessor’s bargain and not as a penalty, an amount equal to
the Stipulated Loss Value of the Equipment, calculated as of the next preceding
Payment Date; (v) immediately collect any and all Rent and other amounts then
due and owing to Lessor under this Lease Agreement, together with the Overdue
Fee, if applicable; and (vi) exercise any other right or remedy which may be
available to Lessor under Law, or proceed by appropriate court action to
enforce the terms hereof or to recover damages for the breach hereof, including
reasonable attorneys’ fees and court costs. Notice of Lessor’s intention to
accelerate, notice of acceleration, notice of nonpayment, presentment, protest,
notice of dishonor, or any other notice whatsoever are hereby waived by Lessee
and any endorser, guarantor, surety or other party liable in any capacity for
any of Lessee’s obligations under or in respect of this Lease Agreement.  No remedy referred to in this Section 16
shall be exclusive, but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at law or in equity.  Termination under this Section 16 shall not
affect the Lessee’s duty to perform Lessee’s obligations hereunder to Lessor in
full.

 

Lessee agrees to reimburse Lessor on demand for any
and all costs and expenses incurred by Lessor in enforcing its rights and
remedies hereunder following the occurrence of an Event of Default, including,
without limitation, reasonable attorneys’ fees, and the costs of repossession,
storage, insuring, reletting, selling and disposing of any and all Equipment.

 

17

 

The exercise or pursuit by Lessor of any one or more
of such remedies shall not preclude the simultaneous or later exercise or
pursuit by Lessor of any or all such other remedies, and all remedies hereunder
shall survive termination of this Lease Agreement.  Lessee agrees that in connection with any disposition of the
Equipment, to the extent Lessor is required to give Lessee notice, fourteen
(14) days notice shall be deemed sufficient notice.  In the event Lessor takes possession and disposes of the
Equipment, the proceeds of any such disposition shall be applied in the
following order: (1) to Lessor’s costs, charges and expenses incurred in
taking, removing, holding, storing, insuring, maintaining, repairing and
selling, leasing or remarketing the Equipment; (2) to the extent not previously
paid by Lessee, to pay Lessor for any damages then remaining unpaid hereunder;
(3) to reimburse Lessee for any Stipulated Loss Value paid by Lessee to Lessor
hereunder; and (4) the balance, if any, shall be retained by Lessor.

 

17.                                 TAX INDEMNITY.

 

(a)                                  This
Lease Agreement has been entered into on the basis and assumption that Lessor
(including any Transferee) shall be entitled to the deductions, credits and
other tax benefits (the “Tax Benefits”) as are provided by federal, state and
local Law to an owner of tangible personal property for federal income tax
purposes.

 

(b)                                 If
Lessor (or any Transferee) shall not have or shall lose the right to claim, or
if there shall be disallowed or recaptured with respect to Lessor, all or any
portion of the Tax Benefits (in each case, a “Tax Loss”), then within thirty
(30) days after written notice to Lessee by Lessor that a Tax Loss has
occurred, Lessee shall pay Lessor an amount which, after deduction of all taxes
(plus any associated interest, penalties and additions to tax) required to be
paid by Lessor with respect to the receipt of the amount, will cause Lessor’s
net after-tax return over the Term of this Lease Agreement in respect of the
Equipment to equal the net after-tax return that would have been available but
for the Tax Loss; provided, however, in no event shall Lessor be responsible
for any Tax Loss resulting from the termination of that certain Equipment Lease
dated as of May 29, 2001 between Lessor and Alliance Pharmaceutical Corp.

 

(c)                                  For
purposes of this Section 17, a Tax Loss shall occur upon the earliest of (i)
the happening of any event (such as a disposition or change in use of any
Equipment) which may cause a Tax Loss, (ii) the payment by Lessor to the
Internal Revenue Service or other tax collection agency of the tax increase
resulting from a Tax Loss, or (iii) the adjustment of the tax return of Lessor
to reflect a Tax Loss.

 

(d)                                 For
purposes of this Section 17, the term “Lessor” shall include any affiliated
group (within the meaning of Section 1504 of the Code) of which Lessor is a
member for any year in which a consolidated income tax return is filed for the
affiliated group.

 

(e)                                  All
of the Lessor’s rights and privileges arising from the indemnities contained in
this Section 17 shall survive the expiration or earlier termination of this
Lease Agreement.

 

18.                                 INDEMNITY.

 

(a)                                  Lessee
agrees to indemnify, defend, and hold harmless, Lessor, any Transferee and
their respective officers, directors, partners, shareholders, agents and
employees,

 

18

 

from and against
any and all Claims (other than such as may directly and proximately result from
the gross negligence or willful misconduct of Lessor or any Transferee),
arising on account of (a) any breach or default by Lessee of any
representation, warranty, covenant or agreement made in this Lease Agreement;
(b) this Lease Agreement or any other Lease Documents; or (c) the Equipment, or
any item or part thereof, including, without limitation, any loss or damage of
or to the Equipment, the manufacture, selection, ordering, purchase,
acquisition, shipment, delivery, installation, acceptance, possession,
maintenance, leasing, furnishing, use, condition, ownership, titling,
registration, operation, performance or control, return, rejection, abandonment
or other disposition of any item of Equipment, including without limitation,
the existence of patent or latent and other defects in the Equipment (whether
or not discoverable or discovered by Lessor or Lessee) or any Claims based on
absolute tort liability or warranty or any patent, trademark of copyright
infringement of any item of Equipment or any loss of use or loss of business or
other consequential damage whether or not resulting from the foregoing.  LESSOR SHALL NOT BE LIABLE FOR INJURIES TO
PERSONS OR DAMAGE TO PROPERTY UNDER ANY THEORY OF STRICT LIABILITY, AND LESSEE
SHALL INDEMNIFY AND SAVE LESSOR HARMLESS FROM ANY OF THE FOREGOING AND ALL
COSTS AND EXPENSES IN DEFENDING THE FOREGOING. 
Lessor shall give Lessee prompt notice of any Claim or liability hereby
indemnified against and shall be entitled to (but will not be required to)
participate in the defense thereof.

 

(b)                                 Without
limitation of the foregoing, Lessee agrees to indemnify, defend, and hold
harmless, Lessor, any Transferee and their respective officers, directors,
partners, shareholders, agents and employees, from and against any and all
Claims arising on account of any actual, alleged presence, or release or
threatened release of Hazardous Materials on or from any property owned or
operated by Lessee or any Affiliate, or any property on which the Equipment may
be located for any Environmental Liability related in any way to Lessor or any
Affiliate.

 

(c)                                  The
foregoing indemnity shall continue in full force and effect and shall survive
the expiration or termination of this Lease Agreement.

 

19.                                 RETURN OF EQUIPMENT.

 

(a)                                  If
this Lease Agreement shall not have been earlier terminated or Lessee shall not
have exercised the Purchase Option and Lessee intends to return the Equipment
to Lessor on the Term Expiration Date, then Lessee shall give written notice (a
“Return Notice”) to Lessor on that date which shall be six (6) months prior to
the expiration of the Term that it intends to return the Equipment to Lessor on
such date.  If, pursuant to subparagraph
(c) below, this Lease Agreement has been automatically extended, then Lessee
shall continue to be obligated to deliver the Return Notice to Lessor in the manner
(including by the date) required hereby with respect to the new date of
expiration of the Term.

 

(b)                                 Upon
any such expiration (or any earlier termination) of the Term with respect to
any Equipment, Lessee shall: (i) return the Equipment to such locations and
in  the manner designated by Lessor
within the continental United States, including, as reasonably required by
Lessor, securing arrangements for the disassembly, de-installation,
de-contamination (if necessary), packing for shipment in accordance with the
Supplier’s recommendations by an

 

19

 

authorized
representative of the Supplier of the Equipment or other Person who shall be a
licensed hazardous materials transporter authorized by Lessor, shipment with
all parts and pieces on a carrier designated or approved by Lessor, and then
reassembly (including, if necessary, repair and overhaul) by such
representative at the return location in the condition the Equipment is
required to be maintained by this Lease Agreement and in such condition as will
make the Equipment immediately able to perform all functions for which the
Equipment was originally designed (or as upgraded during the Term) to its full
rated capacity, and immediately qualified for the Supplier’s (or other
authorized servicing representative’s) then-available service contract or
warranty; without limitation, all process fluids and/or gasses will be purged
and properly disposed of and secured in accordance with the Supplier’s
recommendations and Applicable Laws and further without limitation all
Equipment shall be returned together with all cards, holograms and codes or
process controls necessary to operate the Equipment; (ii) provide to Lessor (A)
a detailed inventory of the Equipment (including the model and serial number of
each major component thereof) consistent with the information provided on the
Rental Schedule and details of any engineering level changes; and (B) a
complete and current set of all documentation originally provided with the
equipment such as manuals, blue prints, process flow diagrams, equipment
configuration diagrams, and maintenance records including documentation for any
alterations or modifications that have occurred and which remain on the
Equipment; (iii) cause the Equipment to qualify for all applicable Permits
necessary for its operation for its intended purpose and to comply with all
specifications and requirements of Applicable Laws; (iv) to the extent
permitted by Law or by contract, transfer and assign to Lessor all licenses and
other rights to all Software licensed by Lessee and, upon Lessor’s request,
grant to Lessor a non-exclusive, perpetual, transferable, worldwide license of
any Software owned by Lessee on customary terms and conditions; (v) upon
Lessor’s request, provide suitable storage, acceptable to Lessor, for a period
not to exceed 180 days from the date of return; (vi) cooperate with Lessor in
attempting to remarket the Equipment, including display and demonstration of
the Equipment to prospective purchasers or lessees, and allowing Lessor to
conduct any private or public sale or auction of the Equipment on Lessee’s
premises.  In addition, upon the request
of Lessor, Lessee shall, not later than ninety (90) days prior to the
expiration or other early termination of the Term of this Lease Agreement,
provide a certification of the Supplier or a maintenance provider acceptable to
Lessor that the Equipment has been tested and is operating in accordance with
the Supplier’s specifications (together with a report detailing the condition
of the Equipment), together with the results of such test(s) and
inspections(s), and all repairs that were performed as a result of such test(s)
and inspections(s), and that the Equipment qualifies for the Supplier’s
equipment maintenance program, if such program exists, and upon the request of
Lessor, Lessee shall, no later than one hundred twenty (120) days prior to the
expiration or other early termination of the Term of this Lease Agreement, make
the Equipment available for on-site operational inspection by Persons designated
by Lessor who shall be duly qualified to inspect the Equipment in its
operational environment, at a mutually convenient time.  Lessee shall bear all risk of operation,
transport, disposal or loss until the Equipment is delivered to Lessor or its
designee.

 

(c)                                  In
the event that Lessee fails to deliver to Lessor the Return Notice as set forth
above or the Lessee fails to return the Equipment in full compliance with the
terms hereof on the applicable date, Lessee and Lessor agree that this Lease Agreement
shall be automatically extended for a period of three (3) months on all of the
terms and conditions set forth herein, except that the Base Rent in shall be an
amount equal to one hundred percent (100%) of the Base

 

20

 

Rent during the
Term.  Additional failures as aforesaid
shall result in successive automatic extensions of this Lease Agreement as
aforesaid.

 

(d)                                 All
costs incurred in connection with any of the foregoing shall be the sole
responsibility of Lessee.  In addition,
Lessee shall pay or reimburse Lessor and any transferee of its rights in the
Equipment, including any lessee thereof, for any license or transfer fees and
any certification or similar fees or charges imposed by the Supplier or any
owner or manufacturer of the Software in connection with the use of the
Equipment and Software after return thereof. 
Notwithstanding subsection (c) hereof, if Lessor shall be unable to
acquire by license or otherwise all Software necessary for the operation of the
Equipment in the manner described in subsection (d) hereof, then such failure
shall be deemed to be an Event of Default hereunder and Lessor shall have all
of the rights and remedies as set forth in Section 16 hereof.

 

(e)                                  In
the event any of the Equipment has become subject to a Total Loss, and/or is
for any other reason not returned to Lessor at the expiration of the term
hereof, Lessee shall pay to Lessor an amount equal to the Stipulated Loss Value
of such Equipment; provided, however, that Lessee shall not be obligated to
make such payment, to the extent that Lessor has previously received all or
part of the Stipulated Loss Value pursuant to Section 13 above.

 

20.                                 PURCHASE OPTION.

 

(a)                                  If
no Default or Event of Default shall have occurred and be continuing, and this
Lease Agreement shall not have been earlier terminated, Lessee shall have the
option to purchase (the “Purchase Option”) all, but not less than all, of the
Equipment on the Term Expiration Date (or, if applicable, the Early Purchase
Date), for an amount, payable in immediately available funds on the Term
Expiration Date (or, if applicable, the Early Purchase Date), equal to: (a) all
Rent and other amounts due and owing under this Lease Agreement from the
Commencement Date through the Term Expiration Date (or, if applicable, the
Early Purchase Date); plus (b) all Impositions due or payable in connection
with the sale of the Equipment to Lessee; plus (c) the Purchase Option
Price.  Upon receipt of the foregoing
amounts, Lessor shall convey all of its right, title and interest in and to the
Equipment to Lessee on the Term Expiration Date (or, if applicable, the Early
Purchase Date), on an “AS-IS,” “WHERE-IS” BASIS WITHOUT REPRESENTATION OR
WARRANTY, EXPRESSED OR IMPLIED, and without recourse to Lessor, except that the
Equipment shall be free and clear of all Lessor’s Liens.

 

(b)                                 If
Lessee intends to exercise the Purchase Option on the Term Expiration Date,
Lessee shall give written notice to Lessor (the “Option Notice”) not less than
six (6) months and not more than nine (9) months prior to the Term Expiration
Date.  If Lessee intends to exercise the
Purchase Option on a date prior to the Term Expiration Date, Lessee shall give
the Option Notice to Lessor, which notice shall identify the Early Purchase
Date, at least three business days prior to the Early Purchase Date.  Any Option Notice shall be irrevocable.

 

(c)                                  If
Lessee has elected to exercise the Purchase Option on the Term Expiration Date,
then the “Purchase Option Price” shall be Three Hundred Six Thousand, Twenty
Dollars ($306,020.00).  If Lessee has
elected to exercise the Purchase Option on an Early Purchase Date, then the
“Purchase Option Price” shall be the sum of (i) Three Hundred Six

 

21

 

Thousand, Twenty
Dollars ($306,020.00), plus (ii) the Unamortized Lease Balance as of such Early
Purchase Date.

 

21.                                 MISCELLANEOUS.

 

(a)                                  Any
notice required or permitted to be given by the provisions hereof shall be
conclusively deemed to have been received by a party hereto on the day it is
delivered by hand (including delivery by an overnight delivery service) or by
facsimile transmission to such party at the address as set forth on the
signature page hereof (or at such other address as such party shall specify to
the other party in writing).

 

(b)                                 No
delay or omission to exercise any right or remedy accruing to Lessor upon any
breach or default of Lessee shall impair any such right to remedy or be
construed to be a waiver of any such breach or default; nor shall any waiver of
any single breach or default theretofore or thereafter occurring.  Any waiver, permit, consent or approval on
the part of Lessor of any breach or default under this Lease Agreement or, of
any provision or condition hereof, must be in writing and shall be effective
only to the extent in such writing specifically set forth.  All remedies, either under this Lease
Agreement or by Law or otherwise afforded to Lessor, shall be cumulative and
not exclusive.

 

(c)                                  Lessee
agrees to reimburse Lessor on demand for any and all costs and expenses
incurred by Lessor in enforcing its rights hereunder, including without
limitation, reasonable attorneys’ fees and costs, consultant fees, appraisal
fees, remarketing fees, costs of repossession, transport, storage, insuring,
re-leasing and selling of the Equipment, together with the Overdue Fee with
respect to all such amounts from Lessor’s payment thereof until its receipt of
reimbursement from Lessee.

 

(d)                                 The
obligations of Lessor hereunder shall be suspended to the extent that it is
hindered or prevented from complying therewith because of labor disturbances,
including strikes and lockouts, acts of God, fires, storms, accidents, or any
cause whatsoever not within the sole control of Lessor.

 

(e)                                  THIS
LEASE AGREEMENT MAY NOT BE TERMINATED EXCEPT AS EXPRESSLY PROVIDED HEREIN.  This Lease Agreement may be modified only by
a written agreement duly signed by Persons authorized to sign agreements on
behalf of Lessor and Lessee, and any variance from the terms and conditions of
this Lease Agreement in any order or other notification form Lessee, written or
oral, shall be of no effect.  LESSEE
ACKNOWLEDGES THAT IT HAS READ THIS LEASE AGREEMENT, UNDERSTANDS IT, AND AGREES
TO BE BOUND BY ITS TERMS AND CONDITIONS. 
FURTHER, LESSEE AGREES THAT THIS LEASE AGREEMENT IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THIS LEASE AGREEMENT BETWEEN THE PARTIES, WHICH
SUPERSEDES ALL PROPOSALS OR PRIOR AGREEMENTS OR UNDERSTANDINGS, ORAL OR
WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE
SUBJECT MATTER OF THIS LEASE AGREEMENT.

 

22

 

(f)                                    This
Lease Agreement and the covenants and agreements contained herein shall be
binding upon, and inure to the benefit of, Lessor and its successors and
assigns and Lessee and its successors and permitted assigns.

 

(g)                                 The
headings of the sections hereof are for convenience of reference only, are not
a part of this Lease Agreement and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.

 

(h)                                 THIS
LEASE AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE. 
LESSOR AND LESSEE HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE CALIFORNIA STATE AND FEDERAL COURTS LOCATED IN CALIFORNIA,
FOR ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE OVERALL
TRANSACTION EVIDENCED BY THE LEASE DOCUMENTS, LESSOR AND LESSEE HEREBY
IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN SUCH CALIFORNIA STATE COURTS, OR TO THE EXTENT
PERMITTED BY LAW, SUCH FEDERAL COURTS. 
LESSOR AND LESSEE HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THEY
MAY EFFECTIVELY DO SO, THE DEFENSE OF ANY INCONVENIENT FORUM TO THE MAINTENANCE
OF ANY ACTION OR PROCEEDING, LESSOR AND LESSEE HEREBY WAIVE ANY RIGHTS EITHER
OF THEM MAY HAVE TO A TRIAL BY JURY IN ACTIONS OR PROCEEDINGS BROUGHT IN
RESPECT OF THE LEASE DOCUMENTS.

 

(i)                                     Should
any section or any part of a section within this Lease Agreement be rendered
void, invalid or unenforceable by any court or Law for any reason, such
invalidity or unenforceability shall not void or render invalid or
unenforceable any other section or part of a section in this Lease Agreement.

 

(j)                                     Lessee
agrees to execute such documents and take such further actions as Lessor may
reasonably request in order to assure Lessor the full benefit of the rights
granted Lessor hereunder.

 

22.                                 ADDITIONAL PROVISIONS.  Schedules A, B and C attached hereto,
including any schedules or exhibits attached thereto, are hereby incorporated
by reference.

 

23

 

IN WITNESS WHEREOF, Lessor and Lessee have caused this
Lease Agreement to be duly executed, all as of the date first above written.

 

	
   

  	
  LESSOR:

  
	
   

  	
   

  	
   

  
	
   

  	
  BAXTER HEALTHCARE
  CORPORATION,

  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  James E. Carne

  	
   

  
	
   

  	
   

  	
  Name:

  	
  James E. Carne

  
	
   

  	
   

  	
  Title:

  	
  President—Anesthesia
  and Critical Care

  
	
   

  	
   

  	
   

  
	
   

  	
  Baxter Healthcare
  Corporation

  
	
   

  	
  Route 120 and Wilson
  Road

  
	
   

  	
  Round Lake, IL 60073

  
	
   

  	
  Attn: James E. Carne

  
	
   

  	
   

  	
   

  
	
   

  	
  LESSEE:

  
	
   

  	
   

  	
   

  
	
   

  	
  PHOTOGEN TECHNOLOGIES
  INC.,

  a Nevada corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
      /s/
  Brooks Boveroux

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Brooks Boveroux

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Photogen Technologies,
  Inc.

  
	
   

  	
  140 Union Square Drive

  
	
   

  	
  New Hope, PA 18938

  
	
   

  	
  Attn:  Brooks Boveroux, Chief Financial Officer

  
					

 

Schedule 1 to
Schedule CExhibit

10.1

 

CONSENT

TO ASSIGNMENT AND AMENDMENT AGREEMENT

 

This Consent to Assignment

and Amendment Agreement (“Agreement”) is made by and among ImageWare

Systems, Inc. (“Company”), and L.F. Global Holdings, LLC (“LF”),

and Laurus Master Fund, Ltd. (“Laurus”)(collectively, “Purchaser”)

as of June 13, 2003 (“Agreement Date”).

 

RECITALS

 

A.                                   By this Agreement the parties intend to

acknowledge the assignment by Perseus 2000, L.L.C., a Delaware limited

liability company (“Perseus”) of the Promissory Notes (defined below) to

Purchaser and Purchaser’s anticipated amendment of the Note Purchase Agreement

(defined below) to enable Purchaser’s acquisition of additional notes from

Company.

 

B.                                     As of June 6, 2003, the Company is indebted

to Perseus or assignee (“Lender”) under the Promissory Notes in the

amount of $3,063,170.05, with daily accrual of interest of $1,111.42

(collectively “Existing Debt”).

 

C.                                     Such Existing

Debt is evidenced by: (i) a Note and Warrant Purchase Agreement entered into

between Company and Lender and dated as of May 22, 2002 (“Note Purchase

Agreement”); (ii) Pledge and Security Agreement entered into between

Company and Lender and dated as of May 22, 2002 (“Company Security Agreement”);

(iii) Registration Rights Agreement entered into between Company and Lender and

dated as of May 22, 2002 (“Rights Agreement”); (iv) the Pledge and

Security Agreement entered into between ImageWare Systems ID Group, Inc., a

Delaware corporation, and Assignor and dated as of May 22, 2002 (“Subsidiary

Security Agreement”); (v) Senior Secured Convertible Promissory Note in the

original principal amount of $2,000,000.00 executed by Company in favor of

Lender and dated as of May 22, 2002 (“Senior Note”); and (vi) Demand

Promissory Note in the original amount of $500,000.00 executed by the Company

in favor of Lender and dated as of September 23, 2002 (“Demand Note” and,

collectively with the Senior Note, referred to herein as “Promissory Notes”).  The Company Security Agreement and

Subsidiary Security Agreement are referred to herein as the “Pledge

Agreements.”

 

D.                                    Collateral for

the Promissory Notes consists of by a perfected first lien against: (i) all of

the assets of Company and its subsidiary ImageWare Systems ID Group, Inc.; (ii)

all of the outstanding shares of capital stock of each of the Company’s United

States subsidiaries; and (iii) sixty-six and two-thirds percent (66.67%) of all

of the outstanding shares of Company’s foreign subsidiaries (collectively “Collateral”).

 

E.                                      The Purchaser will purchase the Existing Debt

represented by the Promissory Notes from Perseus at Closing (defined below),

pursuant to the Purchase and Sale Agreement entered into by and among Perseus

and Purchaser, and the Company concurrently therewith will retire the

Promissory Notes and issue the Laurus Note (defined below) and the LF Note

(defined below), which collectively shall constitute the Recast Promissory

Notes (defined below).

 

1

 

E.                                      For purposes of this Agreement, the Closing

Date shall be the date on which the parties execute their agreement to purchase

the Promissory Note and contribute the Additional Advance (“Closing”).

 

F.                                      At Closing Laurus will be obligated to fund

an amount equal to $1,500,000.00 (“Initial Laurus Investment”).  Such Initial Laurus Investment will be

funded at Closing by wire transfer to Dechert, LLP, as escrow agent for the

benefit of Perseus as partial payment for the purchase of the Promissory Notes,

which Initial Laurus Investment shall be evidenced by the Laurus Note (defined

below).

 

G.                                     At Closing LF will be obligated to fund an

amount equal to $2,650,000.00 (“Initial LF Investment”).  Such Initial LF Investment will be funded at

Closing by wire transfer to: (i) Perseus as partial payment for the purchase of

the Promissory Note; and (ii) the balance to Company which Initial LF

Investment shall be evidenced by the LF Note (defined below).

 

AGREEMENT

 

NOW, THEREFORE, for good and valuable consideration, receipt

of which is hereby acknowledged, the parties hereby agree as follows:

 

1.                                       Assignment of Promissory Notes. 

Company hereby consents to the assignment, transfer and conveyance to

Purchaser of all of Lender’s right, title and interest in and to the Promissory

Notes and related rights and agrees that Purchasers shall each be entitled to

the same benefits and protections as Perseus as purchaser of the Promissory

Notes under the Note Purchase Agreement and each and every document and

agreement entered into or delivered in connection therewith.  Purchaser agrees that Company shall be

entitled to the same benefits and protections under the Promissory Notes and

each and every document and agreement entered into or delivered in connection

therewith to the extent not altered herein.

 

2.                                       Additional Capital Advances.  Concurrent

with the execution of this Agreement, LF shall advance to Company the sum of

approximately $1,088,000 as additional working capital (“Additional

Advance”).  The Additional Advance shall

be included by the Company within the principal balance of the LF Note (defined

below).  The proceeds of the Additional

Advance shall be used by Company to (i) pay costs associated with this

transaction; and (ii) for general ongoing working capital for the Company.

 

3.                                       Amendment of Note Purchase Agreement.  The

Note Purchase Agreement is hereby amended to provide that concurrently with the

execution of this Agreement, Purchaser shall have the right under the Section

1(b) thereof to make the Additional Advance and acquire an Additional Note up

to an aggregate principal amount of approximately $1,088,000.00, on the terms

set forth in Section 1 of the Note Purchase Agreement, subject to the terms of

this Agreement.

 

2

 

4.                                       Promissory

Note Recast.

 

4.1                             In consideration of the Additional Advance

and the amendments to the Promissory Notes provided for herein, the parties

acknowledge that the Company shall:

 

4.1.1                        Upon delivery to escrow of the original

Promissory Notes, cause the Promissory Notes to be reissued such that two

serial notes in the total combined amount of the Initial LF Investment in the

form and content of Exhibit A attached hereto (“LF Note”) and the

Initial Laurus Investment in the form and content of Exhibit B attached hereto

(“Laurus Note”), which reissued promissory notes when issued by the

Company will amend, restate and replace the Promissory Notes and evidence the

additional advance (collectively “Recast Promissory Notes”);

 

4.1.2                        Cause, no later than ninety (90) days

following Closing, all shares which may be issued pursuant to the conversion of

Recast Promissory Notes and the exercise of the Purchaser’s Warrants and the

Warrant issued pursuant to the Note Purchase Agreement to be registered

pursuant to the Rights Agreement and declared effective by the Securities and

Exchange Commission, including the shares underlying the Purchaser’s Warrants

described below;

 

4.1.3                        Without causing an increase in the size of

Company’s Board of Directors, appoint Milton Lohr, Kenneth Widder and James

Chadwick to the Company’s Board of Directors, one of whom shall be appointed as

soon as reasonably practical and the other two no later than the Company’s next

annual meeting, which appointments shall be in lieu of the requirements set

forth in Section 4(f) of the Note Purchase Agreement;

 

4.1.4                        In lieu of the “Additional Warrant” provided

for in Section 1(b)(i), issue in favor of Purchaser six (6) year warrants

to purchase 1,600,000 shares of common stock of Company (“Purchaser’s

Warrants”) exercisable at $2.11 per share in the form and content of

Exhibit C attached hereto;

 

4.1.5                        Pay Laurus a closing fee in cash in an amount

equal to four percent (4.0%) of the Initial Laurus Investment (“Closing Fee”).  Additionally, Company will deliver to LF a

convertible note in the form of the LF Note in the principal amount equal to

four percent (4.0%) of the Initial LF Investment (“LF Closing Fee”);

 

4.1.6                        Reimburse Purchaser for all closing costs of

Purchaser to a maximum of $25,000 upon request and presentation of invoices

from third party service providers for costs incurred by Purchaser.  Company will be responsible for its own

closing costs;

 

4.1.7                        Limit the amount of permitted borrowings by

Company’s German subsidiary to an amount no greater than that outstanding as of

the date of Closing; and

 

4.1.8                        Take such good faith actions as are

reasonably required to secure the consent of Company’s shareholders required to

effectuate this transaction, if any, at

 

3

 

Company’s next annual meeting and to include within its proxy materials

a solicitation of the same at Company’s expense and at such other times as may

be required.

 

5.                                       AMEX Application.  Immediately

following the Closing, the Company will file an application for the listing of

additional shares with the American Stock Exchange as required by the American

Stock Exchange Listing Standards, Policies and Requirements. In the event that

as a condition to approving such application, the American Stock Exchange requires

one or more modifications to the terms and conditions of the Transaction

Documents (as defined in the Recast Promissory Notes), the Company, LF and

Laurus will all work together reasonably and in good faith to effect such

modifications to the Transaction Documents, with a view towards preserving  the overall economic terms and conditions

contained in the Transaction Documents.]

 

6.                                       Representations and Warranties. 

Except as set forth in the schedule of exceptions  delivered to Purchaser concurrent with the

execution of this Agreement, the Company hereby makes and reaffirms all

representations, warranties, and covenants set forth in Section 2 and 4 of the

Note Purchase Agreement and as set forth in the Pledge Agreements as if made on

the date hereof.  Further, under this

Agreement the Company shall deliver to Purchaser an opinion of counsel to the

Company, encompassing in form and substance the matters set forth in Exhibit F

to the Note Purchase Agreement and each other certificate or document required

by Section 1 of the Note Purchase Agreement in connection with the closing of

the acquisition or an Additional Note.  Purchaser, each as to itself,

hereby makes and reaffirms all representations and warranties set forth in

Section 3 of the Note Purchase Agreement as if made by and as to such Purchaser

on the date hereof.

 

7.                                       Additional Remedies.  If

either party violates any of the terms of this Agreement, in addition to any

remedies in law, equity or otherwise, the non-violating party may restrain such

violation in any court of law and may interpose this Agreement as a defense in

any action by the violating party.

 

8.                                       Waivers. No waiver shall be deemed to be made by any party of any of their

respective rights hereunder unless it is in writing and signed by the waiving

party.  Each such waiver shall be a

waiver only with respect to the specific instance involved and shall in no way

impair the rights of the waiving party or the obligations of the other party to

the waiving party in any other respect at any other time.

 

9.                                       Third Party Beneficiaries. 

This Agreement is solely for the benefit of the Company, Laurus, LF and

their respective successors and assigns, and no any other persons or entities

are intended to be third party beneficiaries hereunder or to have any right,

benefit, priority or interest under, or because of the existence of, or to have

any right to enforce, this Agreement.

 

10.                                 Notices.  For the purposes of this

Agreement, written notices shall be sent by U.S. certified mail, return receipt

requested, postage prepaid; or by personal delivery; or by facsimile confirmed

by the recipient; and addressed to the notified party at its address set forth

below its signature line, or such other address specified by the party with

like notice.  Notices shall be deemed

received three (3) business days after deposit in the U.S. mail, if sent

by first class mail;

 

4

 

upon the date set forth in the return receipt, if by certified mail; on the day of

confirmation of delivery by the recipient, if by facsimile; or on the day of

transmittal by personal delivery.

 

11.                                 Costs and Attorneys’ Fees.  In

the event that any party hereto shall institute any litigation or other

proceeding arising out of or relating to this Agreement, the prevailing party

therein shall be entitled to recover its reasonable attorney’s fees and costs

incurred in connection therewith.

 

12.                                 Mediation/Arbitration.  The

parties mutually agree that any claim or controversy arising out of or relating

to this Agreement shall be resolved by first submitting to mediation under the

rules of the American Arbitration Association, and should a resolution not be

reached, by submitting to binding arbitration administered by the American

Arbitration Association in accordance with its Arbitration Rules in San Diego,

California and shall be governed by the laws of the State of California,

including, but not limited to, California  Code  of  Civil

Procedure  Section  1283.05 relating to depositions and

discovery, and judgment on the award rendered by the arbitrator(s) may be

entered in any court in San Diego County having jurisdiction thereof.  The arbitrator shall have the authority to

order such discovery, by way of deposition, interrogatory, document production,

or otherwise, as the arbitrator considers necessary to a full and fair

exploration of the issues in dispute, consistent with the expedited nature of

arbitration.

 

13.                                 Governing Law. 

This Agreement has been delivered and accepted at and shall be deemed to

have been made in the State of New York, and shall be interpreted, and the

rights and liabilities of the parties hereto determined, in accordance with the

internal laws of the State of New York.

 

14.                                 Successors and Assigns. 

This Agreement shall be binding upon and shall inure to the benefit of

the parties’ respective successors and assigns, subject to the provisions

hereof.

 

15.                                 Integrated Agreement. 

This Agreement sets forth the entire understanding of the parties with

respect to the within matters and may not be modified or amended except upon a

writing signed by all parties.

 

16.                                 Authority. Each of the signatories hereto certifies that such party has all

necessary authority to execute this Agreement.

 

17.                                 Counterparts. 

This Agreement may be executed in one or more counterparts, each one of

which when so executed shall be deemed to be an original, and all of which

taken together shall constitute one and the same agreement.

 

IN WITNESS

WHEREOF, the parties

have executed this Agreement as of the date and year first above written.

 

5

 

“LAURUS”

 

Laurus Master Fund, Ltd.,

a Cayman Islands Corporation

 

	

  By:

  	

  /s/ David Grin

  	

   

  	

   

  
	

  Name:

  	

  David Grin

  	

   

  	

   

  
	

  Title:

  	

  Partner

  	

   

  	

   

  
					

 

	

  Address for notices:

  	

  152 West 57th

  Street

  
	

   

  	

  Fourth Floor

  
	

   

  	

  New York, NY 10019

  
	

   

  	

  Facsimile: (212) 541-4434

  
	

   

  	

  Attention: John E. Tucker,

  Esq.

  

 

 

 

“LF”

 

L.F. Global Holdings, LLC,

a California limited liability company

 

	

  By:

  	

  /s/ Marvin

  Friedman

  	

   

  	

   

  
	

  Name:

  	

  Marvin Friedman

  	

   

  	

   

  
	

  Title:

  	

  Managing Member

  	

   

  	

   

  
							

 

	

  Address for notices:

  	

  12230 El Camino Real,

  Suite 220

  
	

   

  	

  San Diego, CA 92130

  
	

   

  	

  Facsimile:

  	

   

  	 

	

   

  	

  Attention: Marvin Friedman

  

 

 

“COMPANY”

 

ImageWare Systems, Inc.,

a California corporation.

 

	

  By:

  	

  /s/ S. James Miller, Jr.

  	

   

  	

   

  
	

  Name:

  	

  S.

  James Miller, Jr.

  	

   

  	

   

  
	

  Title:

  	

  Chairman

  and Chief Executive Officer

  	

   

  	

   

  
					

 

	

  Address for notices:

  	

  10883 Thornmint Road

  
	

   

  	

  San Diego, CA  92127

  
	

   

  	

  Facsimile:

  	

   

  	 

	

   

  	

  Attention: S. James

  Miller, Jr.

  

 

6

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