Document:

KFXG TV Letter Agreement Dated July 23, 2002

 
Exhibit 10.1

 
July 23, 2002 
 
Fisher Broadcasting-Georgia, LLC

WFXG-TV 
600 University Street, Suite 1525 
Seattle, Washington 98101

 
Attn: Ben Tucker, President

 
Re: WFXG (Augusta, GA) 
 
Dear Mr. Tucker: 
 
This letter confirms that Fox Broadcasting Company (“FOX”) and
Fisher Broadcasting-Georgia, LLC (“Licensee”) have agreed that notwithstanding anything to the contrary in the Station Affiliation Agreement (“Agreement”) dated April 20, 2001 between Licensee and FOX, Licensee and FOX hereby
agree to extend the term of the Agreement, and the Agreement shall end on June 30, 2007. 
 
AGREED AND ACCEPTED: 
 

	 FOX BROADCASTING
COMPANY
	 	 	 	 FISHER BROADCASTING-GEORGIA,
LLC

	
	 By:
	 	 /s/    [ILLEGIBLE]        

	 	 	 	 By:
	 	 /s/    BEN
TUCKER      

	 Its:
	 	 President

	 	 	 	 Its:
	 	 PresidentKXTX TV Letter Agreement Dated July 23, 2002

 
Exhibit 10.2

 
July 23, 2002 
 
Fisher Broadcasting-Georgia, LLC

WXTX-TV 
600 University Street, Suite 1525 
Seattle, Washington 98101

 
Attn: Ben Tucker, President

 
Re: WXTX (Columbus, GA) 
 
Dear Mr. Tucker: 
 
This letter confirms that Fox Broadcasting Company (“FOX”) and
Fisher Broadcasting-Georgia, LLC (“Licensee”) have agreed that notwithstanding anything to the contrary in the Station Affiliation Agreement (“Agreement”) dated April 20, 2001 between Licensee and FOX, Licensee and FOX hereby
agree to extend the term of the Agreement, and the Agreement shall end on June 30, 2007. 
 
AGREED AND ACCEPTED: 
 

	 FOX BROADCASTING
COMPANY
	 	 	 	 FISHER BROADCASTING-GEORGIA,
LLC

	
	 By:
	 	 /s/    [ILLEGIBLE]        

	 	 	 	 By:
	 	 /s/    BEN
TUCKER      

	 Its:
	 	 President

	 	 	 	 Its:
	 	 President<PAGE>

                                                                    Exhibit 10.1

                            ASSET PURCHASE AGREEMENT

                                      among

                          OPTICAL SENSORS INCORPORATED

                                 VASAMEDICS LLC

                                   JOHN BORGOS

                                       AND

                                   RAMON DIAZ

                             Dated: October 1, 2002

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
SECTION 1. PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF
  LIABILITIES .............................................................   1
  1.1  Purchase and Sale of Assets ........................................   1
  1.2  Excluded Assets: ...................................................   2
  1.3  Assumed Liabilities ................................................   2
  1.4  Instruments of Transfer to Buyer ...................................   3
SECTION 2. PAYMENT OF DEBT; CLOSING .......................................   4
  2.1  Payment of Debt ....................................................   4
  2.2  Closing Date .......................................................   4
  2.3  Deliveries. ........................................................   4
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER .......................   5
  3.1  Disclosure Schedule ................................................   5
  3.2  Organization and Standing ..........................................   6
  3.3  Authority ..........................................................   6
  3.4  Non-Contravention ..................................................   6
  3.5  Consents and Approvals .............................................   6
  3.6  Financial Statements ...............................................   7
  3.7  Debt ...............................................................   7
  3.8  Undisclosed Liabilities ............................................   7
  3.9  Absence of Certain Changes .........................................   7
  3.10 Purchased Assets of Business .......................................   7
  3.11 Machinery and Equipment ............................................   7
  3.12 Intellectual Property Rights .......................................   8
  3.13 Inventories ........................................................   8
  3.14 Insurance ..........................................................   8
  3.15 No Litigation or Adverse Events ....................................   8
  3.16 Employees ..........................................................   8
  3.17 Employee Benefit Plans .............................................   8
  3.18 Leases; Facility ...................................................   9
  3.19 Environmental ......................................................   9
  3.20 Products and Warranties ............................................   9
  3.21 Orders, Commitments and Returns ....................................  10
  3.22 Compliance with Law; Permits .......................................  10
  3.23 Taxes ..............................................................  10
  3.24 Brokers ............................................................  10
  3.25 Contracts; No Default ..............................................  11
  3.26 Disclosure .........................................................  11
  3.27 Plan of Reorganization .............................................  11
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER ........................  11
  4.1  Corporate Organization .............................................  11
  4.2  Authority ..........................................................  11
  4.3  Non-Contravention ..................................................  12
  4.4  Brokers ............................................................  12
SECTION 5. COVENANTS ......................................................  12
  5.1  Further Assurances and Cooperation .................................  12
</TABLE>

                                       i

<PAGE>

<TABLE>
<S>                                                                          <C>
  5.2   Public Announcement ...............................................  12
  5.3   Employee Matters. .................................................  12
  5.4   Tax Matters. ......................................................  13
  5.5   Full Access to Buyer ..............................................  13
  5.6   Third Party Agreements ............................................  13
  5.7   Expenses ..........................................................  13
  5.8   Confidentiality ...................................................  14
SECTION 6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
  INDEMNIFICATION .........................................................  14
  6.1   Survival of Representations and Warranties ........................  14
  6.2   Indemnification by Buyer ..........................................  14
  6.3   Indemnification by Seller .........................................  14
  6.4   Claims for Indemnification. .......................................  15
  6.5   Limitation on Indemnification .....................................  16
SECTION 7. MISCELLANEOUS ..................................................  17
  7.1   Notices ...........................................................  17
  7.2   Governing Law .....................................................  17
  7.3   Counterparts ......................................................  17
  7.4   Amendment or Modification .........................................  17
  7.5   Assignment and Successors .........................................  17
  7.6   Arbitration .......................................................  17
  7.7   Entirety of Agreement; Schedules ..................................  18
  7.8   Headings ..........................................................  18
  7.9   Severability ......................................................  18
  7.10  No Third Party Beneficiaries ......................................  18
</TABLE>

                                       ii

<PAGE>

EXHIBITS
--------

Exhibit 1.1(a)........................................ Cash and Cash Equivalents
Exhibit 1.1(b).................. Machinery, Equipment and Leasehold Improvements
Exhibit 1.1(c)......................................... Personal Property Leases
Exhibit 1.1(d)........................................................ Inventory
Exhibit 1.1(e).............................................. Accounts Receivable
Exhibit 1.1(f)..................................... Intellectual Property Rights
Exhibit 1.1(h)............................................. Governmental Permits
Exhibit 1.1(i)................................................. Prepaid Expenses
Exhibit 1.1(j)........................................................ Contracts
Exhibit 1.3(a)........................................ Balance Sheet Liabilities
Exhibit 3................................................... Disclosure Schedule

                                      iii

<PAGE>

                            ASSET PURCHASE AGREEMENT

         THIS ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into as
of October 1, 2002 by and among, Optical Sensors Incorporated, a Delaware
corporation (the "Buyer"); Vasamedics LLC, a limited liability company organized
under the laws of the State of New Jersey (the "Seller"); and John Borgos and
Ramon Diaz, owners of all the membership interests in the Seller (each a
"Member" and collectively, the "Members").

         WHEREAS, Seller is engaged in the business of medical instrumentation
for patient monitoring of laser Doppler blood flow and related measurements (the
"Business"); and

         WHEREAS, Seller and Buyer wish to provide for terms and conditions upon
which Seller will sell to Buyer, and Buyer will purchase from Seller,
substantially all the assets of Seller that are used by Seller in the Business
and, in connection therewith, assume only certain specified balance sheet
liabilities and contractual obligations of Seller, as hereinafter set forth.

         NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and respective agreements hereinafter set forth, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

                                   SECTION 1.
            PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES

1.1      Purchase and Sale of Assets. On the date hereof at the Closing (as
         defined below) contemplated hereby, Seller shall sell, transfer,
         convey, assign and deliver to Buyer, and Buyer shall purchase from
         Seller, free and clear of any mortgage, lien, pledge, option, security
         interest, claim, charge, financing statement or other encumbrance of
         any kind whatsoever, whether or not of record ("Encumbrances"), all
         right, title and interest in and to Seller's assets, other than the
         Excluded Assets (as defined below), whether or not appearing on the
         books and records of Seller or the Exhibits hereto (the "Purchased
         Assets"), including without limitation those described below:

         (a)   Cash and Cash Equivalents. Cash, money and deposits with
               financial institutions and others, certificates of deposit,
               commercial paper, notes, evidences of indebtedness, stocks, bonds
               and other investments, including without limitation those
               described on Exhibit 1.1(a);

         (b)   Machinery, Equipment and Leasehold Improvements: Furniture,
               furnishings, fixtures, equipment, machinery, spare parts,
               tooling, supplies, vehicles, rolling stock, leasehold
               improvements and other personal property used in the operation of
               the Business (including Seller's rights, if any, in items owned
               by customers, vendors, suppliers of Seller or other third parties
               and used to fulfill commitments to such customers), including
               without limitation those described on Exhibit 1.1(b) (the
               "Machinery and Equipment");

         (c)   Personal Property Leases: Leases and subleases of furniture,
               furnishings, fixtures, equipment, machinery, spare parts,
               tooling, supplies, vehicles, rolling stock and other personal
               property, including without limitation those described on Exhibit
               1.1(c) ("Personal Property Leases");

<PAGE>

         (d)   Inventory: Items of finished goods, work in process, raw and
               packaging materials, and spare and replacement parts, including
               inventory in transit or in storage (including rights in inventory
               on consignment or memorandum, subject to the rights of consignor)
               (the "Inventory"), including without limitation those described
               on Exhibit 1.1(d);

         (e)   Accounts Receivable: Accounts and notes receivable, deposits,
               advances, manufacturer and supplier rebates, and all other
               receivables including without limitation those described on
               Exhibit 1.1(e);

         (f)   Intellectual Property Rights: All patents, patent applications,
               patent rights, registered and unregistered trademarks, trademark
               applications, trade names, the name "Vasamedics," service marks,
               service mark applications, copyrights, computer programs and
               other computer software, inventions, know-how, trade secrets,
               technology, proprietary processes, trade dress and formulae,
               including without limitation those described on Exhibit 1.1(f),
               the goodwill associated therewith and all rights related thereto
               (collectively, the "Intellectual Property Rights");

         (g)   Business Information: Business information and related books and
               records, including files, computer discs and tapes, invoices,
               credit and sales records, personnel records (subject to
               applicable law), customer lists, customer prospect lists,
               supplier and vendor lists (including cost information), business
               plans and other plans and specifications, accounting books and
               records, sales literature, current price lists and discounts,
               promotional signs and literature, marketing and sales brochures,
               and manufacturing and quality control records and procedures;

         (h)   Governmental Permits: All licenses, permits, authorizations and
               marketing approvals issued to Seller used in the Business,
               including those issued by the United States Food and Drug
               Administration, and without limitation those described on Exhibit
               1.1(h);

         (i)   Prepaid Expenses: All prepaid expenses of Business, including
               without limitation those described on Exhibit 1.1(i); and

         (j)   Contracts: All oral and written contracts, agreements, leases and
               orders for the purchase or sale of products or services,
               including without limitation those described on Exhibit 1.1(j).

1.2      Excluded Assets. Notwithstanding the provisions of Section 1.1, the
         following assets are excluded from the Purchased Assets and are
         collectively referred to as the "Excluded Assets":

         (a)   Minute Books. Seller's minute books, company seals, stock records
               and other documents, books and records related exclusively to the
               Excluded Assets; provided that Buyer is permitted reasonable
               access to such documents pursuant to Section 5.5 hereof.

1.3      Assumed Liabilities. Buyer will, on the Closing Date (as defined
         below), assume and agree to pay or otherwise discharge, in accordance
         with the stated written terms of the applicable obligations, only the
         following liabilities of Seller:

         (a)   Accounts Payable. Those liabilities actually listed on the Most
               Recent Balance Sheet (as defined below) entitled "Accounts
               Payable" and "Accrued Expenses" only up to the maximum amount of
               such liabilities set forth on the Most Recent Balance Sheet and
               all other liabilities incurred in the ordinary course of business
               after the Most Recent Balance

                                        2

<PAGE>

               Sheet prior to the Closing Date that are reflected in Seller's
               books and records, which liabilities are further identified on
               Exhibit 1.3(a) attached hereto;

         (b)   Accounts Receivable Credits. Those credits actually listed on the
               Most Recent Balance Sheet entitled "Accounts Receivables" only up
               to the maximum amount of such liabilities set forth on the Most
               Recent Balance Sheet;

         (c)   Personal Property Leases. Only those obligations of Seller set
               forth in the Personal Property Leases which are set forth on
               Exhibit 1.1(c) attached hereto (the obligations described in
               Sections 1.3 (a), (b) and (c) are collectively referred to as the
               "Assumed Liabilities"); and

         (d)   Retained Liabilities of Seller. Except for the Assumed
               Liabilities, Buyer shall not assume and hereby expressly
               disclaims any assumption of any other liabilities, obligations,
               debts or payables of any nature of Seller, whether fixed or
               contingent, known or unknown, liquidated or unliquidated, secured
               or unsecured, accrued or unaccrued or otherwise (the "Retained
               Liabilities"), and whether existing on or arising after the
               Closing Date or, regardless of when asserted, related to periods
               prior to the Closing Date. Retained Liabilities of the Seller
               shall include without limitation all severance and other deferred
               wages and other compensation obligations to the Seller's
               employees, along with any associated local, state, or federal
               taxes, as well as obligations to such employees under any
               employee stock ownership plan, and shall include any liability
               arising out of or related to any pollution or threat to human
               health or the environment or any violation of any Environmental
               Laws (as defined below) that is related in any way to the Seller,
               the Business, the Real Property Lease or any previous owner's use
               of any of the above, and which occurred, existed or related to
               conditions or circumstances existing prior to the Closing,
               regardless of whether those matters are described in the
               Disclosure Schedule (as defined below). Notwithstanding the
               foregoing, if Buyer receives by December 31, 2003 an order for at
               least $300,000 of Seller's products from the Government of Mexico
               (or an agency thereof), Buyer will, within thirty (30) days after
               receiving payment for such products, pay Seller for any Retained
               Liabilities accrued by Buyer as of the Closing Date or any Third
               Party Debt incurred as of the Closing Date and not paid by Buyer
               pursuant to Section 2.1, up to a maximum of $30,000.

1.4      Instruments of Transfer to Buyer. At the Closing, Seller will deliver
         to Buyer such bills of sale, endorsements, assignments (together with
         any necessary consents), and other good and sufficient instruments of
         conveyance and transfer, in form and substance reasonably satisfactory
         to Buyer and Seller and their respective counsel, which shall be
         effective to vest in Buyer valid, legal, good and marketable title in
         and to the Purchased Assets. At any time after the Closing, at the
         request of the Buyer and without further consideration, the Buyer will
         execute and deliver such instruments of sale, transfer, conveyance,
         assignment and confirmation and take such action as the Buyer may
         reasonably deem necessary or desirable in order to more effectively
         consummate the transactions contemplated hereby and to vest in the
         Buyer good and marketable title to, all of the Purchased Assets, to put
         the Buyer in actual possession and operating control thereof and to
         assist the Buyer in exercising all rights with respect thereto, without
         further cost or expense to the Buyer.

                                        3

<PAGE>

                                   SECTION 2.
                            PAYMENT OF DEBT; CLOSING

2.1      Payment of Debt. In addition to assuming the Assumed Liabilities
         subject to the terms and conditions of this Agreement, and in reliance
         on the representations, warranties and agreements of Seller contained
         herein and in consideration of the sale, assignment, transfer and
         delivery of the Purchased Assets, Buyer will pay (a) the Johnson Debt
         (as defined below), on behalf John Borgos on the Closing Date, which
         will satisfy in full the Borgos Debt and (b) the Third Party Debt (less
         $11,000) within 60 days of the Closing Date.

2.2      Closing Date. The consummation of the transactions contemplated by this
         Agreement (the "Transaction") shall constitute the closing (the
         "Closing"). The Closing shall take place on the date hereof (the
         "Closing Date") at the offices of Oppenheimer Wolff & Donnelly LLP
         located at 45 South Seventh Street, Minneapolis, MN or at such other
         place or time as the parties shall mutually agree.

2.3      Deliveries.

         (a)   Deliveries of Seller. At or prior to the Closing, Seller will
               deliver the following documents to Buyer:

               (i)     Certified resolutions of Seller's board of governors and
                       members approving this Agreement and all other documents
                       being entered into by Seller related to, or arising from,
                       the Transaction;

               (ii)    A certificate, from a duly authorized officer of Seller,
                       certifying that all representations and warranties made
                       herein by Seller are true and correct as of the Closing
                       Date; that there are no undisclosed facts or occurrences
                       that may have a Material Adverse Effect (as defined
                       below) on the business, financial condition or prospects
                       of Seller; and as to such other information as is
                       reasonably requested by Buyer;

               (iii)   An opinion of Thomas Hara, counsel to Seller, in form and
                       content satisfactory to Buyer and its counsel;

               (iv)    Physical possession of all the Purchased Assets together
                       with such bills of sale and instruments of conveyance,
                       transfer and assignment, dated as of the Closing Date, as
                       shall be sufficient to transfer to and vest in Buyer
                       good, valid, and marketable title to the Purchased Assets
                       free and clear of any Encumbrances;

               (v)     Certificate of Good Standing of Seller, issued by the
                       Secretary of State of the State of New Jersey and State
                       of Minnesota dated within five (5) days of Closing;

               (vi)    Documents evidencing termination of employees pursuant to
                       Section 5.3(c) hereof;

               (vii)   An at-will employment agreement and stock option
                       agreement between Buyer and John Borgos containing terms
                       and conditions satisfactory to Buyer and John Borgos
                       (collectively, the "Borgos Agreements");

                                        4

<PAGE>

               (viii)  A consulting agreement and stock option agreement between
                       Buyer and Ramon Diaz containing terms and conditions
                       satisfactory to Buyer and Ramon Diaz (collectively, the
                       "Diaz Agreements");

               (ix)    A satisfaction of the Johnson Debt (including UCC
                       termination statements) and payoff letters from the
                       holders of the Third Party Debt stating the amount of the
                       Third Party Debt as of October 1, 2002;

               (x)     Documents evidencing transfer of registered Intellectual
                       Property Rights in form and content satisfactory to
                       Buyer; and

               (xi)    Such other documents as Buyer may reasonably request to
                       effectuate the Transaction.

         (b)   Deliveries of Buyer. At the Closing, Buyer will deliver to Seller
               the following:

               (i)     Certified resolutions of Buyer's board of directors
                       approving this Agreement and all other documents being
                       entered into by Seller related to, or arising from, the
                       Transaction;

               (ii)    The Borgos Agreements;

               (iii)   The Diaz Agreements; and

               (iv)    Offers by Buyer of at-will employment for Franz Pearson,
                       Charlotte Nowakowski and Linda Borgos.

               (v)     Such other documents as Seller may reasonably request to
                       effectuate the Transaction.

                                   SECTION 3.
                    REPRESENTATIONS AND WARRANTIES OF SELLER

         As a material inducement to Buyer to enter into this Agreement, with
the understanding that Buyer will be relying thereon in consummating the
Transaction, Seller represents and warrants, and the Members, jointly and
severally, represent and warrant to Buyer that:

3.1      Disclosure Schedule. The disclosure schedule marked as Exhibit 3 hereto
         (the "Disclosure Schedule") is divided into sections which correspond
         to the subsections of this Section 3. The Disclosure Schedule is
         accurate and complete and the disclosures in any subsection thereof
         shall not constitute disclosure for purposes of any other subsection in
         any other section or subsection of this Agreement. If any item on the
         Disclosure Schedule pertains to more than one representation or
         warranty, reference or cross-reference to each of such other
         representations or warranties must be made on the Disclosure Schedule.

3.2      Organization and Standing. Except as set forth in Section 3.2 of the
         Disclosure Schedule, Seller (i) is a limited liability company duly
         organized, validly existing and in good standing under the laws of the
         State of New Jersey, (ii) has all requisite power and authority to
         carry on the Business as it is now being conducted and to own, lease
         and operate its properties and assets, and (iii) is duly qualified or
         licensed to do business as a foreign limited liability company in good
         standing in the State of Minnesota and every jurisdiction in which the
         character or location of the

                                        5

<PAGE>

         properties and assets owned, leased or operated by it or the conduct of
         its business requires such qualification or licensing, except for
         jurisdictions in which the failure to be so qualified or licensed or to
         be in good standing would not have a Material Adverse Effect on Seller.
         A "Material Adverse Effect" with respect to Seller shall mean an
         individual or cumulative adverse change in, or effect on, the Business,
         customers, or customer relations, operations, properties, condition
         (financial or otherwise), assets, prospects or liabilities of Seller or
         is reasonably expected to be materially adverse to Seller's Business,
         customers or customer relations, operations, properties, condition
         (financial or otherwise), assets, prospects or liabilities of Seller,
         or an individual or cumulative adverse change or effect that would
         prevent Seller from consummation of the Transaction. Section 3.2 of the
         Disclosure Schedule contains a list of all jurisdictions in which
         Seller is qualified or licensed to do business.

3.3      Authority. Seller has full power and authority to enter into, execute,
         deliver and perform this Agreement and each of the agreements and
         instruments to be delivered pursuant hereto. The board of directors, or
         managers, as applicable, and members of Seller have taken all action
         required by law, its organizational documents or otherwise to authorize
         the execution, delivery and performance of this Agreement and the
         consummation of the Transaction. No other proceedings on the part of
         Seller are necessary to approve and authorize the execution and
         delivery of this Agreement and the other documents delivered pursuant
         hereto and the consummation of the Transaction. John Borgos and Ramon
         Diaz are the owners of all the outstanding membership interests in and
         are the only current members of the Seller. This Agreement has been
         duly and validly executed by Buyer and the Members. This Agreement is a
         valid and binding obligation of Seller and the Members, and, when
         executed and delivered, such other agreements and instruments to be
         delivered by Seller and the Members pursuant hereto will be valid and
         binding agreements and instruments of Seller and the Members, as the
         case may be, enforceable against them in accordance with its and their
         terms, respectively.

3.4      Non-Contravention. Except as set forth in Section 3.4 of the Disclosure
         Schedule, neither the execution and delivery of this Agreement nor the
         consummation of the Transaction will (i) violate any provisions of any
         of the Seller's organizational and governing documents, (ii) violate,
         conflict with, constitute a default under, or give rise to any right of
         termination of any agreement or instrument to which the Seller is a
         party or by which it or its assets or properties are bound or (iii)
         violate any statute or law or any judgment, decree, order, regulation
         or rule of any court or governmental authority applicable to the
         Seller.

3.5      Consents and Approvals. Except as set forth in Section 3.5 of the
         Disclosure Schedule, no consent, approval, order or authorization of or
         from, or registration, notification, declaration or filing with
         (hereinafter sometimes separately referred to as a "Consent" and
         sometimes collectively as "Consents") any individual or entity,
         including any foreign, federal, state or local governmental or
         quasi-governmental, administrative, regulatory or judicial court,
         department, commission, agency, board, bureau, instrumentality or other
         authority (an "Authority"), is required in connection with the
         execution, delivery or performance of this Agreement or the
         consummation by Seller of any of the documents being entered into by
         Seller related to, or arising from, the Transaction.

3.6      Financial Statements. Section 3.6 of the Disclosure Schedule contains
         (i) the Seller's unaudited Balance Sheet as of, and statements of
         operations and cash flows of the Seller for the eight months ended
         August 31, 2002, and (ii) the Seller's unaudited historical balance
         sheets as of, and statements of operations and cash flows for the
         fiscal years ended, December 31, 2000 and 2001 (collectively, the
         "Financial Statements"). Except as disclosed therein the Financial
         Statements (i) are in accordance with the books and records of Seller
         and have been prepared consistently for

                                        6

<PAGE>

         all periods, and (ii) are true, complete and accurate and fairly
         present the respective financial positions of Seller as of the
         respective dates thereof and the results of operations for the periods
         then ended. The balance sheet dated as of August 31, 2002 is
         hereinafter referred to as (the "Most Recent Balance Sheet").

3.7      Debt. Section 3.7 of the Disclosure Schedule contains an accurate and
         complete list of all indebtedness and other liabilities of Seller that
         are not included in the Most Recent Balance Sheet under the heading
         "Accounts Payable" or "Accrued Expenses", including the revolving lines
         of credit that are guaranteed by John Borgos (the "Third Party Debt")
         and the indebtedness owed by the Seller to John Borgos (the "Borgos
         Debt") In addition, Section 3.7 of the Disclosure Schedule sets forth
         the indebtedness owed by John Borgos to Glenn Johnson, which is secured
         by a security in the Seller's assets (the "Johnson Debt").

3.8      Undisclosed Liabilities. Except as set forth in Section 3.8 the
         Disclosure Schedule, the Seller has no liabilities or claims of any
         kind whatsoever, whether secured or unsecured, accrued or unaccrued,
         fixed or contingent, matured or unmatured, known or unknown, direct or
         indirect, contingent or otherwise and whether due or to become due
         other than: (a) liabilities that are fully reflected or reserved for on
         the Most Recent Balance Sheet or (b) liabilities that are incurred by
         the Seller in the ordinary course of business after the date of the
         Most Recent Balance Sheet, which will not exceed $20,000 in the
         aggregate and none of which results from, arises out of, relates to, is
         in the nature of, or was caused by any breach of contract, breach of
         warranty, tort, infringement or violation of law.

3.9      Absence of Certain Changes. Except as set forth in Section 3.9 of the
         Disclosure Schedule, since the date of the Most Recent Balance Sheet,
         Seller has owned and operated the Purchased Assets and Business in the
         ordinary course of business and consistent with past practice. Without
         limiting the generality of the foregoing, except as set forth in
         Section 3.9 of the Disclosure Schedule: (a) Seller has not experienced
         any change which constitutes a Material Adverse Effect or experienced
         any event or failed to take any action which reasonably could be
         expected to result in a Material Adverse Effect; (b) Seller has not
         suffered (i) any loss, damage, destruction or other casualty (whether
         or not covered by insurance) or (ii) any loss of officers, employees,
         dealers, distributors, independent contractors, customers or suppliers
         which had or may reasonably be expected to result in a Material Adverse
         Effect; (c) Seller has not sold, transferred, or otherwise disposed of
         any of its assets or properties other than in the ordinary course of
         business; (d) Seller has not disposed of or permitted the lapse of any
         license, permit, authorization, marketing approval, patent, trademark,
         trade name, or copyright owned by it; and (e) Seller has not incurred
         any liabilities other than in the ordinary course of business.

3.10     Purchased Assets of Business. Except as set forth in Section 3.10 of
         the Disclosure Schedule, Seller has good, valid and marketable title to
         all of the Purchased Assets, free and clear of all Encumbrances, with
         the unrestricted right to sell, assign, transfer and convey the
         Purchased Assets to Buyer in the manner contemplated herein. The
         Purchased Assets comprise all of the assets, both tangible and
         intangible, necessary for the continued conduct of the Business by
         Buyer as the Business is presently conducted and proposed to be
         conducted.

3.11     Machinery and Equipment. Except as set forth in Section 3.11 of the
         Disclosure Schedule, the Machinery and Equipment are in good operating
         condition and repair (ordinary wear and tear excepted) fit for the
         intended purposes and no material maintenance, replacement or repair
         has been deferred or neglected. All of the structures, improvements and
         fixtures included in Seller's facilities are in good order and repair.
         The Machinery and Equipment are not subject to any lease agreement or
         arrangement.

                                       7

<PAGE>

3.12     Intellectual Property Rights. The Seller owns or has the unrestricted
         right to use all Intellectual Property Rights used in or necessary or
         required for the conduct of the Business. All registered Intellectual
         Property Rights are listed or described in Section 3.12 of the
         Disclosure Schedule. The use of all Intellectual Property Rights
         necessary or required for the conduct of the Business as presently
         conducted and as proposed to be conducted does not and will not
         infringe or violate any intellectual property rights of any person or
         entity. Except as described in Section 3.12 of the Disclosure Schedule,
         the Seller (i) does not own or use any Intellectual Property Rights
         pursuant to any written license agreement; and (ii) has not granted any
         person or entity any rights, pursuant to written license agreement or
         otherwise, to use the Intellectual Property Rights.

3.13     Inventories. Except for the obsolete inventory listed in Section 3.13
         of the Disclosure Schedule, the Inventory consists of finished goods,
         work in process, raw and packaging materials and spare and replacement
         parts (which are either currently used in production of products or are
         products currently offered for sale by Seller) all of which (i) meet
         Seller's specifications and industry standards applicable to such
         inventories, including not having an expired shelf life, and (ii) are
         usable or salable in the ordinary course of Seller's business.

3.14     Insurance. Section 3.14 of the Disclosure Schedule contains an accurate
         and complete list of all policies of fire and other casualty, auto
         liability, general liability, theft, life, workers' compensation,
         health, directors and officers, business interruption and other forms
         of insurance owned or held by Seller, specifying the insurer, the
         policy number, the term of the coverage and, in the case of any "claims
         made" coverage, the same information as to predecessor policies for the
         previous five (5) years. All present policies are in full force and
         effect and all premiums with respect thereto have been paid. Except as
         set forth in Section 3.14 of the Disclosure Schedule, Seller has not
         been denied any form of insurance and no policy of insurance has been
         revoked or rescinded during the past five (5) years.

3.15     No Litigation or Adverse Events. No suit, action or legal,
         administrative, arbitration or other proceeding, or investigation by
         any governmental agency, pertaining to the Purchased Assets, the
         Business, the Assumed Liabilities or the Transaction, or any change in
         the zoning or building ordinances affecting the Business properties or
         leasehold interests, is pending or, to the knowledge of the Seller and
         the Members, has been threatened, nor do any facts exist which could
         reasonably be expected to lead to any such proceedings.

3.16     Employees. None of the Seller's employees is represented by a union,
         and no union organizing activities has taken or is taking place with
         respect to the Seller's employees. With respect to the Business, the
         Seller has complied, in all material respects, with all applicable
         federal, state and local laws relating to the employment of labor. The
         Seller has not experienced any significant work stoppage or other
         significant labor difficulty. Upon termination of employment of any
         person, Buyer will not, by reason of anything done at or prior to or as
         of the Closing Date, be liable to any such persons for so-called
         "severance pay" or any other payments. Within the 12-month period prior
         to the date hereof, there has not been any expression of intention to
         the Seller by officer or key employee of the Seller to terminate his or
         her employment.

3.17     Employee Benefit Plans. With respect to each employee benefit,
         incentive compensation, deferred compensation, equity-based
         compensation or perquisite plan, policy or practice covering any
         current or former employees of the Seller or their spouses, dependents
         or beneficiaries (a "Plan"), (i) the Seller does not and could not have
         any liability arising directly or indirectly under Section 412 of the
         Internal Revenue Code of 1986, as amended (the "Code") or Section 302
         or Title IV of the Employee Retirement Income Security Act of 1974, as
         amended ("ERISA"); (ii) the Seller does not and could not have any
         liability arising directly or indirectly to

                                       8

<PAGE>

         or with respect to any "multi-employer plan" within the meaning of
         Section 401(a)(3) of ERISA; (iii) the Seller does not and could not
         have any liability arising directly or indirectly in connection with
         any failure of Sellers to comply with Section 4980B of the Code or Part
         6 of Subtitle B of Title I of ERISA ("COBRA"); and (iv) nothing has
         occurred or failed to occur with respect to any Plan which could result
         in any liability to Buyer. Section 3.17 of the Disclosure Schedule
         lists each Plan.

3.18     Leases; Facility. Seller owns no real property. Other than the real
         property specified in the Real Property Lease, there is no real
         property used or necessary for the continued conduct of Business by
         Buyer. The Real Property Lease is legal, valid and a binding agreement
         duly enforceable in accordance with the terms and is currently in full
         force and effect. The Real Property Lease is fully paid up through the
         Closing Date and no defaults exist thereunder. The Seller's assignment
         to Buyer of its interest under the Real Property Lease will be duly
         made and effective as of the Closing Date. The Seller has not violated,
         nor is it currently in violation of, any law, regulation or ordinance
         relating to the ownership or use of the facility covered by the Real
         Property Lease (the "Facility") including, but not limited to, any law,
         regulation or ordinance relating to zoning, building, occupancy,
         environmental or comparable matters.

3.19     Environmental. There have been no acts or omissions occurring on or
         with respect to the Facility (whether or not such acts or omissions
         were permitted by the Seller) which do not or have not complied with or
         otherwise created any liability under any federal, state and local
         environmental laws and related rules and regulations, including, but
         not limited to, the Clean Water Act, the Clean Air Act, the Resource
         Conservation and Recovery Act, the Toxic Substances Control Act, the
         Comprehensive Environmental Response, Compensation and Liability Act
         and their state and local law counterparts (collectively referred to
         herein as the "Environmental Laws") in connection with the ownership
         and use of the Facility. To the knowledge of the Seller and the
         Members, the soil and ground water thereunder are free of environmental
         liens and the presence of any hazardous or regulated substances or
         wastes, petroleum or petroleum products, pcb's, radon, underground or
         above ground storage tanks, septic systems or wells (hereinafter
         collectively "Hazardous Substances") as those terms are defined under
         any Environmental Laws, except as such may have been used in the
         ordinary course of the Business and in compliance with, and not
         creating any liability under, Environmental Laws. There are no pending
         or, to the knowledge of the Seller and the Members, threatened
         environmental, health or safety claims, complaints or litigation, nor
         do any conditions exist which could result in any of such claims,
         against the Seller or as to the Facility, relating in any way to the
         Facility.

3.20     Products and Warranties. Except as set forth in Section 3.20 of the
         Disclosure Schedule, each product manufactured, sold, leased, or
         delivered by Seller has been in conformity with all applicable
         contractual commitments and all express and implied warranties, and
         meets or exceeds the standards required by all laws now in effect and
         there is no pending or threatened legislation, ordinance or regulation,
         which if adopted, would have a Material Adverse Effect upon the
         products sold by Seller. Seller has no liability (and there is no basis
         for any present or any future action, suit, proceeding, hearing,
         investigation, charge, complaint, claim or demand against it giving
         rise to any liability) for replacement or repair of any product
         manufactured, sold, leased or delivered by Seller or other damages in
         connection therewith. No product manufactured, sold, leased, or
         delivered by Seller is subject to any guaranty, warranty or other
         indemnity beyond the applicable standard terms and conditions of sale
         or lease.

3.21     Orders, Commitments and Returns. Except as set forth in Section 3.21
         of the Disclosure Schedule, all accepted and unfulfilled orders for the
         sale of products and the performance of

                                       9

<PAGE>

         services entered into by Seller and all outstanding material contracts
         or material commitments for the purchase of supplies, materials and
         services were made in bona fide transactions in the ordinary course of
         business. Except as set forth in Section 3.21 of the Disclosure
         Schedule, there are no claims against Seller to return products by
         reason of alleged over-shipments, defective products or otherwise, or
         of products in the hands of customers, retailers or distributors under
         an understanding that such products would be returnable.

3.22     Compliance with Law; Permits. Except as set forth in Section 3.22 of
         the Disclosure Schedule, Seller does not require the Consent of any
         Authority to permit Seller to operate the Business in the manner in
         which Seller is presently operating the Business, and Seller possesses
         all permits, licenses and other authorizations from all Authorities
         necessary to permit it to operate the Business in the manner in which
         it is presently conducted and the consummation of the Transaction will
         not prevent Buyer from being able to continue to use such permits and
         operating rights.

3.23     Taxes. Except as set forth in Section 3.23 of the Disclosure Schedule,
         Seller has filed (or caused to be filed) all tax reports and returns
         required to be filed by Seller and has paid (or caused to be paid) all
         taxes properly due in connection therewith, including interest and
         penalties. There are no liens, encumbrances, claims or charges of any
         kind for taxes on any Purchased Assets. For purposes of this Section
         3.23, "tax" will mean and include taxes, additions to tax, penalties,
         interest, fines, duties, withholdings, assessments and charges assessed
         or imposed by any governmental authority, including, but not limited
         to, all federal, state, county, local and foreign income, profits,
         gross receipts, import, ad valorem, real and personal property, premium
         franchise, transfer, windfall profits, environmental, minimum or
         alternative, accumulated profits, license, occupation, sales, use,
         value added, stamp, capital stock, net worth, transfer, withholding,
         payroll, employment, excise, custom, duty and any other taxes,
         obligations and assessments of any kind whatsoever; "tax" will also
         include any liability arising as a result of being (or ceasing to be) a
         member of any affiliated, consolidated, combined or unitary group as
         well as any liability under any tax allocation, tax sharing, tax
         indemnity or similar agreement.

3.24     Brokers. Seller has not engaged or employed any broker, finder,
         financial advisor or investment banker or incurred any liability for
         any brokerage fee or commission, finders fee, financial advisory fee or
         investment banker fee, in connection with the Transaction, nor is there
         any basis known to Seller or the Members for any such fee or commission
         to be claimed by any person or entity.

3.25     Contracts; No Default. Except as set forth in Section 3.25 of the
         Disclosure Schedule, the Seller does not: (i) have any written
         contract, commitment, agreement or arrangement with any person or
         business or an oral contract, commitment, agreement or arrangement
         which (a) requires payments individually in excess of $5,000 annually
         or in excess of $20,000 over its term and (b) is not terminable on 30
         days or less notice without cost or other liability; (ii) pays any
         person or entity (other than an employee) cash remuneration at the
         annual rate of more than $20,000 for services rendered; (iii) is
         restricted by agreement from carrying on its business or any part
         thereof anywhere in the world or from competing in any line of business
         with any person or entity; (iv) is subject to any outstanding sales or
         purchase contracts, commitments or proposals which will result in any
         loss upon completion of performance thereof; (v) is party to any
         purchase or sale contract or agreement that calls for aggregate
         purchases or sales in excess over the course of such contract or
         agreement of $20,000 or which continues for a period of more than 12
         months; (vi) has any distributorship, dealer, manufacturers
         representative, franchise or similar sales contract relating to the
         payment of a commission; or (vii) is subject to any contract,
         commitment, agreement or arrangement that contains a provision that
         would be triggered or cause a breach or

                                       10

<PAGE>

         right to terminate upon a change of control (or a change in ownership)
         of the Seller. True and complete copies (or summaries, in the case of
         oral items) of all items disclosed pursuant to this Section 3.25 have
         been made available to Buyer for review. Except as set forth in Section
         3.25 of the Disclosure Schedule, all such items are valid and
         enforceable by and against the Seller in accordance with their
         respective terms, except to the extent of applicable bankruptcy,
         reorganization, solvency, moratorium, fraudulent conveyance and other
         laws affecting the rights of creditors generally or the availability of
         specific performance, injunctive relief and other equitable remedies;
         and the Seller is not in breach, violation or default in the
         performance of any of their obligations thereunder, and no facts or
         circumstances exist which, whether with the giving of due notice, lapse
         of time or both, would constitute such a breach, violation or default
         thereunder or thereof.

3.26     Disclosure. There is no material fact as of the date hereof which has
         not been disclosed in writing to Buyer related to Seller, the Purchased
         Assets, the Assumed Liabilities, the Business, or the operations,
         properties, financial condition or prospects of the Business which has
         or could reasonably be expected to have a Material Adverse Effect on
         Seller or the Business. The representations and warranties contained in
         this Section 3 or elsewhere in this Agreement or any document delivered
         pursuant hereto will not be affected or deemed waived by reason of the
         fact that Buyer or its respective representatives knew (other than as a
         result of the express disclosures contained in the Disclosure Schedule)
         or should have known that any such representation or warranty is or
         might be inaccurate in any respect.

3.27     Plan of Reorganization. The Seller's First Amended Plan of
         Reorganization filed February 17, 1999 in the United Stated Bankruptcy
         Court for the District of New Jersey (the "Plan of Reorganization") has
         not been appealed, reconsidered or modified in any manner and has not
         been amended or revised post-confirmation. All secured creditors who
         were filed as of the confirmation date received prior notice of the
         Plan of Reorganization and had an opportunity to object. The Seller has
         fully satisfied all of its obligations under the Plan of
         Reorganization, including, but not limited to, the payment of ninety
         percent (90%) of its unsecured claims within one hundred eighty (180)
         days following the effective date of the Plan of Reorganization.
         Immediately following and as a result of the Plan of Reorganization,
         John Borgos owned at least 99% of the membership interests of Seller.

                                   SECTION 4.
                     REPRESENTATIONS AND WARRANTIES OF BUYER

         Buyer represents and warrants to Seller and the Members that:

4.1      Corporate Organization.  Buyer is a corporation duly organized, validly
         existing and in good standing under the law of the State of Delaware.

4.2      Authority. Buyer has full corporate power and authority to enter into
         this Agreement and to carry out the Transaction. The board of directors
         of Buyer has taken all action required by law, its certificate of
         incorporation and bylaws or otherwise to authorize the execution,
         delivery and performance of this Agreement and the consummation of the
         Transaction. No other corporate proceedings on the part of Seller are
         necessary to approve and authorize the execution and delivery of this
         Agreement and the other documents delivered pursuant hereto and the
         consummation of the Transaction. This Agreement has been duly and
         validly executed by Buyer. This Agreement is a valid and binding
         obligation of Buyer, and, when executed and delivered, such other
         agreements and instruments to be delivered by Buyer pursuant hereto
         will be valid and
                                      11

<PAGE>

         binding agreements and instruments of Buyer, enforceable against it in
         accordance with its and their terms, respectively.

4.3      Non-Contravention. Neither the execution, delivery and performance of
         this Agreement nor the consummation of the Transaction will: (i)
         violate any provisions of any of the Buyer's certificate of
         incorporation or bylaws, (ii) violate, conflict with, constitute a
         default under, or give rise to any right of termination of any
         agreement or instrument to which the Buyer is a party or by which its
         assets or properties are bound or (iii) violate any statute or law or
         any judgment, decree, order, regulation or rule of any court or
         governmental authority applicable to the Buyer.

4.4      Brokers. Buyer has not engaged or employed any broker, finder or
         financial advisor, or incurred any liability for any brokerage fee or
         commission, finder's fee or financial advisory fee, in connection with
         the transactions contemplated hereby, nor is there any basis known to
         Buyer for any such fee or commission to be claimed by any person or
         entity.

                                    SECTION 5.
                                    COVENANTS

         Buyer on the one hand, and Seller on the other hand, agree as follows:

5.1      Further Assurances and Cooperation. Each party hereto shall execute and
         deliver, or cause to be executed and delivered, such documents and
         take, or cause to be taken, such actions as the other party may
         reasonably request in order to consummate more effectively the
         Transaction. If Buyer decides to use the name "Vasamedics," Seller will
         take such action as Buyer reasonably requests to enable Buyer to do so,
         including changing Seller's name.

5.2      Public Announcement. None of the parties hereto shall make any public
         announcement with respect to the Transaction, except to governmental
         agencies as counsel shall deem necessary to comply with applicable law,
         rule or regulation, without the prior written consent of the other
         party, which shall not be unreasonably withheld or delayed.

5.3      Employee Matters.

         (a)   Offers of Employment. In addition to the at-will employment
               agreement with John Borgos, Buyer will offer full-time at-will
               employment to Franz Pearson and Charlotte Nowakowski and
               temporary, part-time at-will employment to Linda Borgos and Tom
               Borgos effective October 1, 2002. All such at-will employees will
               be required to execute Buyer's standard agreement which include
               provisions regarding confidentiality, assignment of inventions
               and a one-year covenant not to compete. Buyer will begin paying
               such employees as of September 30, 2002. Buyer will give all such
               employees credit for accrued vacation to the extent reflected on
               the Most Recent Balance Sheet or accrued since the date of the
               Most Recent Balance Sheet.

         (b)   Consulting Agreement. Buyer will execute a consulting agreement,
               which will be effective as of September 30, 2002, with Ramon Diaz
               as provided in Section 2.3 hereof in form and content
               satisfactory to Buyer and Ramon Diaz.

         (c)   Termination. On the Closing Date, Seller will terminate all
               employees then employed in the Business who are to be hired by
               Buyer pursuant to Section 5.3(a) and as a consultant pursuant to
               Section 5.3(b) hereof (the "Terminated Employees"). Seller shall
               be

                                      12

<PAGE>

                  responsible for all Warn Act obligations, all severance and
                  other obligations to the Terminated Employees and Seller shall
                  be responsible for all obligations to its former employees
                  with respect to any 401(k) plan, and any other pension or
                  profit sharing plan liabilities.

5.4      Tax Matters.

         (a)      Certificates. Seller shall on the date hereof provide Buyer
                  with any clearance certificates or similar documents which may
                  be required by any state taxing authority.

         (b)      Preparation of Tax Returns. Seller and Buyer shall (i) each
                  provide the other with such assistance as may reasonably be
                  requested by either of them in connection with the preparation
                  of any Tax Return, audit or other examination by any taxing
                  authority or judicial or administrative proceedings relating
                  to liability for Taxes, (ii) each retain and provide the other
                  with any records or other information which may be relevant to
                  such Tax Return, audit or examination, proceeding or
                  determination, and (iii) each provide the other with any final
                  determination of any such audit or examination, proceeding or
                  determination that affects any amount required to be shown on
                  any Tax Return of the other for any period.

         (c)      Payment of Transaction Taxes. Seller and Buyer will each be
                  responsible for one-half of any sales, use, transfer or
                  documentary taxes and recording and filing fees applicable to
                  the transactions contemplated by this Agreement.

         (d)      Retention of Records. Seller shall request that records in
                  possession of its independent certified accountants be
                  retained by them for the customary retention period
                  established by the firm (but not less than the applicable
                  statute of limitations period), and that such records be made
                  available to Buyer on request.

5.5      Full Access to Buyer. For a period ending on the later of (i) twelve
         months after the Closing Date or (ii) the date on which any
         indemnification claims by Buyer have been finally resolved, Seller
         shall afford to Buyer and its, directors, officers, employees, counsel,
         accountants, investment advisors and other authorized representatives
         and agents access to the facilities, properties, book and records of
         Seller's Business in order that Buyer may have full opportunity to make
         such investigations as it shall desire to make of the affairs of
         Seller's Business, and Seller shall furnish such additional financial
         and operating data and other information of the Business as Buyer
         shall, from time to time, reasonably request, including access to the
         working papers of its independent certified public accountants relating
         to Seller's Business or the assets, provided, however, that any such
         investigation shall be conducted at reasonable times and upon
         reasonable notice; provided, further, that any such investigation shall
         not affect or otherwise diminish or obviate in any respect any of the
         representations and warranties of Seller herein; and provided, further,
         Seller and Buyer shall reasonably cooperate with each other regarding
         Buyer's interviews of or discussions with customers and suppliers of
         the Business prior to Closing.

5.6      Third Party Agreements. Seller shall obtain all necessary consents from
         third parties with respect to any agreements of Seller upon request by
         Buyer.

5.7      Expenses. Except as otherwise provided herein, each party hereto shall
         pay its own expenses incident to this Agreement and the Transaction,
         including, without limitation, fees and expenses of legal counsel,
         accountants, investment brokers or finders, printers, copiers,
         consultants or other representatives for services used, hired or
         rendered hereunder.

                                       13

<PAGE>

5.8      Confidentiality. After the Closing, Seller will not use or disclose to
         third parties any confidential information relating to the Business
         provided that (a) Seller may use or disclose any such information which
         has been publicly disclosed (other than by Seller after the date
         hereof) and (b) to the extent Seller may be legally compelled to
         disclose any such information, Seller may disclose such information if
         Seller shall have afforded Buyer the opportunity to obtain an
         appropriate protective order, or other satisfactory assurance of
         confidential treatment, for the information required to be so
         disclosed.

                                   SECTION 6.
           SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION

6.1      Survival of Representations and Warranties. Notwithstanding any
         investigation made by or on behalf of Buyer or the results of any such
         investigation and notwithstanding the participation of Buyer in the
         Closing, the representations and warranties of Seller and the Members
         contained in this Agreement, or in any exhibit, schedule, certificate
         or other instrument furnished by Seller or the Members at or in
         connection with the Closing, and the indemnification obligations of
         Seller and the Members with respect thereto, shall terminate on the
         first anniversary of the Closing Date; provided, however, that the
         representations and warranties of Seller and the Members contained in
         Section 3.19 (under the heading "Environmental") and 3.23 (under the
         heading "Taxes"), and the indemnification obligations of Seller and the
         Members with respect thereto, shall survive until six (6) months after
         the expiration of the applicable statute of limitations. The
         representations and warranties of Buyer contained in this Agreement, or
         in any certificate or other instrument delivered pursuant to this
         Agreement, and the indemnification obligations of Buyer with respect
         thereto, shall terminate on the first anniversary of the Closing Date.
         The covenants set forth in this Agreement shall survive the Closing
         indefinitely. The respective expiration dates for the survival of
         representations and warranties shall be referred to as the ("Expiration
         Date").

6.2      Indemnification by Buyer. Buyer agrees to indemnify and hold Seller,
         its employees, officers, directors, agents and representatives and the
         Members harmless from and against any and all loss, liability or damage
         and actions and against all claims in respect thereof (including
         reasonable attorneys fees, amounts paid in settlement and reasonable
         costs of investigation herein referred to collectively as "Losses" or
         individually as "Loss") to which Seller or the Members may become
         subject to or which it or they may suffer or incur as a result of or in
         connection with (i) any untrue representation of, or breach of warranty
         by, Buyer in any part of this Agreement, notice of which is given to
         Buyer on or prior to the relevant Expiration Date; (ii) any
         nonfulfillment of any covenant, agreement or undertaking of Buyer in
         any part of this Agreement; (iii) the use, ownership or operation of
         the Purchased Assets of Seller and the conduct of Seller's Business
         after the Closing Date, unless such Losses or Loss is subject to
         indemnification by Seller pursuant to Section 6.3 hereof; and (iv) any
         and all reasonable costs and expenses, including reasonable legal fees
         and expenses, in connection with enforcing the indemnification rights
         of Seller pursuant to this Section 6.2.

6.3      Indemnification by Seller and Members. Seller and Members, jointly and
         severally, agree to indemnify and hold Buyer and its employees,
         officers, directors, agents and representatives harmless from and
         against any and all Loss or Losses to which Buyer or any of the
         foregoing may become subject to or which it or they may suffer or
         incur, directly or indirectly, as a result of or in connection with (i)
         any untrue representation or breach of warranty by Seller or the
         Members in any part of this Agreement, notice of which is given to
         Seller on or prior to the relevant Expiration Date; (ii) the breach of
         or nonfulfillment of any covenant, agreement or undertaking of Seller
         in this Agreement; (iii) any Retained Liabilities; (iv) the use,
         ownership or operation of the assets of Seller and the conduct of the
         Seller's Business prior to the Closing Date; (v) any Loss

                                       14

<PAGE>

         relating to employment and labor matters, practices and conditions
         including without limitation events giving rise to workers'
         compensation claims, and which occurred, existed or related to
         conditions or circumstances existing prior to Closing Date, regardless
         of whether those matters are described in the Disclosure Schedule; (vi)
         any Loss for Taxes of Seller with respect to any tax period or portion
         thereof ending on or before the Closing Date in excess of amounts
         accrued for Taxes on the Most Recent Balance Sheet (exclusive of any
         reserve for deferred Taxes established to reflect temporary differences
         between book and taxable income pursuant to Statement of Financial
         Accounting Standards No. 109), regardless of whether such liabilities
         for Taxes arise out of or constitute a breach of any representation,
         warranty or covenant in this Agreement; (vii) any Loss relating to or
         arising out of alleged product failures, product warranties or
         guaranties with respect to any products sold by the Seller prior to the
         Closing Date, whether known or unknown; and (viii) any and all costs
         and expenses including reasonable legal fees and expenses, incurred in
         connection with enforcing the indemnification rights of Buyer pursuant
         to this Section 6.3.

6.4      Claims for Indemnification.

         (a)      General. The parties intend that all indemnification claims be
                  made as promptly as practicable by the party seeking
                  indemnification (the "Indemnified Party"). Whenever any claim
                  shall arise for indemnification hereunder, the Indemnified
                  Party shall promptly notify the party from whom
                  indemnification is sought (the "Indemnifying Party") of the
                  claim, and the facts constituting the basis for such claim,
                  but in no event later than thirty (30) days after the
                  Indemnified Party acquires knowledge of the claim. The failure
                  to so notify the Indemnifying Party shall not relieve the
                  Indemnifying Party of any liability that it may have to the
                  Indemnified Party except to the extent the Indemnifying Party
                  demonstrates that the defense of such action is prejudiced
                  thereby. If the Indemnifying Party is of the opinion that the
                  Indemnified Party is not entitled to indemnification, or is
                  not entitled to indemnification in the amount claimed in such
                  notice, it shall deliver, within twenty (20) days after the
                  receipt of such notice, a written objection to such claim and
                  written specifications in reasonable detail of the aspects or
                  details objected to, and the grounds for such objection. If
                  the Indemnifying Party shall file timely written notice of
                  objection to any claim for indemnification, the validity and
                  amount of such claim shall be determined by arbitration
                  pursuant to Section 7.6. If timely notice of objection is not
                  delivered or if a claim by an Indemnified Party is admitted in
                  writing by an Indemnifying Party or if an arbitration award is
                  made in favor of an Indemnified Party, the Indemnified Party,
                  as a non-exclusive remedy, shall have the right to set-off the
                  amount of such claim or award against any amount yet owed,
                  whether due or to become due, including any bonus payment due,
                  by the Indemnified Party or any subsidiary thereof to any
                  Indemnifying Party by reason of this Agreement or any
                  agreement or arrangement or contract to be entered into at the
                  Closing.

         (b)      Claims by Third Parties. With respect to claims made by third
                  parties, the Indemnifying Party shall be entitled to assume
                  control of the defense of such action or claim with counsel
                  reasonably satisfactory to the Indemnified Party; provided,
                  however, that:

                  (i)    the Indemnified Party shall be entitled to participate
                         in the defense of such claim and to employ counsel at
                         its own expense to assist in the handling of such
                         claim;

                  (ii)   no Indemnifying Party shall consent to (i) the entry of
                         any judgment or enter into any settlement that does not
                         include as an unconditional term thereof the giving

                                       15

<PAGE>

                          by each claimant or plaintiff to each Indemnified
                          Party of a release from all liability in respect to
                          such claim or (ii) if, pursuant to or as a result of
                          such consent or settlement, injunctive or other
                          equitable relief would be imposed against the
                          Indemnified Party or such judgment or settlement could
                          materially interfere with the business, operations or
                          assets of the Indemnified Party; and

                  (iii)   if the Indemnifying Party does not assume control of
                          the defense of such claim in accordance with the
                          foregoing provisions within five (5) days after
                          receipt of notice of the claim, the Indemnified Party
                          shall have the right to defend such claim in such
                          manner as it may deem appropriate at the cost and
                          expense of the Indemnifying Party, and the
                          Indemnifying Party will promptly reimburse the
                          Indemnified Party therefore in accordance with this
                          Section 6; provided that the Indemnified Party shall
                          not be entitled to consent to the entry of any
                          judgment or enter into any settlement of such claim
                          that does not include as an unconditional term thereof
                          the giving by each claimant or plaintiff to each
                          Indemnifying Party of a release from all liability in
                          respect of such claim without the prior written
                          consent of the Indemnifying Party if, pursuant to or
                          as a result of such consent or settlement, injunctive
                          or other equitable relief would be imposed against the
                          Indemnifying Party or such judgment or settlement
                          could materially interfere with the business,
                          operations or assets of the Indemnifying Party.

         (c)      Remedies Cumulative. The remedies provided herein shall be
                  cumulative and shall not preclude assertion by any party of
                  any rights or the seeking of any other remedies against any
                  other party.

         (d)      Disclosure. No action by an Indemnified Party to determine the
                  extent of indemnified liability, including voluntary
                  disclosure to Authorities or potential claimants, shall in any
                  way affect such Indemnified Party's right to indemnification
                  from the Indemnifying Party.

6.5      Limitation on Indemnification.

         (a)      Neither Buyer, on the one hand, nor the Seller or the Members
                  on the other hand, as the case may be, shall be entitled to
                  indemnification pursuant to Section 6 unless the aggregate
                  amount of all claims thereunder is more than Twenty Five
                  Thousand Dollars ($25,000) (the "Basket Amount"). When the
                  aggregate amount of all such Losses of an Indemnified Party
                  equals or exceeds the Basket Amount, the Indemnified Party
                  will be entitled to full indemnification of all claims,
                  including the Basket Amount. The parties hereto agree that the
                  Basket Amount is not a deductible amount, nor that the Basket
                  Amount will be deemed to be a definition of "material" for any
                  purpose in this Agreement.

         (b)      The maximum liability of John Borgos under this Section 6
                  shall not exceed the aggregate amount of the cash bonuses, if
                  any, paid to John Borgos pursuant to the Borgos Agreements.
                  The maximum liability of Ramon Diaz under this Section 6 shall
                  not exceed the aggregate amount of the cash bonuses, if any,
                  paid to Ramon Diaz pursuant to the Diaz Agreements. The Buyer
                  shall be entitled to deduct and set-off against any such cash
                  bonus payments that would otherwise be payable under either
                  the Borgos Agreements or the Diaz Agreements, whether earned
                  before or after Buyer makes any claim for indemnification
                  under this Section 6, the amount of any Losses for which Buyer
                  is entitled to indemnification under this Section 6.

                                       16

<PAGE>

                                   SECTION 7.
                                  MISCELLANEOUS

7.1      Notices. Any notice, demand, request or other communication under this
         Agreement shall be in writing and shall be deemed to have been given on
         the date of service if personally served or on the fifth (5th) day
         after mailing if mailed by registered or certified mail, return receipt
         requested, addressed as follows (or to such other address of which
         either of the parties hereto shall have notified the other party hereto
         in accordance herewith):

         To Buyer:        Optical Sensors Incorporated
                          7615 Golden Triangle Drive, Suite C
                          Minneapolis, Minnesota 55344
                          Attn:  Paulita LaPlante

         with an additional copy thereof to:

                          Thomas A. Letscher
                          Oppenheimer Wolff & Donnelly LLP
                          Plaza VII, Suite 3300
                          45 South Seventh St.
                          Minneapolis, MN 55402

         To Seller:       John Borgos
                          Vasamedics LLC
                          2958 Yorkton Blvd.
                          Little Canada, MN 55117

                          Ramon Diaz
                          5510 Boyce Springs
                          Houston, TX 77066

7.2      Governing Law. This Agreement shall be construed in accordance with,
         and governed by, the laws of the State of Minnesota, without regard to
         the conflicts of laws principles that might otherwise apply.

7.3      Counterparts. This Agreement may be executed in any number of
         counterparts, each of which shall constitute an original and all of
         which shall constitute one agreement.

7.4      Amendment or Modification. This Agreement may not be modified or
         amended except by a written instrument duly executed by each of the
         parties hereto.

7.5      Assignment and Successors. This Agreement and all of the provisions
         hereof shall be binding upon and inure to the benefit of the parties
         hereto and their respective successors and permitted assigns, but
         neither this Agreement nor any of the rights, interests or obligations
         hereunder shall be assigned (whether voluntarily, involuntarily, by
         operation of law or otherwise) by any of the parties hereto without the
         prior written consent of the other parties, provided, however, that
         Buyer may assign, without Seller's consent, its rights and obligations
         under this Agreement, in whole or in any part, and from time to time.

7.6      Arbitration. Any controversy or claim arising out of or relating to
         this Agreement, or the making, performance or interpretation thereof,
         including without limitation alleged fraudulent inducement thereof,
         will be settled by binding arbitration in Minneapolis, Minnesota by a
         single

                                       17

<PAGE>

         arbitrator in accordance with the Complex Rules of the American
         Arbitration Association. Judgment upon any arbitration award may be
         entered in any court having jurisdiction thereof and the parties
         consent to the jurisdiction of the courts of the State of Minnesota for
         this purpose.

7.7      Entirety of Agreement; Schedules. This Agreement, including the
         schedules and exhibits hereto, states the entire agreement of the
         parties with respect to the Purchased Assets conveyed and liabilities
         assumed hereunder, merges all prior negotiations, agreements and
         understandings, if there be any, and states in full all representations
         and warranties which have induced this Agreement, there being no
         representations or warranties other than those herein stated. The
         Schedules referred to in this Agreement are intended to be an integral
         part of this Agreement.

7.8      Headings. The table of contents and the headings of the sections and
         subsections of this Agreement are inserted for convenience only and
         shall not constitute a part hereof.

7.9      Severability. If any provision hereof is held by any court of competent
         jurisdiction to be illegal, void or unenforceable, such provision will
         be of no force and effect, but the illegality or unenforceability will
         have no effect upon and will not impair the enforceability of any other
         provision of this Agreement.

7.10     No Third Party Beneficiaries. Except as expressly permitted by this
         Agreement, nothing in this Agreement will confer any rights upon any
         person or entity which is not a party or permitted assignee of a party
         to this Agreement.

                  [Remainder of page intentionally left blank]

                                       18

<PAGE>

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

                                         Buyer:

                                         OPTICAL SENSORS INCORPORATED

                                         By:    /s/ Paulita LaPlante
                                            ------------------------------------
                                         Name:  Paulita LaPlante
                                              ----------------------------------
                                         Title: President and CEO
                                               ---------------------------------

                                         Seller:

                                         VASAMEDICS LLC

                                         By:    /s/ John Borgos
                                            ------------------------------------
                                         Name:  John Borgos
                                              ----------------------------------
                                         Title: President
                                               ---------------------------------

                                         Members:

                                         /s/  John Borgos
                                         ---------------------------------------
                                         John Borgos

                                         /s/  Ramon Diaz
                                         ---------------------------------------
                                         Ramon Diaz

                                       19

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