Document:

<PAGE>

[*] =Certain confidential information contained in this Exhibit 4.2, marked by
brackets with asterisks, has been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.

                                                                    Exhibit 4.2

             CHOLESTEROL 1,2,3 - SKIN CHOLESTEROL MEASUREMENT SYSTEM
                     PRODUCT DEVELOPMENT, MANUFACTURING AND
                          MARKETING AND SALES AGREEMENT

     THIS AGREEMENT is made effective the 14th day of May, 1999 by and between
IMI INTERNATIONAL MEDICAL INNOVATIONS, INC., a corporation organized and
existing under the laws of Canada, with its principal office at 5955 Airport
Road, Suite 222, Mississauga, Ontario L4V 1R9 (telefax number: 905-677-4912),
and X-RITE, INC., a corporation organized and existing under the laws of the
State of Michigan, with its principal office at 3100 44th Street, Grandville,
Michigan 49418 (telefax number: 616-534-4160).

                                    PREAMBLE

     WHEREAS, IMI International Medical Innovations, Inc. has acquired and/or
developed technologies relating to a non-invasive skin cholesterol test and is
conducting clinical trials of the test in anticipation of seeking approval from
the United States Food and Drug Administration; and

     WHEREAS, X-Rite, Inc. is involved in the development and manufacture of
color measurement devices which appear to be capable of being used in
conjunction with the aforementioned technologies and packaged as a system for
use in "point of care" and "over the counter" applications; and

     WHEREAS, both parties are desirous of combining the complementary
technologies of each other to develop, manufacture and market and sell a total
system solution for non-invasive skin cholesterol testing.

     NOW, THEREFORE, the parties hereto agree to the following terms and
conditions in this Agreement:

                                    ARTICLE 1
                                   DEFINITIONS

     As used in this Agreement, the following definitions shall apply:

     1.1  Agreement. "Agreement" shall mean this agreement with respect to
Cholesterol 1,2,3 - Skin Cholesterol Measurement System Product Development,
Manufacturing, Marketing and Sales Agreement.

     1.2  IMI. "IMI" shall mean IMI International Medical Innovations, Inc., a
corporation organized and existing under the laws of Canada, with its principal
office at 5955 Airport Road, Suite 222, Mississauga, Ontario L4V 1R9.

                                       1

<PAGE>

     1.3  X-Rite. "X-Rite" shall mean X-Rite, Inc., a corporation organized and
existing under the laws of the State of Michigan, with its principal office at
3100 44th Street, Grandville, Michigan 49418.

     1.4  Party/Parties. `Party" shall mean IMI or X-Rite, as the case may be;
"Parties" shall mean IMI and X-Rite.

     1.5  IMI Technology. "IMI Technology" shall mean the IMI patents listed on
Schedule 1.5 and other patents and patent applications (and patents issued from
such applications) and all of IMI's know-how and technical information which in
any way relate to the non-invasive measurement of cholesterol on the surface of
human skin which, at this date, has been developed by IMI as a diagnostic test
kit consisting of a digitonin horseradish peroxidase conjugate reagent and an
indicator solution.

     1.6  X-Rite Product. "X-Rite Product" shall mean that color measuring
device and related software which X-Rite develops to IMI identified
specifications as contemplated in section 2.2 hereof.

     1.7  Cholesterol 1.2.3 System. "Cholesterol 1,2,3 System" shall mean that
product or system resulting from the combination (and combined use) of the IMI
Technology and the X-Rite Product.

     1.8  POC. "POC" shall mean point-of-care applications of the Cholesterol
1,2,3 System applied under the direction or supervision of medical practitioners
and clinicians.

     1.9  OTC. "OTC" shall mean all applications other than POC which shall
specifically include over-the-counter sales of the Cholesterol 1,2,3 System or a
derivative thereof for self-testing and as a home-use diagnostic tool (not
needing or requiring the assistance, direction or supervision of medical
practitioners or clinicians) and which is designed by the Parties especially for
that market.

     1.10  Functional Acceptance Date. "Functional Acceptance Date" as used
herein means the date on which the United States Food and Drug Administration
(`PDA") has approved the Cholesterol 1,2,3 System for release in POC
applications.

     1.11  Purchase. "purchased" as used herein means, in determining the date
on which X-Rite Products arepurchased, that date which is the earlier of (i) the
date on which X-Rite Products ordered by IMI from X-Rite have been shipped to
IMI and (ii) the date on which X-Rite Products ordered by IMI from X-Rite should
have been shipped to IMI as contemplated in Section 3.1 and Schedule 3.1 hereto
provided, however, if payment with respect to such X-Rite Products is or was not
effected by IMI within X-Rite's stated standard payment terms, or such other
payment terms which deviate from X-Rite's stated standard payment terms as IMI
and X-Rite shall agree upon from time to time, then such X-Rite Products shall
not be considered as having been "purchased".

                                       2

<PAGE>

                                    ARTICLE 2
                      CHOLESTEROL 1,2,3 SYSTEM DEVELOPMENT

     2.1  Scope of Development. IMI and X-Rite shall use their respective
reasonable commercial efforts and resources on the terms and conditions set out
herein to develop the Cholesterol 1,2,3 System for POC applications and to use
their reasonable commercial efforts to achieve the milestones, including a
Functional Acceptance Date, generally in accordance with and as described in
Schedule 2.1 and modified as necessary by the mutual agreement of the Parties
(negotiated, acting reasonably) during the term of this Agreement The Parties
recognize that such changes may require an adjustment in the timetable
contemplated herein.

     2.2  X-Rite Product. The X-Rite Product for POC applications shall be
designed by X-Rite to meet those product requirements and specifications set
forth on Schedule 2.2, or such other requirements and specifications IMI may
reasonably request (based upon the results of the testing and trials
contemplated in section 2.3) and as the Parties may mutually agree upon from
time to time (acting reasonably), and shall satisfy reasonable requirements
specified by the FDA. X-Rite shall manufacture and supply prototype X-Rite
Products for POC applications at the date and in the quantities specified on
Schedule 2.1.

     2.3  Regulatory Approval. IMI shall, subject to commercial reasonableness
and at its own expense, be responsible for undertaking all testing and clinical
trial activity which may be a prerequisite to seeking and obtaining regulatory
approval required for the marketing and sales of Cholesterol 1,2,3 Systems in
POC applications in the United States as well as using its reasonable commercial
efforts to seek and obtain regulatory approval to achieve a Functional
Acceptance Date. IMI shall promptly provide to X-Rite any and all communications
from any regulatory agency which would in any way relate to the responsibilities
of X-Rite under Section 2.2 above. Upon request of IMI, X-Rite shall, at its own
expense, provide all necessary documentation and test reports for submission to
the FDA, and reasonable assistance in answering requests for additional
information.

     2.4  Development Costs. The cost of development incurred to date and
hereafter incurred shall be the sole responsibility of the Party incurring the
cost, unless otherwise agreed.

     2.5  Ownership. IMI shall acquire no rights in the X-Rite Product and
X-Rite shall acquire no rights in the IMI Technology other than as expressly
provided herein. X-Rite shall acquire no tights to the Cholesterol 1,2,3 System.
IMI shall be entitled to utilize the X-Rite Product as contemplated herein,
including for the purposes of promoting, marketing and selling the Cholesterol
1,2,3, System.

     2.6  Confidentiality of Information Disclosed. The terms and conditions of
the Confidentiality Agreement between the Parties dated February 4, 1999 shall
continue in full force and effect notwithstanding the execution and delivery of
this Agreement.

                                       3

<PAGE>

                                    ARTICLE 3
                     X-RITE PRODUCT MANUFACTURING AND SUPPLY

     3.1  Requirements/Exclusive Supply for POC Applications. X-Rite shall, from
and after the Functional Acceptance Date, supply the X-Rite Product to IMI in
commercial quantities on terms and conditions set out on Schedules 3.1 and 3.4
hereto, and IMI shall purchase from X-Rite all of IMI's worldwide requirements
for color measuring devices and related software for use by IMI in marketing and
selling the Cholesterol 1,2,3 System in POC applications. X-Rite hereby
represents that it has not entered into any agreements pursuant to which it may
be required to, and agrees that it shall not, supply to any third party any
product that would compete with the Cholesterol 1,2,3 System in POC
applications.

     3.2  Relationship for OTC Applications. IMI hereby grants to X-Rite a right
of first negotiation with respect a contractual arrangement relating to the
development and supply to IMI, and pursuant to which IMI shall purchase from
X-Rite all of IMI's worldwide requirements for color measuring devices and
related software for use by IMI in marketing and selling the Cholesterol 1,2,3
System in OTC applications. Except as hereinafter provided in this section 3.2,
if IMI proposes to enter into such negotiations, IMI shall give written notice
thereof to X-Rite. Unless X-Rite does not wish to embark upon such negotiations,
the Parties shall commence bona fide negotiations with respect to the terms and
conditions of such an arrangement, which negotiations shall continue for not
less than 60 days from the date of notice from IMI. If the Parties reach
agreement as a result of such negotiations, X-Rite will supply the X-Rite
Product exclusively to IMI for OTC applications and will not supply to any third
party any product that would compete with the Cholesterol 1,2,3 System in OTC
applications. Notwithstanding the above, however, IMI reserves the right to
enter into an agreement with respect to sourcing the development and/or supply
of product for OTC applications and sourcing its requirements for measuring
devices to be used in OTC applications, without obligation to X-Rite (such
transactions being herein referred to as an "Alternate Arrangement"), if(i) the
party with whom IMI deals for such purposes is a supplier having previous
manufacturing experience with other OTC test devices and/or systems or (ii) a
customer of IMI has required the sourcing from a supplier other than X-Rite as a
condition of the sale of that system to that customer.

     3.3  Payment to X-Rite. If, on any date which is three years or more after
the Functional Acceptance Date:

          (a) less than [***] X-Rite Products have been purchased by IMI for POC
     applications for the period between the date hereof and the date which is
     [***] following the Functional Acceptance Date; and

          (b) IMI shall have entered into an Alternate Arrangement as of such
     date

     X-Rite may elect, in the exercise of its sole discretion, to demand that
IMI pay, and IMI shall promptly pay X-Rite the sum of [***], such payment being
considered by the Parties to be a liquidated damage to reimburse X-Rite for a
portion of its development cost of the X-Rite Product under circumstances where
the level of sales for POC applications has not met the Parties expectations and
X-Rite has not become the sole source for measuring devices for OTC

                                       4

<PAGE>

applications. The Parties acknowledge that, except as contemplated in this
Subsection 3.3(b), X-Rite shall have no rights against IMI, and IMI shall have
no liabilities and obligations to X-Rite as a result of any circumstance
contemplated in Sections 3.2 or 3.3.

     3.4  Price. From and after the Functional Acceptance Date, the price for
the X-Rite Product for POC applications shall be that which is set forth on
Schedule 3.4. Prior to such date, X-Rite shall be responsible to supply the
X-Rite Product to IMI for IMI's use hereunder.

                                    ARTICLE 4
                      CHOLESTEROL 1,2,3 MARKETING AND SALES

     4.1  IMI Responsibility. IMI shall use its reasonable commercial efforts to
promote the Cholesterol 1,2,3 System in POC and OTC applications in such
jurisdictions and in such manner as IMI shall in its sole and absolute
discretion determine. All of the costs of sales and marketing efforts shall be
the sole responsibility of IMI.

     4.2  X-Rite Support. X-Rite shall, in an effort to maximize POC market
opportunities and OTC opportunities if X-Rite shall become the supplier of an
X-Rite Product for OTC application in accordance with Section 3.2 above, provide
to IMI and its distributors and licensees at X-Rite's own expense, technical and
marketing support reasonably requested by IMI and/or its distributors and
licensees.

                                    ARTICLE 5
                            MISCELLANEOUS PROVISIONS

     5.1  Other POC and OTC Test Products. Both Parties agree that they will use
reasonable efforts to discuss and explore with each other opportunities which
would utilize the capabilities and ideas of both parties in developing testing
systems other than the Cholesterol 1,2,3 System for both POC and OTC
applications.

     5.2  Indemnification Obligations. IMI agrees to indemnify and hold X-Rite
harmless from all claims, damages, losses or expenses (including, without
limitation, reasonable attorney's fees) ("Losses") arising out of or related to
the IMI Technologies aspect of the Cholesterol 1,2,3 System and X-Rite agrees to
indemnify and hold IMI harmless from all Losses arising out of or related to the
X-Rite Product.

     5.3  Independent Contractor Status. IMI and X-Rite shall for all purposes
hereunder be considered independent contractors. This Agreement is not intended
in any manner to create the relationship of principal and agent between IMI and
X-Rite, nor shall this Agreement be deemed to establish a partnership or joint
venture.

     5.4  Term/Termination. The term of this Agreement shall commence as of the
effective date set forth at the outset hereof, and shall continue for a period
of six (6) years from the date hereof or until any earlier termination of this
Agreement as follows:

          (a)  Mutual written agreement of the Parties;

                                       5

<PAGE>

          (b) At the option of a Party in the event of the breach of any of the
     material provisions of this Agreement which has not been cured upon 60 days
     written notice of either the breach or non-compliance of such material
     provision;

          (c) At the option of a Party in the event of bankruptcy, receivership
     or insolvency proceedings against or on behalf of the other Party;
     admission in writing of the inability of the other Party to pay its debts
     as such financial obligations mature; general assignment for the benefit of
     creditors of the other Party or the other Party becoming subject to a
     direct control of a trustee, receiver or similar authority;

          (d) At the option of X-Rite in the event fewer than [***] Cholesterol
     1,2,3 Systems are purchased by IMI during any 12 month period from and
     after the Functional Acceptance Date; or

          (e) Without limiting the generality of item (b) above, at the option
     of IMI if X-Rite does not comply in all material respects (including as to
     matters of timing and quality) with its obligations to deliver X-Rite
     Product pursuant to the provisions of section 3.1 hereof.

     5.5  Non-assignment. Neither this Agreement nor any rights or obligations
hereunder may be assigned or otherwise transferred by either Party, in whole or
in part, whether voluntarily or by operation of law without the consent of the
other Party. Notwithstanding the foregoing, either Party may assign some or all
of the rights and obligations hereunder to a company which it owns more than 50%
of the equity securities of, provided that the assigning Party shall continue to
be responsible for its obligations hereunder notwithstanding such assignment.
For greater certainty, and notwithstanding anything contained herein, any
amalgamation or merger of any Party with any other person shall not affect this
Agreement.

     5.6  Agreement. This Agreement, together with the Schedules hereto and the
Confidentiality Agreement, contains the entire agreement of the Parties with
respect to its subject matter, and there are no promises, conditions,
representations or warranties except as expressly set forth herein. This
Agreement may be modified or amended only by written instrument executed by IMI
and X-Rite.

     5.7  Notices. Any notices contemplated or given under this Agreement, shall
be in writing and delivered personally or by courier or forwarded by facsimile
to the Parties at their respective addresses as shown at the outset hereof, or
at such other place as a Party may substitute by written notice. Any such notice
by facsimile shall be deemed to have been given on the date of transmittal. Any
such notice by delivery or courier shall be deemed to have been given on the
date it is received.

     5.8  Governing Law/Dispute Resolution. This Agreement shall be governed by
and construed and interpreted in accordance with the laws of the Province of
Ontario. IMI and X-Rite specifically agree that the provisions of United Nations
Convention on the International Sale of Goods shall not apply to the rights and
obligations under this agreement. The parties shall use

                                       6

<PAGE>

their reasonable efforts, including the involvement of the chief executive
officer of each party, to resolve any disputes during the 30 day period
following the written request by either party identifying that a dispute exists,
the details of that dispute and stating that a claim for arbitration will be
filed absent resolution. In the absence of resolution, any disputes relating to
this Agreement shall be resolved by arbitration in accordance with the
International Arbitration Rules of the American Arbitration Association by one
arbitrator. If X-Rite shall initiate the claim in arbitration, the arbitration
shall take place in Toronto, Canada and if IMI shall initiate the claim in
arbitration, the arbitration shall take place in Grand Rapids, Michigan. The
language of any arbitration shall be English.

     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the effective date set forth at the outset hereof.

                            IMI INTERNATIONAL MEDICAL
                            INNOVATIONS INC.

                            By: /s/ Brent Norton
                            Name:  B. Norton
                            Title: President & CEO
                            Authorized Signing Officer

                            X-RITE, INC.

                            By: /s/ Bernard J. Berg
                            Name:  Bernard J. Berg
                            Title: Sr. Vice President Engineering
                            Authorized Signing Officer

                                       7

<PAGE>

                                  SCHEDULE 1.5
                                   IMI PATENTS

U.S. Patent #5,489,510

U.S. Patent #5,587,295

Canada Patent #1,335,968

European Patent #0,338,189

                                       8

<PAGE>

                                  SCHEDULE 2.1

[***]

                                       9

<PAGE>

                                  SCHEDULE 2.2

System Description
------------------
[***]

Instrument Technical Specifications
-----------------------------------

          Spectral Sensor
          [***]

          Performance
          [***]

          [***]

          I/O connection
          [***]

          Environmental
          [***]

Software Technical Specifications
---------------------------------

          Operating environment
          [***]

          System Requirements:
          [***]

          Numeric Computation:
          [***]

          Languages Supported
          [***]

          Database capabilities
          [***]

                                       10

<PAGE>

                                  SCHEDULE 3.1

Ordering
--------

IMI will issue a [***] order to X-Rite specifying the quantity of instruments to
be purchased. X-Rite expects to ship these units within a [***] period.

Delivery

IMI will submit to X-Rite specific release orders [***] in accordance with a
rolling horizon schedule comprised of the following Two (2) zones;

          Fixed Zone
          [***]

          [***]

          Planning Zone
          [***]

          [***]

Terms of Payment
----------------

X-Rite shall invoice IMI for equipment which meet specifications and are shipped
per this agreement. Payments shall be made by IMI within net 30 days after
receipt by IMI of a properly prepared and corrected invoice. Payment will be
made in United States Dollars.

Shipping Terms
--------------

Shipping terms are F.O.B. Grandville, Michigan.

Shipping Address
----------------

To be supplied by IMI at time of release.

Warranty and Service
--------------------

X-Rite warrants each instrument manufactured to be free of defects in material
and workmanship (excluding battery pack) for a period of twelve months from the
date of sale. X-Rite will repair or replace the instrument not satisfying this
warranty. THERE ARE NO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. X-RITE'S WARRANTY OBLIGATION IS LIMITED TO REPAIRING THE INSTRUMENT
RETURNED TO X-RITE OR AN AUTHORIZED SERVICE DEALER FOR THAT

                                       11

<PAGE>

PURPOSE. Service arising from the fault of the user caused by misuse or abnormal
conditions of operation will be billed at nominal cost. All returns for service,
including warranty repairs, shall be with transportation charges prepaid.

X-Rite Flat-Rate Service Program
--------------------------------

After the warranty period of 12 months, service will also be handled directly by
X-Rite for a flat fee. This fee is subject to yearly review and may change with
90 days of notice given. Upon completion of this service, the unit is returned
to the customer with an additional three (3) month unconditional warranty
(excluding lamps and batteries).

If your instrument is beyond the new warranty period, it will be serviced under
the X-Rite flat rate policy. The flat rate applies only if the instrument is
mechanically complete and unmodified. If parts are missing, modified or damaged
due to abuse, additional charges may apply.

Under this policy you will be charged a fixed fee regardless of the defect found
in the instrument. The flat rate is your final cost including 2nd day shipping.

                                       12

<PAGE>

                                  SCHEDULE 3.4
                                PRICING SCHEDULE

The initial price for the [***] after the Functional Acceptance Date, will be
[***] for each X-Rite Product purchased. The per unit pricing for each
subsequent [***] period will be based upon the number of X-Rite Products
purchased during the immediately prior [***] period, based on the following
schedule.

         [***] Quantity                     Pricing
         --------------                     -------
         [***]                               [***]

         [***]                               [***]

         [***]                               [***]

         [***]                               [***]

The prices listed above are firm during the [***] of the agreement. Thereafter,
the price per unit will be negotiated by X-Rite and IMI based upon market
conditions but in no event will it exceed [***] per unit.

                                       13<PAGE>
                                                                    Exhibit 4.5

                              EMPLOYMENT AGREEMENT

         THIS AGREEMENT made as of the 1st day of January, 2001

BETWEEN:

         IMI INTERNATIONAL MEDICAL INNOVATIONS INC., a corporation existing
under the laws of Canada

         (hereinafter called "IMI")

                                      -and-

         MICHAEL EVELEGH, of the City of Dundas, in the Province of Ontario

         (hereinafter called the "Employee")

         WHEREAS IMI and the Employee wish to enter into a written agreement
which contains the agreed upon terms and conditions of employment for their
mutual benefit;

         NOW THEREFORE in consideration of the mutual covenants and agreements
contained in this agreement and for other good and valuable consideration, the
adequacy of which is hereby acknowledged, the parties to this agreement do
mutually covenant and agree as follows:

ARTICLE 1 - DUTIES OF EMPLOYMENT

         1.1 Position - The Company agrees to continue to employ the Employee in
the position of Executive Vice President, Clinical and Regulatory Affairs, to
serve in such capacity as IMI's needs may, from time to time, require and as are
made known to him by IMI or its authorized representatives. In this capacity,
the Employee shall perform such services as are required from time to time by
the Board of Directors of IMI (the "Board") provided, however, that without the
Employee's prior written consent, the Employee shall not be required to perform
services other than those comparable in scope and dignity to those the Employee
is presently performing.

         1.2 Duties - The Employee accepts the office on the terms and
conditions set forth in this Agreement and acknowledges that as Executive Vice
President, Clinical and Regulatory Affairs, he has the responsibility for the
general supervision of the clinical and regulatory aspects of the business of
IMI, subject to the authority of the President of IMI and the Board. Throughout
the term of his employment, the Employee agrees to devote substantially all of
his business time and effort to carry out the performance of his duties under
this Agreement and shall conform to all lawful instructions and directions given
to him by the Board, or its authorized designees, and obey and carry out the
by-laws of IMI, as well as all written rules, policies and practices now or
hereafter established and amended from time to time by IMI for the conduct of
its affairs and brought to the attention of the Employee.

<PAGE>

ARTICLE II - TERMS OF EMPLOYMENT

         2.1 Term - The provisions of the Agreement shall have effect from the
date hereof and shall continue in effect indefinitely or until terminated in
accordance with the provisions of this Agreement

ARTICLE III - EMPLOYEE'S COMPENSATION AND BENEFITS

         3.1 Compensation - The annual base salary payable to the Employee for
the Employee's services hereunder for the term of this Agreement shall be
$200,000 (gross), exclusive of bonuses, benefits and other compensation. The
annual base salary payable to the Employee pursuant to the provisions of this
Article III shall be payable in equal semi-monthly installments, in arrears, in
accordance with existing practice, or in such other manner as may be mutually
agreed upon, less, in any case, any deductions or withholdings required by law.

         3.2 Salary Review - The Employee's salary and benefits shall be as
stated in Article III but shall be reviewed on January 1, 2002 and annually
thereafter during the term of this Agreement and any renewal of this Agreement

         3.3 Vacation - The Employee shall be entitled to vacation with pay of
four (4) weeks during each calendar year of this Agreement. The employee's paid
vacation is to be taken at a time approved in advance by the President of IMI or
the Board, which approval shall not be unreasonably withheld but shall take into
account the staffing requirements of IMI and the need for the timely performance
of the Employee's responsibilities. Vacation not taken in one year may not be
carried over into subsequent years and shall expire at the end of the applicable
year.

         3.4 Benefits - The Employee shall participate in all benefit plans
which IMI provides to its Employees, including extended health, medical and
dental. In the event that such benefit plans include additional benefits and/or
coverage for executives, then the Employee shall be entitled to such additional
benefits.

         3.5 Additional Compensation - The Employee shall also receive bonuses
and options to purchase shares of IMI as may be granted by the Board, in their
discretion, from time to time.

         3.6 Expenses - IMI shall reimburse the Employee forthwith for all
proper and reasonable out-of-pocket expenses actually incurred by the Employee
in the performance of his duties upon presentation of supporting statements,
receipts or vouchers. Subject to the provisions of IMI's governing corporate
legislation, IMI agrees to indemnify and save the Employee harmless from and
against any and all demands, claims, costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, reasonably incurred by
him in respect of any civil, criminal or administrative action or proceeding to
which the Employee is made a party by reason of having been a director or
officer of IMI or of any affiliated company, whether before or after termination
if:

                  (a)      the Employee acted honestly and in good faith with a
                           view to the best interests of IMI; and

                                       2

<PAGE>

                  (b)      in the case of a criminal or administrative action or
                           proceeding that is enforced by a monetary penalty,
                           the Employee had reasonable grounds for believing
                           that his conduct was lawful.

ARTICLE IV - TERMINATION

         4.1 Notwithstanding anything contained in this Agreement, IMI and the
Employee agree that this Agreement and the employment of the Employee may be
terminated as follows:

                  (a)      immediately by IMI at its option, at any time, and
                           without notice or pay in lieu of such notice, for
                           cause. For the purposes of this Agreement, "cause"
                           shall include the following:

                           (i)      a material breach by the Employee of the
                                    provisions of Article V at any time;

                           (ii)     conviction of the Employee of a criminal
                                    offence punishable by indictment, or summary
                                    conviction where such conviction brings into
                                    question the Employee's ability to perform
                                    his duties under this Agreement honestly and
                                    effectively or where such conviction could
                                    adversely affect the reputation and goodwill
                                    of IMI; and

                           (iii)    in the event of death or any "disability",
                                    as such term is defined in any disability
                                    insurance policy of IMI or if no such policy
                                    is in place, disability shall mean mental or
                                    physical disability or serious illness of
                                    the Employee which results in the Employee
                                    being unable to substantially perform his
                                    duties for a continuous period of 180 days
                                    or for periods aggregating 225 days in any
                                    period of 365 days;

                  (b)      at any time by IMI, without cause by paying, in lieu
                           of notice, an amount equal to one year of the
                           Employee's then current (i) annual salary; (ii)
                           benefits as contemplated in section 3.4; and (iii)
                           additional compensation as contemplated in section
                           3.5, all payable in accordance with, and subject to
                           the reduction contained in, Section 4.2 herein

                  (c)      by the Employee, upon prior written notice to IMI at
                           any time within 180 days after the Change of Control
                           of IMI in which case IMI shall pay to the Employee an
                           amount equal to 12 months of the Employee's then
                           current annual salary, payable immediately; or

                  (d)      at any time by the Employee upon 90 days written
                           notice to IMI.

          For the purposes of this Section 4.1,

          "Associate" and "Affiliate" have the meanings ascribed thereto by the
Securities Act (Ontario) as at the date hereof;

                                       3

<PAGE>

          "Concert Parties" means, in relation to any person, all other persons
acting jointly or in concert with such person. For the purposes hereof it is a
question of fact as to whether a person is acting jointly or in concert with
another person in relation to IMI. Without limiting the generality of the
foregoing, the following shall be deemed to be acting jointly or in concert with
a particular person:

                  (i)      every person who, as a result of any agreement,
                           commitment or understanding, whether formal or
                           informal, with the particular person or with any
                           other person acting jointly or in concert with the
                           particular person, acquires or offers to acquire
                           securities of IMI;

                  (ii)     every person who, as a result of any agreement,
                           commitment or understanding, whether formal or
                           informal, with the particular person or with any
                           other person acting jointly or in concert with the
                           particular person, intends to exercise jointly or in
                           concert with the particular person or with any other
                           person acting jointly or in concert with the
                           particular person any voting rights attaching to any
                           securities of IMI; and

                  (iii)    every  associate or affiliate of the particular
                           person or of any person who is acting jointly or in
                           concert with the particular persons and

          "Change of Control" of IMI shall have occurred if:

                  (i)      any person (other than the Employee) and the Concert
                           Parties thereof beneficially own more than 50% of the
                           outstanding shares of IMI entitled to vote generally
                           in the election of directors of IMI; or

                  (ii)     IMI completes (A) a merger or other business
                           combination of IMI with or into another corporation
                           unless after giving effect thereto the shareholders
                           of IMI own shares of the successor corporation
                           carrying more than 50% of the votes in the election
                           of directors; or (B) a sale, exchange or other
                           disposition of all or substantially all of the assets
                           of IMI.

         4.2 Payment of Termination Amount. The amounts payable to the Employee
as contemplated in subsection 4.1(b) above shall be paid in 12 equal monthly
installments over an 11 month period beginning 30 days after the date of
termination provided, however, that if the Employee obtains alternative
employment during such 11 month period, the monthly installments beginning on
the later of:

                  (a)      the date of this commencement of such alternative
                           employment; and

                  (b)      the date which is six months after the date of
                           termination

                  shall be reduced by the amount equal to the remuneration
                  earned by the Employee in such alternative employment in such
                  month.

                                       4

<PAGE>

         For the purposes of this Section 4.2, "alternative employment" shall
mean any form of remunerative activity in the nature of employment, whether as
employee, consultant, agent, partner, sole proprietor or otherwise.

         4.3      Effect of Termination

                  (a)      Upon termination of this Agreement, the employment of
                           the Employee shall be automatically terminated and
                           the Employee shall have no claims against IMI for
                           failure to give reasonable notice of termination or
                           otherwise except in respect of payment of salary or
                           accrued vacation pay to the date of termination and
                           payments specifically provided for herein.

                  (b)      Upon termination of employment, the Employee shall
                           immediately resign all offices (including
                           directorships) held in IMI and the Employee shall not
                           be entitled to receive any additional severance pay
                           or compensation for loss of office or otherwise by
                           reason of resignation (other than as otherwise
                           provided for herein). If the Employee fails to resign
                           as mentioned, IMI is irrevocably authorized to
                           appoint some person in the Employee's name and on his
                           behalf to sign any documents or do any thing
                           necessary or requisite to give effect to it.

                  (c)      If the Employee is terminated without cause or if the
                           Employee terminates this Agreement pursuant to
                           subsection 4.1(c) above, all options to acquire
                           shares of IMI held by the Employee shall immediately
                           and automatically become fully vested and shall be
                           exercisable by the Employee within the time period
                           which is 60 days from the date of such termination
                           and, after such 60 day period, all unexercised
                           options held by the Employee shall expire and shall
                           be cancelled by IMI.

                  (d)      If the Employee is terminated with cause, all
                           options, whether vested or otherwise, shall
                           immediately expire and shall be cancelled at the date
                           of such termination.

                  (e)      The provisions of subsections (c) and (d) above shall
                           apply to all options to acquire shares of IMI granted
                           previously or hereafter to the Employee unless the
                           terms of such options specifically state that such
                           subsections do not apply.

         4.4      Company's Property

                  The Employee acknowledges that all items of any and every
nature or kind created or used by the Employee pursuant to the Employee's
employment under this Agreement, or furnished by IMI to the Employee, and all
equipment, credit cards, books, records, reports, files, manuals, literature,
confidential information or other materials shall remain and be considered the
exclusive property of IMI at all times and shall be surrendered to IMI, in good
condition, promptly on the termination of the Employee's employment irrespective
of the time, manner or cause of termination. All personal effects used by the
Employee in carrying out his

                                       5

<PAGE>

duties will remain the property of the Employee and shall be removed by him on
termination of his employment.

ARTICLE V - CONFIDENTIAL INFORMATION AND NON-COMPETITION

          5.1     Confidential Information

                  (a)      The Employee acknowledges that throughout the course
                           of his employment with IMI the Employee may have
                           access to and be entrusted with confidential
                           information, trade secrets and know-how concerning
                           the business and property of IMI and with
                           information, trade secrets and know-how which other
                           persons shall require IMI and its employees, agents
                           and consultants to treat as confidential (all of
                           which information, trade secrets and know-how of IMI
                           and others shall be collectively defined as
                           "Confidential Information").

                  (b)      The Employee agree that disclosure of any of the
                           Confidential Information or any use of the
                           Confidential Information other than on behalf of or
                           for the direct benefit of IMI is and will be highly
                           detrimental to IMI and that the right to maintain the
                           confidentiality of the Confidential Information
                           constitutes a proprietary right which IMI is entitled
                           to protect or is an obligation which IMI must
                           observe. Accordingly, the Employee hereby agrees
                           that:

                           (i)      he shall keep confidential all of the
                                    Confidential Information for the exclusive
                                    benefit and use of IMI and will faithfully
                                    do all in his power to assist IMI in keeping
                                    the Confidential Information confidential
                                    until IMI shall make the same public either
                                    by obtaining patent rights, copyrights or
                                    otherwise;

                           (ii)     shall not, directly or indirectly, disclose
                                    or divulge any of the Confidential
                                    Information to any person, firm,
                                    corporation or other entity of any kind
                                    whatsoever

                           (iii)    he shall not, directly or indirectly, either
                                    individually or in partnership with, or
                                    jointly with one or more persons, firms,
                                    corporations or any other entity of any kind
                                    whatsoever as principa1, agent, employee,
                                    shareholder or in any other capacity or
                                    manner whatsoever, use any of the
                                    Confidential Information other than on
                                    behalf of or for the direct benefit of IMI;

                           (iv)     he shall not divulge, disclose or
                                    communicate to any person,  firm or
                                    corporation  the name of any customer of
                                    IMI and/or the Business (as hereinafter
                                    defined); and

                           (v)      he shall not use for his own  purpose  any
                                    Confidential Information relating to IMI
                                    and/or the Business.

                                       6

<PAGE>

                  (c)      The Employee acknowledges that the restrictions
                           contained herein for the benefit of IMI are
                           reasonable and not excessive in the circumstances of
                           the Employee's knowledge and the scope of his
                           employment.

          5.2 Non-Competition - The Employee agrees that the Employee will not,
without the prior written consent of IMI, while employed by IMI and for a period
of one (1) year after the date of termination as contemplated in subsections
4.1(a), (b) or(d):

                   (a)     directly or indirectly, in any manner whatsoever,
                           including, without limitation, either individually or
                           in partnership or jointly, or in conjunction with any
                           other person or persons, firm, association,
                           syndicate, company or corporation, as principal,
                           agent, shareholder or in any other manner whatsoever
                           carry on or be engaged in any business directly
                           competitive with the business of IMI (the "Business")
                           in any country where IMI operates, or be concerned
                           with or interested in or lend money to, guarantee the
                           debts or obligations of or permit his name or any
                           part thereof to be used or employed by any person,
                           persons, firm, association, syndicate, company or
                           corporation engaged in, concerned with or interested
                           in any directly competitive business except that the
                           Employee may own no more than 5% of the total issued
                           and outstanding capital stock of a publicly-held or
                           private corporation engaged in, concerned with or
                           interested in any directly competitive business;

                  (b)      directly or indirectly solicit, interfere with or
                           endeavour to direct or entice away from IMI any
                           customer or any person, firm or corporation in the
                           habit of dealing with IMI, and/or the Business; or

                  (c)      interfere with, entice away or otherwise attempt to
                           obtain the withdrawal of any employee or independent
                           contractor of IMI or, following termination of the
                           Employee's employment, any employee who was in the
                           employ of IMI during the one (1) year period, as the
                           case may be, preceding termination for cause.

          5.3 The Employee hereby acknowledges and agrees that all covenants,
provisions and restrictions contained in this Article V hereof are reasonable
and valid and all defences to the strict enforcement thereof by IMI are waived
by the Employee.

          5.4 The Employee further acknowledges and agrees that in the event of
a violation of the covenants, provisions and restrictions contained in this
Article V, IMI shall be authorized and entitled to obtain from any court of
competent jurisdiction preliminary and permanent injunctive relief and an
accounting of all profits and benefits arising out of such violation, which
right and remedies shall be cumulative and in addition to any other rights or
remedies to which IMI may be entitled.

                                       7

<PAGE>

         5.5 It is understood by the Parties hereto that the covenants in this
Article V by the Employee not to enter into competition with IMI are essential
elements to this Agreement and that, but for the agreement of the Employee to
enter into such covenants, IMI would not have retained the Employee.

ARTICLE VI - CLAUSES SURVIVING TERMINATION

          6.1 Any confidentiality and non-solicitation clauses in Article VI of
this Agreement shall survive the termination of this Agreement, as shall
Sections 3.6, 4.3 and 4.4 hereof.

ARTICLE VII - PLAIN ENGLISH

          7.1 This Agreement is intended to be written in plain English. When
words or expressions of a general nature are employed herein, it is intended
that they be comprehensive, unless the context clearly dictates otherwise.

ARTICLE VIII - GENERAL

          8.1 General - Any notice, document or other communication required or
permitted to be given in respect of this Agreement shall be sufficiently given
if delivered to the party personally, or if sent by prepaid ordinary mail posted
in Canada, by courier, or by facsimile, to such party addressed as follows:

          IMI:             IMI International Medical Innovations Inc.
                           4211 Yonge Street - Suite 300
                           Toronto, Ontario  M2P 2A9

                           Telecopier No.:  (416) 222-4533
                           Attention:  Chairman

          Employee:        Michael Evelegh
                           5 Parkway Place
                           Dundas, Ontario  L9H 6K3

Any party may at any time change its address hereunder by giving notice of such
change of address to the other party or parties in the manner specified in this
paragraph. Any such notice or other written communication shall, if mailed or
sent by courier, be effective on the day it is delivered or an attempt is made
to deliver it to the address of the addressee and, if given by personal
delivery, shall be effective on the day of actual delivery.

          8.2 Severability - If any covenant, provision or restriction contained
in this Agreement is found to be void or unenforceable in whole or in part, it
shall not effect or impair the validity of any other covenant, provision or
restriction and without limitation, each of the covenants, provisions and
restrictions contained herein are herby declared to be separate and distinct
covenants, provisions and restrictions.

                                       8

<PAGE>

          8.3 Waiver of Performance - The Employee and IMI may, in writing,
extend the time for performance or waive non-compliance or non-performance by
the other of the other's obligations, covenants and agreements under this
Agreement. No act or failure to act of the Employee or IMI shall be deemed to be
an extension or waiver of timely or strict performance by the other of his/its
obligations, covenants and agreements under this Agreement.

          8.4 Governing Law - This Agreement shall be governed by and construed
in accordance with the laws of the Province of Ontario and the law of Canada
applicable therein and each of the parties hereby irrevocably attorn to the
jurisdiction of the courts of the Province of Ontario.

          8.5 Entire Agreement - This Agreement set forth the entire agreement
among the parties hereto pertaining to the employment of the Employee and
supersedes all prior agreements, understanding, negotiations and discussions,
whether oral or written, of the parties hereto, including, without limitation,
the employment agreement dated October 31, 1997 among the parties hereto, and
there are no warranties representations or other agreements between the parties
hereto in connection with the subject matter hereof except as specifically set
forth therein. No supplement, modification, waiver or termination of this
Agreement shall be binding unless executed in writing by the parties to be bound
thereby.

          8.6 Assignment - This Agreement is personal to the Employee and may
not be assigned by him without the prior written consent of IMI, which consent
may be unreasonably withheld. This Agreement may not be assigned by IMI without
the prior written consent of the Employee, which consent may be unreasonably
withheld. Subject to the foregoing, this Agreement shall enure to the benefit of
and be binding upon the Parties and their respective successors, heirs,
executors, administrators, personal representatives and permitted assigns.

          8.7 Headings - The headings used in this Agreement are for convenience
only and are not to be construed in any way as additions to or limitations of
the covenants and agreements contained herein.

          8.8 Currency - All dollar amounts referred to in this Agreement shall
be in Canadian funds.

          8.9 Time of Essence - Time is and shall always remain the essence of
this Agreement.

                                       9

<PAGE>

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

                                        IMI INTERNATIONAL MEDICAL
                                        INNOVATIONS, INC.

                                        Per /s/ Leslie Anderson              c/s
                                            ---------------------------------

SIGNED, SEALED AND DELIVERED   )
     In the presence of:       )
                               )
/s/ Brent Norton               )
------------------------------
Witness                        )        /s/ Michael Evelegh
                               )        -------------------------------------
                                        MICHAEL EVELEGH

                                        ----------------------------------------
                                        By signing, the Employee acknowledges he
                                        understands the contents of this
                                        Agreement, and in particular Article IV
                                        relating to termination and that he has
                                        been given the opportunity to obtain
                                        independent legal advice and has either
                                        done so or chosen not to obtain such
                                        advice.
                                        ----------------------------------------

                                       10

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