Document:

EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS AGREEMENT (“Agreement”) is made and entered into as of March 31, 2007 (the “Effective
Date”), by and between Loris Sartor (the “Executive”) and MERGE TECHNOLOGIES CORPORATION., a
Wisconsin corporation (“the Company”).

R E C I T A L S:

A. The Company is engaged in the provision of medical diagnostic imaging software and
professional services for healthcare facilities and medical equipment manufacturers. The business
in which the Company is engaged in from time-to-time during the term of this Agreement, inclusive
of new lines of business, if any, are hereinafter collectively referred to as the “Business”; and

B. The Company desires to employ the Executive and the Executive desires to accept such
employment;

A G R E E M E N T:

NOW THEREFORE, in consideration of the foregoing Recitals, as well as the promises, mutual
covenants and agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the Executive do hereby
agree as follows:

1. Employment and Duties. On the terms and subject to the conditions set forth in this
Agreement, the Company agrees to employ the Executive as its President of Cedara Software Corp.
operations to perform such duties as are consistent with such position as may be assigned, from
time to time, by the Board of Directors (the “Board”), or the Chief Executive Officer of the
Company and to render such additional services and discharge such other responsibilities as the
Board, or Chief Executive Officer may, from time to time, stipulate consistent with such senior
management position.

2. Performance. The Executive accepts the employment described in Section 1 of
this Agreement and agrees to devote substantially all of his/her working time and efforts to the
faithful and diligent performance of the services described herein, including the performance of
such other services and responsibilities as the Board, or the Chief Executive Officer may, from
time to time, stipulate consistent with such senior management position.

3. Term. The term of Executive’s employment with the Company under this Agreement
shall commence March 31, 2007 (“Start Date”). The term of employment shall remain in effect until
and unless terminated in accordance with the terms and conditions set forth in this Agreement. The
period of time in which Executive is employed shall constitute the “Employment Period,” and each
calendar year or portion of a calendar year during the Employment Period is hereinafter sometimes
referred to as a “Year.” The Board or appropriate committee thereof will review the terms and
conditions of this Employment Agreement at its sole discretion, but no less frequently than once
every three (3) years subsequent to the Effective Date. This agreement replaces all prior written
or oral agreements between the Executive and the Company.

4. Salary. For all the services to be rendered by the Executive hereunder, commencing
on the Start Date, the Company agrees to pay a salary of no less than Two Hundred Sixty-Seven
Thousand six hundred and fifty Canadian Dollars (CDN $267,650) per year, payable in the manner and
frequency in which the Company’s payroll is customarily handled, which amount shall be subject to
annual review and possible adjustment as provided in Section 5, below (“Salary”).

5. Bonus. The Executive shall be eligible for an annual performance bonus targeted at
forty percent (40%) of Salary, with the exact amount paid dependent on achievement of defined
Company and individual performance targets. As an Executive Officer of the Company, adjustments to
the Executive’s compensation package, including Salary, annual bonus and annual stock option
awards, will be recommended annually by the Company’s Chief Executive Officer and subject to
approval of the Board or appropriate committee thereof. For each Year the annual performance bonus
is to be paid, it shall be paid within thirty (30) days of the completion of the year-end financial
statements for that Year, but in no event later than May 31 of the following year. The Chief
Executive Officer, subject to approval of the Board or appropriate committee thereof, may change
the bonus target annually and any dispute as to whether Executive met the performance targets for a
Year shall be determined conclusively by the Chief Executive Officer and Compensation Committee of
the Board (the “Compensation Committee”). Such determination will be communicated in writing to the
Executive by the Chief Executive Officer or the Compensation Committee.

6. Paid Time Off. The Executive shall be entitled to paid time off for vacation,
illness, holidays and personal reasons in accordance with the Company’s paid time off policy at the
rate generally offered to other executives of the Company, provided that Executive’s paid vacation
shall be no less than twenty (20) days per calendar year.

7. Disability Benefit. If at any time during the Employment Period the Executive is
unable to perform fully the material and substantial duties of the Executive’s regular job position
hereunder by reason of illness, accident, or other disability (as confirmed by competent medical
evidence by a physician selected by the Executive Committee of the Board), the Executive shall be
entitled to receive periodic payments of Salary, bonus and any and all benefits to which he would
otherwise be entitled pursuant to Section 4, 5, 6, 8, 10 and 11 of this Agreement by reason
of his employment for a period of ninety (90) days. If the Executive is prevented by reason of any
illness, accident or other disability from performing the material and substantial duties of his
regular job position for a period of 180 days, whether or not consecutive, in any twelve (12) month
period which, in the opinion of a physician selected by the Compensation Committee, is likely to
continue to the same degree, he will be considered to be suffering from a Disability
(“Disability”). Notwithstanding the foregoing provisions, (i) the amounts payable to the Executive
pursuant to this Section 7 shall be reduced by any amounts received by the Executive with
respect to any such incapacity pursuant to any insurance policy, plan, or other employee benefit
provided to the Executive by the Company; and (ii) in no event will the terms of this Agreement
supersede any health or disability benefit to which Executive is entitled under applicable law.

8. Stock Options. Executive may be granted stock options on an annual or other basis
upon recommendation by the Chief Executive Officer and approval by the Board or the Compensation
Committee.

9. Change in Control. Upon a “Change in Control” of the Company (as defined below),
all of the Executive’s then-outstanding and non-exercised options will immediately vest and become
exercisable. If a Change in Control occurs and in the event of the Executive’s “Separation From
Service” (as defined in Section 409A of the Internal Revenue Code of 1986 as amended, and any
regulations thereunder) with the Company due to: (i) the involuntary termination of his employment
within 365 days following the Change in Control; or (ii) his voluntarily terminating his employment
with the Company within 365 days, following either: (a) any substantial and continuing reduction in
Executive’s responsibilities or authority with respect to the Company; (b) a reduction in
Executive’s compensation package, including Salary, in effect immediately prior to the Change in
Control; or (c) the Executive is required to change the location of his principal place of
employment to other than the Toronto, Canada area, then the Executive will be entitled to receive
the greater of: (I) any minimum severance payments required under applicable federal, state and
local law; or (II) all of the following: (A) his then-current Salary for twelve additional months,
as a Change in Control allowance, to be paid pursuant to the Company’s standard payroll policies;
(B) an amount equal to the product of (x) one-twelfth of the maximum amount of the Executive’s
then-current annual bonus set forth in Section 5, determined without regard to the
achievement of performance targets, multiplied by (y) the sum of twelve (12) plus the number of
months of the current plan year during which the Executive was employed, to be paid in a single
payment concurrently with the Executive’s final payment of the Change in Control allowance; and (C)
a continuation of the welfare benefits of health care, life and accidental death and dismemberment,
and disability insurance coverage (collectively, “Supplemental Benefits”) for twelve (12) months
after the effective date of his Separation From Service. These benefits shall be provided at the
same cost to the Executive (if any), and at the same coverage level, as in effect as of the
effective date of Executive’s Separation From Service. However, in the event the premium cost
and/or level of coverage shall change for all management employees with respect to Supplemental
Benefits, the cost and/or coverage level, likewise, shall change for the Executive in a
corresponding manner. The continuation of Supplemental Benefits shall be discontinued in the event
Executive has available substantially similar welfare benefits at a comparable cost from a
subsequent employer. For the purposes of this Section 9, “Change in Control” of the Company
shall mean (i) a change in the ownership of stock of the Company having fifty percent (50%) or more
of the voting power, in a single transaction or series of transactions effected by a third party or
third parties acting in concert, or (ii) a change of fifty percent (50%) or more of the members of
the Board in a single transaction or series of transactions effected by any third party or third
parties acting in concert, other than pursuant to nomination of a new slate of directors where
there has been no material change in beneficial ownership of the Company’s voting stock within 365
days preceding such nomination or a sale of substantially all of the Company’s assets.

10. Other Benefits. Except as otherwise specifically provided herein, during the
Employment Period, the Executive shall be eligible for all non-wage benefits the Company provides
generally for its executive employees.

11. Business Expenses.

(a) Reimbursement. The Company shall reimburse the Executive for the
reasonable, ordinary, and necessary business expenses incurred by him in connection with the
performance of his duties hereunder, including, but not limited to, ordinary and necessary
travel expenses and entertainment expenses and mobile phone expenses.

(b) Accounting. The Executive shall provide the Company with an accounting of
his expenses, which accounting shall clearly reflect which expenses are reimbursable by the
Company. The Executive shall provide the Company with such other supporting documentation
and other substantiation of reimbursable expenses as will conform to Internal Revenue
Service or other requirements. All such reimbursements shall be payable by the Company to
the Executive promptly after receipt by the Company of appropriate documentation therefor.

12. Termination. This Agreement may be terminated by the Company or the Board or
appropriate committee thereof at any time for the following reasons:

(a) For Cause, by written notice to the Executive. “Cause” shall mean termination for gross
negligence, commission of a felony or material violation of any Company policies;

	 	(b)	 	In the event of the death of the Executive;

(c) Upon the Executive’s resignation or retirement from employment with the Company (this
clause shall not be construed as an agreement to employ the Executive for a defined term), upon
thirty (30) days advance written notice to the Company;

(d) In the event of the Disability of the Executive as defined in Section 7 of this
Agreement, subject to the Company discharging its duty to accommodate under applicable law, by
written notice to the Executive;

(e) By the Executive upon written notice of the occurrence of “Good Reason,” which shall be
defined to include only:

	 	a.	 	constructive termination;

	 	b.	 	a material reduction in Salary or target bonus
percentage (%);

	 	c.	 	the Executive is required to change the
location of his principal place of employment to other than the
Toronto, Canada area; or

	 	d.	 	a material reduction in responsibility; or

(f) Without Cause for any reason other than as set forth above in Subsection 12 (a), (b),
(c), (d) or (e) by written notice to the Executive.

If this Agreement is terminated pursuant to this Section 12, the Executive shall be deemed
to have incurred a Separation From Service with the Company.

13. Severance. In the event of the Executive’s Separation From Service with the
Company pursuant to Subsection 12 (d), (e) or (f), the Company shall pay the Executive, as
a severance allowance, the greater of (I) any minimum severance payments required under applicable
Canadian or Toronto provincial law; or (II) all of the following: (A) an amount equal to twelve
(12) months of his then-current Salary plus (B) the product of (i) one-twelfth of the Executive’s
target amount of bonus in effect for the then-current year times (ii) the sum of the number
of months of the current plan year during which the Executive was employed plus an additional
twelve (12) months times (iii) the Executive’s individual goal performance score from the previous
year, and (C) a continuation of Supplemental Benefits for twelve (12) months after the effective
date of the Executive’s Separation From Service. These benefits shall be provided at the same cost
to the Executive (if any), and at the same coverage level, as in effect as of the effective date of
the Executive’s Separation From Service. However, in the event the premium cost and/or level of
coverage shall change for all management employees with respect to Supplemental Benefits, the cost
and/or coverage level, likewise, shall change for the Executive in a corresponding manner. The
amount of the severance allowance provided for in subsections (A) and (B) of this
Section 13 shall be paid out in equal installments over the severance period.
Notwithstanding anything to the contrary contained herein, in the event the Executive receives
(pursuant to the operation of Section 9, above) severance benefits following the
Executive’s Separation From Service with the Company after a Change in Control of the Company, then
Executive shall not be entitled to any payment of a severance allowance pursuant to this
Section 13. If the Executive is not entitled severance benefits pursuant to Section
9, then the Executive shall continue to be eligible for a severance allowance per this
Section 13.

14. Surrender of Properties. Upon termination of the Executive’s employment with the
Company, regardless of the cause therefor, the Executive shall promptly surrender to the Company
all property provided him by the Company for use in relation to his employment, and, in addition,
the Executive shall surrender to the Company any and all confidential sales materials, lists of
customers and prospective customers, price lists, files, patent applications, records, models, or
other materials and information of or pertaining to the Company or its customers or prospective
customers or the products, Business, and operations of the Company in his possession.

15. Inventions. Except as otherwise provided in this Section 15 the Executive:

(a) shall hold in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge, or data of the Company or its Business or production
operations obtained by the Executive during his employment by the Company, which shall not
be generally known to the public or recognized as standard practice (whether or not
developed by the Executive);

(b) shall promptly disclose to the Company all inventions, ideas, devices, and
processes made or conceived by him alone or jointly with others, from the time of entering
the Company’s employ until such employment is terminated, relevant or pertinent in any way,
whether directly or indirectly, to the Company’s Business or production operations or
resulting from or suggested by any work which he may have done for the Company or at its
request;

(c) shall, at all times during his employment with the Company, assist the Company
(entirely at the Company’s expense) to obtain and develop for the Company’s benefit patents
on such inventions, ideas, devices and processes, whether or not patented; and

(d) shall do all such acts and execute, acknowledge and deliver all such instruments as
may be necessary or desirable in the opinion of the Company to vest in the Company the
entire interest in such inventions, ideas, devices, and processes referred to above.

The foregoing to the contrary notwithstanding, the Executive shall not be required to assign
or offer to assign to the Company any of the Executive’s rights in any invention for which no
equipment, supplies, facility, or trade secret information of the Company was used and which was
developed entirely on the Executive’s own time, unless: (A) the invention related to (i) the
Business; or (ii) the Company’s actual or demonstrably anticipated (with the realistic prospect of
occurring) research or development; or (B) the invention results from any work performed by the
Executive for the Company. The Executive acknowledges his prior receipt of written notification of
the limitation set forth in the preceding sentence on the Executive’s obligation to assign or offer
to assign to the Company the Executive’s rights in inventions.

16. Confidentiality of Information: Duty of Non-Disclosure.

(a) The Executive acknowledges and agrees that his employment by the Company under this
Agreement necessarily involves his understanding of and access to certain trade secrets and
confidential information pertaining to the Business of the Company. Accordingly, the
Executive agrees that after the Effective Date at all times he will not, directly or
indirectly, without the express consent of the Company, disclose to or use for the benefit
of any person, corporation or other entity, or for himself any and all files, trade secrets
or other confidential information concerning the internal affairs of the Company, including,
but not limited to, information pertaining to its customers, prospective customers,
services, products, earnings, finances, operations, methods or other activities, provided,
however, that the foregoing shall not apply to information which is of public record or is
generally known, disclosed or available to the general public or the industry generally, or
known by Executive prior to his employment with the Company. Further, the Executive agrees
that he shall not, directly or indirectly, remove or retain, without the express prior
written consent of the Company, and upon termination of this Agreement for any reason shall
return to the Company, any confidential figures, calculations, letters, papers, records,
computer disks, computer print-outs, lists, documents, instruments, drawings, designs,
programs, brochures, sales literature, or any copies thereof, or any information or
instruments derived therefrom, or any other similar information of any type or description,
however such information might be obtained or recorded, arising out of or in any way
relating to the Business of the Company or obtained as a result of his employment by the
Company. The Executive acknowledges that all of the foregoing are proprietary information,
and are the exclusive property of the Company. The covenants contained in this Section
16 shall survive the termination of this Agreement for up to two years, and shall apply
to Executive everywhere in the United States and Canada. Nothing in this Section 16
is intended to, nor does it, limit Executive’s ability to be employed by another after his
employment with the Company ends; those limitations are contained in Section 17).

(b) Notwithstanding the above, nothing in this Section 16 shall limit
Executive’s duties or obligations to comply with any applicable state’s trade secret laws.

(c) The Executive agrees and acknowledges that the Company does not have any adequate
remedy at law for the breach or threatened breach by the Executive of his covenant, and
agrees that the Company shall be entitled to injunctive relief to bar the Executive from
such breach or threatened breach in addition to any other remedies which may be available to
the Company at law or in equity.

17. Covenant Not to Compete.

(a) During Employment Period. During the Employment Period, the Executive shall
not, without the prior written consent of the Company, which consent may be withheld at the
sole and reasonable discretion of the Company, engage in any other business activity for
gain, profit, or other pecuniary advantage (excepting the investment of funds in such form
or manner as will not require any services on the part of the Executive in the operation of
the affairs of the companies in which such investments are made) or engage in or in any
manner be connected or concerned, directly or indirectly, whether as an officer, director,
stockholder, partner, owner, employee, creditor, manager, or otherwise, with the operation,
management, or conduct of any business that competes with the Business.

(b) Following Termination of Employment Period. Within the twelve (12) month
period immediately following the end of the Employment Period, regardless of the reason
therefore, the Executive shall not, without the Company’s prior written consent, which
consent may be withheld in the Company’s sole and reasonable discretion, provide the same or
similar services as provided to the Company to another entity or person within the
United States or Canada that is engaged in a business similar to the Business
being conducted at the time of such termination.

	 	18.	 	Covenant Not to Deal or Solicit.

(a) During Employment Period. During the Employment Period, the Executive shall
not, without the Company’s prior written consent, which consent may be withheld in the
Company’s sole and reasonable discretion, directly or indirectly, solicit, contact,
interfere with, or divert any Customer of the Company (as defined below) or any of its
affiliates or subsidiaries for the purpose of selling to those Customers any products or
services whatsoever. For the purposes of this Section 18: a “Customer” shall mean
any person who has purchased services or products from the Company, its Affiliates or
subsidiaries, during any time during the Employment Period or, to the knowledge of the
Executive, at any time prior to the Employment Period; and “Affiliates” shall mean entities
controlling, controlled by or under common control with the Company.

(b) Following Termination of Employment Period. Within the twelve (12) month
period immediately following the end of the Employment Period, regardless of the reason
therefore, the Executive shall not, without the prior written consent of the Company, which
consent may be withheld at the sole and reasonable discretion of the Company, engage in any
of the following:

	 	(i)	 	contact or solicit any Customer of the Company or any of its
Affiliates or subsidiaries for the purposes of selling to those Customers any
product or services which are the same as, or substantially similar to, or
competitive with, products or services sold by the Company or any of its
Affiliates or subsidiaries as of the end of the Employment Period;

	 	(ii)	 	transact any business with any Customer of the Company or any
of its Affiliates or subsidiaries with respect to any product or services which
are the same as, or substantially similar to, or competitive with, products or
services sold by the Company or any of its Affiliates or Subsidiaries as of the
end of the Employment Period; or

	 	(iii)	 	directly solicit any employee then employed by the Company or
any of its Affiliates or subsidiaries, or previously employed by any such
company within the one-year period preceding the end of the Employment Period,
to join the Executive, whether as an officer, director, stockholder, partner,
owner, employee, manager, or otherwise, in any enterprise engaged in a business
similar to the Business being conducted at the time of such termination.

19. General Provisions.

(a) Goodwill. The Company has invested substantial time and money in the
development of its products, services, territories, advertising and marketing thereof,
soliciting clients and creating goodwill. By accepting employment with the Company, the
Executive acknowledges that the Customers are the customers of the Company and that any
goodwill created by the Executive belongs to and shall inure to the benefit of the Company.

(b) Acknowledgment. The Executive acknowledges that the restrictions set forth
in Sections 17 and 18 are reasonable in scope and essential to the preservation of
the Business and proprietary properties that belong to the Company and that the enforcement
thereof will not in any manner preclude the Executive, in the event of the Executive’s
termination of employment with the Company, from becoming gainfully employed in such manner
and to such extent as to provide a standard of living for himself, the members of his
family, and those dependent upon him of at least the sort and fashion to which he and they
have become accustomed and may expect.

(c) Severability. The covenants of the Executive contained in Sections 16,
17 and 18 of this Agreement shall each be construed as an agreement independent of any
other provision in this Agreement, and the existence of any claim or cause of action of the
Executive against the Company, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of such covenants. In the event that
any part of any covenant of this Agreement is determined by a court of law to be overly
broad thereby making the covenant unenforceable, the parties hereto agree, and it is their
desire, that such court shall, to the extent permitted, substitute a judicially enforceable
limitation in its place, and that as so modified, the covenant shall be binding upon the
parties as if originally set forth herein. Additionally, both parties hereby expressly agree
and contract that it is not the intention of either party to violate any public policy, or
statutory or common law, and that if any provision of this Agreement shall, for any reason,
be held unenforceable and a court is not permitted to substitute a judicially enforceable
limitation in its place, such provision shall be severed from this Agreement unless, as a
result of such severance, the Agreement fails to reflect the basic intent of the parties. If
the Agreement continues to reflect the basic intent of the parties, then the invalidity of
such specific provision shall not affect the enforceability of any other provision herein,
and the remaining provisions shall remain in full force and effect.

(d) Notices. Any notice required or permitted hereunder shall be made in
writing (i) either by actual delivery of the notice into the hands of the party thereunder
entitled, or (ii) by depositing the notice with a nationally recognized overnight delivery
service, all shipping costs prepaid and addressed to the party to whom the notice is to be
given, at the party’s respective address set forth below, or such other address as the
parties may from time to time designate by written notice as herein provided.

	 	 	 
	As addressed to the Company:

	 	With a copy to:
	Merge Technologies Incorporated

6737 W. Washington Street

Milwaukee, Wisconsin 53214-5650

Attention: Chief Executive Officer

	 	Merge Technologies Incorporated

6737 W. Washington Street

Milwaukee, Wisconsin 53214-5650

Attention: General Counsel
	 
	 	 
	As addressed to the Executive:

	 	

	Loris Sartor, at the home address on

record with the Company

	 	

The notice shall be deemed to be received on the date of its actual delivery to the address
of the party entitled thereto.

(e) Amendment and Waiver. No amendment or modification of this Agreement shall
be valid or binding upon the Company unless made in writing and signed by an officer of the
Company duly authorized by the Board or upon the Executive unless made in writing and signed
by him. The waiver by the Company of the breach of any provision of this Agreement by the
Executive shall not operate or be construed as a waiver of any subsequent breach by him.

(f) Entire Agreement. This Agreement constitutes the entire Agreement between
the parties with respect to the Executive’s duties and compensation as an executive of the
Company, and there are no representations, warranties, agreements or commitments between the
parties hereto with respect to his employment except as set forth herein. No presumption
shall be made in favor or against either party based upon who has served as draftsman of
this Agreement.

(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the Province of Ontario
Canada.

(h) Assignment. The Executive may not under any circumstances assign any of his
rights or delegate any of his obligations hereunder without first obtaining the prior
written consent of the Company. This Agreement and all of the Company’s rights and
obligations hereunder may be assigned or transferred by it, in whole or in part, to be
binding upon and inure to the benefit of any parent, subsidiary or successor of the Company,
provided either the successor has a net worth greater than the Company at the time of
assignment or the Company remains primarily liable with respect to the obligations so
assigned.

(i) Costs of Enforcement, Litigation. In the event of any suit or proceeding
seeking to enforce the terms, covenants, or conditions of this Agreement, the prevailing
party shall, in addition to all other remedies and relief that may be available under this
Agreement or applicable law, recover his or its reasonable attorneys’ fees and costs as
shall be determined and awarded by the court. Any controversy or dispute with respect to the
terms of Section 14, 15, 16, 17 or 18 of this Agreement will survive termination of this
Agreement and shall be litigated in the province of Ontario Canada.

(j) Mitigation. The Executive shall not be obligated to seek other employment
in mitigation of the amounts payable under this Agreement, and the obtaining of any such
other employment shall in no event effect any reduction of the Company’s obligations to make
payments hereunder. Notwithstanding the foregoing, if Executive receives the payments
described in Section 9 by terminating his employment following a Change in Control
and Executive subsequently becomes re-employed by the Company or by the party or parties
effecting the Change in Control, the amounts earned on re-employment (up to a period of one
year’s compensation) shall be repaid to the Company.

19. Executive Acknowledgement. The Executive acknowledges that:

(a) the Executive has had sufficient time to review this Employment Agreement thoroughly;

(b) the Executive has read and understands the terms of this Employment Agreement and the
obligations hereunder;

(c) the Executive has received good and adequate consideration for entering into this
Employment Agreement; and

(d) the Executive has been given an opportunity to obtain independent legal advice concerning
the interpretation and effect of this Employment Agreement.

IN WITNESS WHEREOF, the Company and the Executive have entered into this Agreement as of the
Effective Date.

	 
	 

	COMPANY:

	 

	MERGE TECHNOLOGIES INCORPORATED

	 

	By: /s/ Kenneth D. Rardin

	 

	Kenneth D. Rardin

President and Chief Executive Officer

	 

	EXECUTIVE:

	 

	By: /s/ Loris Sartor

	 

	 

	Loris SartorFiled by Bowne Pure Compliance

 

Exhibit 10.12

Tomkins Capital Group Letterhead

September 1, 2006

Mr. Joel A. Balbien

Chief Executive Officer

Kreido Laboratories, [Inc.]

1140 Avenida Acaso

Camarillo, CA 93012

Dear Mr. Balbien:

We are pleased to submit this binding Term Sheet whereby Tompkins Capital Group, or its affiliates
(“TCG”), will assist Kreido Laboratories, [Inc.] (“Kreido”), and a US publicly traded company
(“Pubco”), in connection with a reverse triangular merger and a PPO (as defined herein) and related
transactions (“Transactions”). We agree that this Term Sheet supersedes and replaces any and all
prior oral and/or written agreements.

	 	 	 
	Item	 	Description
	1. Structure

	 	Pubco, a publicly traded company currently
listed on the NASD OTC Bulletin Board and
not registered under the Securities
Exchange Act of 1934, as amended, will
enter into a reverse triangular merger with
Kreido and a newly formed acquisition
subsidiary of Pubco, which merger shall
qualify as a tax-free reorganization under
the Internal Revenue Code, and pursuant to
which Pubco will acquire all the
outstanding shares of Kreido (the “Merger”)
in exchange for shares of Pubco common
stock (“Common Stock”) with an anticipated
closing date on or before October 31, 2006
(the “Closing Date”). Following the Closing
Date, Pubco will change its name to such
other alternate name as shall be determined
by Kreido.
	 
	 	 
	 

	 	Upon the Closing Date, and as a
precondition for Kreido participation in
the Merger, Pubco shall have closed on
private placement financing of units
(“Units”) of Pubco securities as discussed
in Section 4 below, and the Board of
Directors of Pubco shall have adopted,
subject to shareholder approval following
the Closing Date, a Three Million Seven
Hundred and Fifty Thousand (3,750,000)
Share Employee Incentive Stock Option Plan
(“ESOP”).
	 
	 	 
	 

	 	The above-described transactions will
hereinafter be referred to as the
“Transaction” or “Transactions.” All
references in this Term Sheet to “$s” or
“dollars” are to United States dollars,
unless the context specifically provides
otherwise.

 

 

 

	 	 	 
	Item	 	Description
	2. Merger

	 	The definitive merger agreement among
Pubco, Kreido and the acquisition
subsidiary (the “Merger Agreement”) will
contain customary representations and
warranties for a transaction of this type.
In particular, Pubco will represent,
warrant and covenant to Kreido that on the
date of the Merger Agreement and on the
Closing Date, that Pubco (and the
acquisition subsidiary as applicable):

	 	(a)	 	is a US corporation in good standing
whose shares are presently eligible for
quotation on the NASD OTC Bulletin Board
and not subject to any notice of suspension
or delisting;

	 
	 	(b)	 	has complied with all applicable
federal and state securities laws and
regulations, including being current in all
of its reporting obligations under federal
securities laws and regulations;

	 
	 	(c)	 	no order suspending the effectiveness
of Pubco’ Registration Statement on Form
SB-2 has been issued by the Securities and
Exchange Commission (the “SEC”) and, to
Pubco’ knowledge, no proceedings for that
purpose have been initiated or threatened
by the SEC;

	 
	 	(d)	 	is not, and has not, and the past and
present officers, directors and affiliates
of Pubco are not and have not, been the
subject of, nor does any officer or
director of Pubco have any reason to
believe that Pubco or any of its officers,
directors or affiliates will be the subject
of, any civil or criminal proceeding or
investigation by any federal or state
agency alleging a violation of securities
laws;

	 
	 	(e)	 	is not, and has not been the subject of
any voluntary or involuntary bankruptcy
proceeding, nor is it or has it been a
party to any material litigation.
Litigation shall be deemed “material” if
the amount at issue exceeds the lesser of
$10,000 per matter or $25,000 in the
aggregate;

	 
	 	(f)	 	has not, and the past and present
officers, directors and affiliates of Pubco
have not, been the subject of, nor does any
officer or director of Pubco have any
reason to believe that Pubco or any of its
officers, directors or affiliates will be
the subject of, any civil, criminal or
administrative investigation or proceeding
brought by any federal or state agency;

 

 

 

	 	 	 
	Item	 	Description

	 	(g)	 	will discontinue all of its business
operations without any material adverse
effect upon Pubco, and Pubco has no
material liabilities, contingent or
otherwise in any way related to any such
business operations; and

	 
	 	(h)	 	does not, on the Closing Date, have any
liabilities, contingent or otherwise,
including but not limited to notes payable
and accounts payable, except as otherwise
discussed herein, and is not a party to any
executory agreements.

	 	 	 
	 

	 	The Merger Agreement will contain customary
indemnification provisions to secure
breaches of representations and warranties
reasonably satisfactory to the parties.
Such provisions shall provide, among other
things, that the stockholders of Kreido as
of the date of the execution of this Term
Sheet (the “Effective Date”) shall
initially receive in the Merger ninety five
percent (95%) of the shares to which such
stockholder is entitled, with the remaining
five percent (5%) of such shares being held
in escrow for two (2) years to satisfy post
Closing claims for indemnification by
Pubco. The Merger Agreement will also
contain a provision providing for a
post-Closing share adjustment as a means
for which claims for indemnity may be made
by Kreido. Pursuant to the provision up to
2,000,000 shares (the “R&W Shares”) of
Common Stock may be issued to stock holders
of Kreido, pro rata, during the two (2)
year period following the Closing Date for
breaches of representations and warranties.
The value of the R&W Shares issued
pursuant to the adjustment mechanism will
be fixed at the per Unit price of Units
sold in the PPO as defined below (which
price is currently contemplated to be $1.30
per Unit).
	 
	 	 
	3. Consideration

	 	In consideration for the Merger, the
stockholders of Kreido shall receive Twenty
Seven Million (27,000,000) shares of Common
Stock of Pubco in exchange for all the
shares of common stock of Kreido. The
shares of Common Stock of Pubco received by
the stockholders of Kreido shall represent
approximately fifty four and five tenths
percent (54.5%) of the shares of Common
Stock of Pubco, if the Minimum PPO, as such
term is defined below, is sold, and
approximately fifty two and eight tenths
percent (52.8%>) of the shares of Common
Stock of Pubco, if the Maximum PPO, as such
term is defined below, is sold, in each
case on a fully diluted basis after giving
effect to the Merger and the shares of
Common Stock issued in the PPO but not the
shares granted under the ESOP, or the R&W
Shares or the Investor Warrants, as defined
below.

 

 

 

	 	 	 
	Item	 	Description
	 

	 	In consideration for the Merger, the
stockholders of Pubco will retain Eight
Million (8,750,000) shares of Common Stock
of Pubco representing approximately
seventeen and six tenths percent (17.6%) of
the shares of Common Stock of Pubco, if the
Minimum PPO is sold, and approximately
seventeen and one tenth percent (17.1%>)
of the shares of Common Stock of Pubco, if
the Maximum PPO is sold, in each case on a
fully diluted basis after giving effect to
the Merger and the shares of Common Stock
issued in the PPO but not the shares
granted under the ESOP, or the R&W Shares
or the Investor Warrants.
	 
	 	 
	 

	 	The investors in the PPO will own:

	 	(a)	 	Thirteen Million Eight Hundred and
Forty Six Thousand One Hundred and Fifty
Three (13,846,153) shares of Common Stock
of Pubco representing approximately twenty
seven and nine tenths percent (27.9%o) of
the shares of Common Stock of Pubco, if the
Minimum PPO is sold; and

	 
	 	(b)	 	Fifteen Million Three Hundred and
Eighty Four Thousand Six Hundred and
Fifteen (15,384,615) shares of Common Stock
of Pubco, representing approximately thirty
and one tenth percent (30.1%) of the shares
of Common Stock of Pubco if the Maximum PPO
is sold,

	 	 	 
	 

	 	in each case on a fully diluted basis after
giving effect to the Merger and the shares
of Common Stock issued in the PPO, but not
the shares granted under the ESOP, or the
R&W Shares or the Investor Warrants.
	 
	 	 
	 

	 	Subject to the cancellation of the
2,000,000 R&W Shares held in escrow as
provided in the last paragraph of Section 2
above, the total shares of Common Stock of
Pubco outstanding after giving effect to
the Transactions on a fully diluted basis
will be approximately 60,269,229 shares, if
the Minimum PPO is sold, and approximately
62,576,923 shares, if the Maximum PPO is
sold, in each case including the shares
reserved for issuance under the ESOP and
the shares reserved for issuance under the
Investor Warrants.
	 
	 	 
	4. Private Placement Offering

	 	Pubco will conduct a private placement
offering pursuant to Regulation D of
the Securities Act and any and all
applicable state securities laws (the
“PPO”) of a minimum (the “Minimum PPO”) of
Thirteen Million Eight Hundred and Forty
Six Thousand One Hundred and Fifty Three
(13,846,153) Units of its securities, and a
maximum (the “Maximum PPO”) of Fifteen
Million Three Hundred and Eighty Four
Thousand Six Hundred and Fifteen
(15,384,615) Units of its securities, at an
offering price of $1.30 per Unit. Each unit
shall consist of one (1) share of Common
Stock and one half of one common stock
purchase warrant (“Investor Warrants”).
Each Investor Warrant will entitle the
holder thereof to purchase one share of
Pubco Common Stock, at an exercise price of
$1.80 per share, and will be exercisable
for a period of five (5) years from the
Closing Date.

 

 

 

	 	 	 
	Item	 	Description
	 

	 	The parties acknowledge that TCG will
assist Kreido on a “best efforts” basis in
finding qualified subscribers for the PPO.
The parties agree that TCG has no
commitment to sell the Units, and shall
have no liability hereunder if all or any
of the Units are not sold.
	 
	 	 
	5. Financial Statements of
Kreido

	 	On or prior to the Closing Date, Kreido
shall provide any such audited or unaudited
financial statements as may be required
under applicable U.S. Securities Exchange
Commission (“SEC”) regulations for
inclusion of such statements in Pubco’s SEC
and other regulatory filings.
	 
	 	 
	6. Signing Date

	 	It is contemplated that the definitive
agreement (the “Merger Agreement”) will be
signed on or before the last day of the
Exclusivity Period (hereinafter defined).
The Merger Agreement shall contain such
terms and provisions as shall be mutually
agreed upon between Kreido and Pubco
consistent with the provisions in this Term
Sheet.
	 
	 	 
	7. Board of Directors

	 	Immediately following the Closing Date, the
Board of Directors shall consist of five
(5) members. On the Closing Date, all of
the current officers and directors of Pubco
shall resign and, simultaneously therewith,
appoint a new Board of Directors and such
executive officers as shall be determined
solely by Kreido. On the Closing Date,
Pubco shall have the right to appoint one
(1) member of the five (5) new members of
the Board of Directors, provided such
appointee is reasonably acceptable to the
Kreido appointed directors.
	 
	 	 
	8. Registration

	 	Promptly, but no later than one hundred
twenty (120) calendar days from the Closing
Date of the Merger, Pubco shall file a
registration statement (on Form SB-2, or
similar form) with the SEC covering the
shares of Pubco Common Stock issued in
connection with the PPO (including the
shares of Common Stock underlying the
Investor Warrants) (the “Registration
Statement”). Pubco shall use its best
efforts to ensure that such Registration
Statement is declared effective within one
hundred twenty (120) calendar days of
filing with the SEC. There shall be
monetary penalties if Pubco is late in
filing the Registration Statement or if the
Registration Statement is not declared
effective within one hundred twenty (120)
days of filing with the SEC. Such penalties
shall be equal to one and one-quarter
percent (1.25%) of the gross proceeds of
the PPO for each full month that (i) Pubco
is late in filing the Registration
Statement or (ii) the Registration
Statement is late in being declared
effective; provided, however, that in no
event shall the aggregate of any such
penalties exceed fifteen percent (15%) of
the gross proceeds of the PPO. Pubco shall
keep the Registration Statement “Evergreen”
for two (2) years from the date it is
declared effective by the SEC or until Rule
144(k) of the Securities Act of 1933, as
amended, is available to the PPO investors
with respect to all of their shares,
whichever is earlier. Pubco shall retain,
and pay at its sole expense, Gottbetter &
Partners, LLP (“G&P”) to file the
Registration Statement.

 

 

 

	 	 	 
	Item	 	Description
	9. Restriction on Sale

	 	All securities issued pursuant to the
Merger will be “restricted” stock and be
subject to all applicable resale
restrictions specified by federal and state
securities laws.
	 
	 	 
	10. Conditions to Closing

	 	The Merger shall include certain closing
conditions including the following: (i)
consummation of all required definitive
instruments and agreements, including, but
not limited to, the Merger Agreement; (ii)
obtaining all necessary board, shareholder
and third party consents; (iii)
satisfactory completion by Pubco and Kreido
of all necessary technical and legal due
diligence, and (iv) the completion of the
offer and sale of the PPO.
In connection with the Transactions Pubco
will change its name to such name as is
acceptable to Kreido.
Notwithstanding the foregoing, the parties
shall continue to be bound by the
provisions of Section 17 in the event of
any termination of this Term Sheet.
	 
	 	 
	11. Pre-Closing Covenants

	 	Pubco and Kreido shall each cooperate with
each other and use their reasonable best
efforts to execute and deliver the Merger
Agreement and all other documents necessary
or desirable to effect the Transactions as
soon as possible and to thereafter satisfy
each of the conditions to closing specified
thereunder. Kreido will retain McGuire
Woods, LLP as its corporate and securities
counsel for the purpose of effectuating the
Transactions. The terms and conditions of
the retention of McGuire Woods, LLP will be
subject to a written agreement to be
acceptable to Kreido prior to the retainer
being effective.
	 
	 	 
	12. Employment Agreement

	 	Mr. Joel A. Balbien shall have an
employment agreement mutually satisfactory
to Kreido and Pubco and to Mr. Balbien.
	 
	 	 
	13. Closing Costs:

	 	All fees and expenses relating to the
Transactions, including but not limited to
legal and accounting fees, will be payable
at Closing from the proceeds of the PPO.
The Parties understand that G&P shall be
engaged by Pubco to serve as its securities
counsel (“G&P Retainer”) prior to the
Closing Date and that fees and expenses of
G&P incurred by Pubco will similarly be
payable at Closing from the proceeds of the
PPO. G&P shall handle all securities
matters requested by Pubco (as defined
below), including, but not limited to, any
registration statements to be filed with
the SEC under the Securities Act of 1933
and any compliance filing to be filed with
the SEC under the Securities Exchange Act
of 1934 (e.g., 10-K, 10-Q, 8-K, 14C, S-8,
S-4, etc.) to the extent necessary to
facilitate the Closing. The terms and
conditions of the G&P Retainer will be
subject to a written agreement to be
acceptable to Pubco and Kreido prior to the
retainer being effective.

 

 

 

	 	 	 
	Item	 	Description
	14. Exclusivity

	 	From and after the Effective Date and
during a period of one hundred twenty (120)
days thereafter (the “Exclusivity Period”),
Kreido hereby covenants and agrees that it
will not enter into any agreement or
consummate any transaction with any third
party, in whatever form, other than in the
ordinary course of business (including,
without limitation, joint venture, sale,
license, distribution agreement, etc.) or
enter into any other transaction that would
preclude the consummation of the PPO and
the Merger Agreement consistent with the
terms set forth in this Term Sheet. During
the Exclusivity Period, Pubco will incur
additional legal and other costs and
expenses in connection with the negotiation
of the Transaction and certain due
diligence activities relating thereto. TCG
shall have the right, upon notice to the
other parties hereto, to terminate its
obligations hereunder at any time if the
results of its due diligence inquiry are
unsatisfactory to TCG, in TCG’s sole
discretion.
	 
	 	 
	15. Governing Law

	 	This Agreement shall be governed and
construed in accordance with the laws of
the State of New York, without giving
effect to principles of conflicts or choice
of laws thereof.
	 
	 	 
	16. Use of Proceeds

	 	Pubco shall receive the gross proceeds from
the PPO, less the legal and accounting fees
of Pubco, as set forth herein. The gross
proceeds will be utilized for (i) a
mutually agreeable $500,000 investor
relations program, (ii) general working
capital purposes and (iii) development of
three (3) bio-diesel production facilities
using Kreido technology.
	 
	 	 
	17. Termination and Effects
of Termination

	 	The obligations of the parties to each
other under this Term Sheet shall terminate
upon the first to occur of (x) the
expiration of the Exclusivity Period, (y)
termination by TCG pursuant to Section 14
of this Term Sheet or (z) the execution and
delivery of a Merger Agreement among
Kreido, Pubco and the acquisition
subsidiary, provided that the provisions
and obligations of the parties created by
Sections 17 and 18 shall survive the
termination of this Term Sheet in any
event.
	 
	 	 
	18. Confidentiality

	 	Each of the parties to this Term Sheet
agrees to maintain the confidentiality of
the terms of this Term Sheet and the
Transaction, and not to use any information
it may learn about the other party for any
purpose other than to consummate the
Transaction. Further, no disclosure of any
information concerning this Term Sheet, the
Transaction or any confidential information
of the delivering party bearing a label
“confidential” or any similar marking shall
be disclosed to any other person unless and
until such person shall have first executed
and delivered a written confidentiality
agreement by which such person agrees to
hold in confidence all such confidential
information (unless by operation of law or
pre-existing agreement, such person is
already bound by such confidentiality
obligations).

 

 

 

	 	 	 
	Item	 	Description
	 

	 	Any notices desired, required or permitted
to be given hereunder shall be delivered
personally or mailed, certified or
registered mail, return receipt requested,
or delivered by overnight courier service,
to the following addresses, or such other
addresses as shall be given by notice
delivered hereunder, and shall be deemed to
have been given upon delivery, if delivered
personally, four (4) days after mailing, if
mailed, or one (1) business day after
timely delivery to the overnight courier
service, if delivered by overnight courier
service: (i) if to TCG, to 488 Madison
Ave., 12th FL, New York, NY 10022,
Attention: Mr. Mark Tompkins, with a copy
to Gottbetter & Partners, LLP, 488 Madison
Ave., 12th FL, New York, NY 10022,
Attention: Adam S. Gottbetter, Esq., and
(ii) if to Kreido, to Mr. Joel A. Balbien,
1140 Avenida Acaso, Camarillo, CA 93012,
with a copy to McGuire Woods LLP, 1345
Avenue of the Americas, New York, New York
10105, Attention: Louis W. Zehil, Esq., and
with a copy to DLA Piper US LLP, 203 North
LaSalle Street, Suite 1900, Chicago,
Illinois 60601, Attention: John H.
Heuberger, Esq.

SIGNATURE PAGE TO IMMEDIATELY FOLLOW

 

 

 

This Term Sheet sets forth the principal terms of the Transaction and constitutes a binding
contract on the part of the parties hereto. All of these binding obligations of the parties with
respect to the Transaction shall be further memorialized by the execution and delivery of the
definitive Merger Agreement and the related PPO documentation.

We look forward to working with you to complete the Transaction successfully and
expeditiously. If the foregoing correctly sets forth your understanding, please evidence your
agreement to this Term Sheet by executing a copy of this Term Sheet in the space set forth below.

AGREED TO AND ACCEPTED:

This 1st day of September, 2006.

	 	 	 	 	 
	KREIDO LABORATORIES, INC.

 	 	 
	By:  	/s/ Joel A. Balbien
 	 	 
	 	Name:  	Mr. Joel A. Balbien 	 	 
	 	Title:  	CEO 	 	 
	 
	TOMPKINS CAPITAL GROUP

 	 	 
	By:  	/s/ Mark Tompkins
 	 	 
	 	Name:  	Mr. Mark Tompkins 	 	 
	 	Title:  	Principal

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