Document:

<PAGE>
                                                                   Exhibit 10.20

                        PENINSULA PHARMACEUTICALS, INC.

                            NOTE PURCHASE AGREEMENT

                               DECEMBER 23, 2004
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                                                                               .
                                                                               .
                               TABLE OF CONTENTS

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                                                                                            PAGE
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1.   Amount and Terms of the Loan(s)......................................................    1

     1.1    The Loan(s)...................................................................    1

2.   Closing, Drawdown, Delivery And Payment..............................................    2

     2.1    Closing.......................................................................    2

     2.2    Drawdown Notice...............................................................    2

     2.3    Delivery......................................................................    2

3.   Representations And Warranties Of The Company........................................    2

     3.1    Organization, Good Standing and Qualification.................................    2

     3.2    Subsidiaries..................................................................    2

     3.3    Capitalization; Voting Rights.................................................    3

     3.4    Authorization; Binding Obligations............................................    4

     3.5    Financial Statements..........................................................    4

     3.6    Agreements; Action............................................................    5

     3.7    Obligations to Related Parties................................................    6

     3.8    Changes.......................................................................    6

     3.9    Title to Properties and Assets; Liens, Etc....................................    7

     3.10   Intellectual Property.........................................................    7

     3.11   Compliance with Other Instruments.............................................    8

     3.12   Litigation....................................................................    8

     3.13   Tax Returns and Payments......................................................    8

     3.14   Employees.....................................................................    9

     3.15   Registration Rights and Voting Rights.........................................    9

     3.16   Compliance with Laws; Permits.................................................    9

     3.17   Offering Valid................................................................   10

     3.18   Environmental and Safety Laws.................................................   10

     3.19   Full Disclosure...............................................................   10

     3.20   Minute Books..................................................................   10

     3.21   Insurance.....................................................................   10

     3.22   Real Property Holding Corporation.............................................   10

     3.23   Section 83(b) Elections.......................................................   10
</TABLE>

                                       i.
<PAGE>
                               TABLE OF CONTENTS
                                  (CONTINUED)

<TABLE>
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                                                                                            PAGE
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     3.24   Product Regulatory Review.....................................................   10

     3.25   Use of Proceeds...............................................................   11

4.   Representations And Warranties Of Purchasers.........................................   11

     4.1    Requisite Power and Authority.................................................   11

     4.2    Investment Representations....................................................   11

     4.3    Transfer Restrictions.........................................................   13

5.   Conditions To Closing................................................................   13

     5.1    Conditions to Purchasers' Obligations at the Closing..........................   13

     5.2    Conditions to Obligations of the Company......................................   14

6.   Miscellaneous........................................................................   14

     6.1    Governing Law.................................................................   14

     6.2    Survival......................................................................   14

     6.3    Successors and Assigns........................................................   14

     6.4    Entire Agreement..............................................................   14

     6.5    Severability..................................................................   15

     6.6    Amendment and Waiver..........................................................   15

     6.7    Delays or Omissions...........................................................   15

     6.8    Waiver of Conflicts...........................................................   15

     6.9    Notices.......................................................................   15

     6.10   Expenses......................................................................   16

     6.11   Attorneys' Fees...............................................................   16

     6.12   Titles and Subtitles..........................................................   16

     6.13   Counterparts..................................................................   16

     6.14   Broker's Fees.................................................................   16

     6.15   Exculpation Among Purchasers..................................................   16

     6.16   Pronouns......................................................................   16

     6.17   California Corporate Securities Law...........................................   17
</TABLE>

                                      ii.
<PAGE>
                                LIST OF EXHIBITS

<TABLE>
<S>                                                                    <C>
Schedule of Purchasers                                                 Exhibit A

Form of Convertible Promissory Note                                    Exhibit B
</TABLE>

                                      iii.
<PAGE>
                        PENINSULA PHARMACEUTICALS, INC.

                            NOTE PURCHASE AGREEMENT

      THIS NOTE PURCHASE AGREEMENT (the "AGREEMENT") is made and entered into as
of December 23, 2004, by and among Peninsula Pharmaceuticals, Inc., a Delaware
corporation (the "COMPANY") and each of those persons and entities, severally
and not jointly, who have executed this Agreement and whose names are set forth
on the Schedule of Purchasers attached hereto as EXHIBIT A (which persons and
entities are hereinafter collectively referred to as "PURCHASERS" and each
individually as a "PURCHASER").

                                    RECITALS

      WHEREAS, to provide the Company with additional resources to conduct its
business, the Purchasers are willing to loan to the Company up to an aggregate
amount of twelve million dollars ($12,000,000) (the "MAXIMUM COMMITMENT
AMOUNT"), subject to the conditions specified herein; and

      WHEREAS, the Purchasers desire to purchase, and the Company desires to
sell, the Notes (as defined below) on the terms and conditions set forth herein.

                                   AGREEMENT

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

      1.    AMOUNT AND TERMS OF THE LOAN(S).

            1.1   THE LOAN(S).

                  (A)   Subject to the terms of this Agreement, each Purchaser
agrees to make available to the Company, subject to the terms and conditions
hereof, the amount set forth opposite each such Purchaser's name on the Schedule
of Purchasers attached hereto (each, a "COMMITMENT AMOUNT") under which the
Company may, at any time (i) following the date hereof and (ii) prior to the
Expiration Date (as defined below), request (a "DRAWDOWN NOTICE"), and the
Purchasers agree to make, loans to the Company in the aggregate amount specified
in the Drawdown Notice (the "TOTAL LOAN AMOUNT") against the issuance and
delivery by the Company of convertible promissory notes in substantially the
form attached hereto as EXHIBIT B (each, a "NOTE" and collectively, the
"NOTES").

                  (B)   Following delivery of the Drawdown Notice pursuant to
Section 2.1, each Purchaser shall be obligated to purchase, and the Company
shall be obligated to sell and issue, on the Drawdown Date (as defined below) a
Note in the principal amount equal to the product of (i) such Purchaser's Pro
Rata Share (as defined below) and (ii) the Total Loan Amount requested in the
Drawdown Notice (each, a "LOAN AMOUNT" and collectively, the "LOANS"). For the
purposes of this Agreement, a Purchaser's "PRO RATA SHARE" shall be equal

                                       1.
<PAGE>
to (i) such Purchaser's Commitment Amount divided by (ii) the Maximum Commitment
Amount. Each Note shall be convertible into equity securities of the Company
upon the terms and conditions set forth in the Notes.

      2.    CLOSING, DRAWDOWN, DELIVERY AND PAYMENT.

            2.1   CLOSING. The closing of the obligations contemplated hereby
(the "CLOSING") shall take place at 1:00 p.m. on the date hereof, at the offices
of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto,
CA, 94306-2155 or at such other time or place as the Company and the Purchasers
may mutually agree (the "CLOSING DATE").

            2.2   DRAWDOWN NOTICE. The Drawdown Notice may be given at any time,
in the sole discretion of the Company, (i) following the Closing Date and (ii)
prior to the earlier to occur of (A) the closing of the Company's first firmly
underwritten primary offering of the Company's common stock to the public or (B)
June 30, 2005 (the "EXPIRATION DATE"). All Loans made pursuant to the Drawdown
Notice shall not exceed the Maximum Commitment Amount. The Drawdown Notice shall
(i) be in writing signed by the Chief Executive Officer or the Chief Financial
Officer of the Company, (ii) specify the Total Loan Amount, and (iii) specify
the date that said loan is to be made, which date shall be three (3) days
following the delivery of such Drawdown Notice or at such other time as the
Company and the Purchasers may mutually agree.

            2.3   DELIVERY. The delivery of the Notes against receipt of the
Total Loan Amount shall be held within three (3) days following delivery of the
Drawdown Notice by the Company as set forth in Section 2.2 above, or at such
other time as the Company and the Purchasers may mutually agree (the "DRAWDOWN
DATE"). On the Drawdown Date (i) each Purchaser will deliver to the Company a
check or wire transfer funds in the amount of such Purchaser's Loan Amount; and
(ii) the Company shall issue and deliver to each Purchaser a Note in favor of
such Purchaser payable in the principal amount of such Purchaser's Loan Amount.

      3.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

            Except as set forth on a Schedule of Exceptions delivered by the
Company to Purchasers at the Closing, the Company hereby represents and warrants
to each Purchaser as of the Closing as set forth below.

            3.1   ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, to issue the Notes (together, with this Agreement, the "LOAN
DOCUMENTS") and the equity securities issuable upon conversion of the Notes (the
"CONVERSION SECURITIES"), and to carry out and perform its obligations under the
terms of the Loan Documents and to carry on its business as presently conducted.
The Company is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the nature of
its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business.

                                       2.
<PAGE>
            3.2   SUBSIDIARIES. The Company does not own or control any equity
security or other interest of any other corporation, limited partnership or
other business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement. Since its inception, the Company has not
consolidated or merged with, acquired all or substantially all of the assets of,
or acquired the stock or any interest in any corporation, partnership,
association, or other business entity.

            3.3   CAPITALIZATION; VOTING RIGHTS.

                  (A)   The authorized capital stock of the Company, immediately
prior to the Closing, consists of: (i) one hundred million (100,000,000) shares
of Common Stock, par value $0.0001 per share, two million one hundred thirty-six
thousand six hundred nine (2,136,609) shares of which are issued and outstanding
(including the shares reflected in Section 3.3(b)(i) hereof); and (ii)
forty-nine million eight hundred ninety-six thousand nine hundred forty-two
(49,896,942) shares of Preferred Stock, par value $0.01 per share, nine hundred
ninety thousand (990,000) shares of which are designated Series A Preferred
Stock, three hundred twenty-nine thousand nine hundred ninety-six (329,996) of
which are issued and outstanding, thirteen million nine hundred six thousand
nine hundred forty-two (13,906,942) shares of which are designated Series B
Preferred Stock, four million six hundred thirty-five thousand six hundred
forty-three (4,635,643) of which are issued and outstanding, and thirty-five
million (35,000,000) shares of which are designated Series C Preferred Stock,
ten million three hundred forty thousand nine hundred two (10,340,902) shares of
which are issued and outstanding.

                  (B)   Under the Company' Amended and Restated 2001 Equity
Inventive Plan (the "PLAN"), (i) three hundred ninety-six thousand four hundred
thirty-one (396,431) shares of Common Stock have been issued pursuant to
restricted stock purchase agreements and/or the exercise of outstanding options,
(ii) options to purchase two million eight hundred forty-nine thousand five
hundred fifty-four (2,849,554) shares of Common Stock have been granted and are
currently outstanding, and (iii) one million one hundred twelve thousand two
hundred forty (1,067,240) shares of Common Stock remain available for future
issuance to officers, directors, employees and consultants of the Company.

                  (C)   Other than the shares reserved for issuance under the
Plan and except as may be granted pursuant to the Loan Documents and that
certain Amended and Restated Investor Rights Agreement dated as of December 11,
2003 (the "INVESTOR RIGHTS AGREEMENT"), there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. All such
preemptive rights have been properly waived or complied with respect to all
prior issuances of capital stock and with respect to the issuance of the Notes
and the Conversion Securities.

                  (D)   All issued and outstanding shares of the Company's
Common Stock and Preferred Stock (i) have been duly authorized and validly
issued and are fully paid and nonassessable, and (ii) were issued in compliance
with all applicable state and federal laws concerning the issuance of
securities.

                                       3.
<PAGE>
                  (E)   Each series of Preferred Stock is convertible into
Common Stock on a one-for-one basis as of the date hereof. When issued in
compliance with the provisions of the Loan Documents, the Notes and the
Conversion Securities will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances other than (i) liens and encumbrances
created by or imposed upon Purchasers and (ii) any right of first refusal set
forth in the Company's Bylaws; provided, however, that the Notes and the
Conversion Securities may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.

                  (F)   The Company has no obligation (contingent or other) to
purchase, redeem or otherwise acquire any of its securities or any interest
therein or to pay any dividend or make any other distribution in respect
thereof. Except for the Investor Rights Agreement, the Amended and Restated
Co-Sale Agreement dated as of December 11, 2003 and the Amended and Restated
Voting Agreement dated as of December 11, 2003 (the "VOTING AGREEMENT"), to the
best of the Company's knowledge there are no voting trusts or agreements,
stockholders' agreements, buy-sell agreements, rights of first refusal,
preemptive rights or proxies relating to any securities of the Company or any
subsidiary of the Company (whether or not the Company or any such subsidiaries
is a party thereto).

            3.4   AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on
the part of the Company, its officers, directors and stockholders necessary for
the authorization of the Loan Documents, the performance of all obligations of
the Company hereunder and thereunder at the Closing and the authorization, sale,
issuance and delivery of the Notes pursuant hereto. The Loan Documents, when
executed and delivered, will be valid and binding obligations of the Company
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, (b) general principles
of equity that restrict the availability of equitable remedies, and (c) to the
extent that the enforceability of the indemnification provisions in the Investor
Rights Agreement may be limited by applicable laws. The issuance of the Notes
and the subsequent conversion of the Notes into Conversion Securities are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.

            3.5   FINANCIAL STATEMENTS. The Company has delivered to each
Purchaser its unaudited balance sheet as at September 30, 2004 (the "STATEMENT
DATE") and unaudited consolidated statement of income and cash flows for the
nine-month period ending on the Statement Date (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements, together with the notes thereto, present
fairly the financial condition and position of the Company as of the Statement
Date; provided, however, that the unaudited financial statements are subject to
normal recurring year-end audit adjustments (which are not expected to be
material either individually or in the aggregate), and do not contain all
footnotes required under generally accepted accounting principles. All
liabilities (whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due) ("LIABILITIES") of the Company and other obligations of
the Company, whether absolute, accrued, contingent or otherwise, whether direct
or indirect, and whether due or to become due, that existed at the Statement
Date have been disclosed in the balance sheet included in the Financial
Statements (the "BALANCE SHEET") to the extent such Liabilities and

                                       4.
<PAGE>
obligations were required, under generally accepted accounting principles, to be
so disclosed. The Company has not (a) made a general assignment for the benefit
of its creditors, (b) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition in bankruptcy by its creditors, (c) suffered
the appointment of a receiver to take possession of all or substantially all of
its assets or properties, (d) suffered the attachment or other judicial seizure
of all or substantially all of its assets or (e) admitted in writing its
inability to pay its debts as they come due. After giving effect to the
transactions contemplated hereby, the Company will have tangible and intangible
assets having a fair value in excess of the amount required to pay its probable
Liabilities on its existing debts as they become absolute and matured. To the
Company's knowledge, there are no Liabilities of the Company of any kind
whatsoever, and there is no existing condition, situation or set of
circumstances that could reasonably be expected to result in a Liability of the
Company, other than (a) Liabilities reflected in the Financial Statements, (b)
Liabilities that have arisen after the date of the Balance Sheet in the ordinary
course of business (none of which is a Liability for breach of contract, breach
of warranty, tort, infringement claim or lawsuit) and that, in the aggregate, do
not exceed $25,000, and (c) Liabilities that have arisen after the date of the
Balance Sheet in connection with the preparation, execution and negotiation of
the Loan Documents and the transactions contemplated hereby and thereby.

            3.6   AGREEMENTS; ACTION.

                  (A)   There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $50,000 (other than obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the transfer or license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), (iii) indemnification by the Company with respect to infringements of
proprietary rights (other than indemnification obligations arising from purchase
or sale or license agreements entered into in the ordinary course of business),
or (iv) employment or labor matters (including, without limitation, any
severance, "change of control" or other similar payments, obligations or
matters).

                  (B)   The Company has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred or guaranteed any indebtedness for
money borrowed or any other liabilities (other than with respect to dividend
obligations, distributions, indebtedness and other obligations incurred in the
ordinary course of business or as disclosed in the Financial Statements)
individually in excess of $50,000 or, in the case of indebtedness and/or
liabilities individually less than $50,000, in excess of $200,000 in the
aggregate, (iii) made any loans or advances to any person, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.

                  (C)   The Company has delivered to the Purchasers or their
counsel copies of all contracts, agreements, instruments and transactions listed
in the Schedule of

                                       5.
<PAGE>
Exceptions. To the Company's knowledge, all such contracts, agreements and
instruments to which the Company is a party or by which it is bound
("CONTRACTS") are valid, binding and in full force and effect in all material
respects and enforceable by the Company in accordance with their respective
terms in all material respects, subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. The Company
is not in material default under any of such Contracts. To the Company's
knowledge, no other party to any of the Contracts is in material default
thereunder.

                  (D)   For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.

            3.7   OBLIGATIONS TO RELATED PARTIES. There are no obligations of
the Company to officers, directors, stockholders, or employees of the Company
other than (a) for payment of salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company).

            3.8   CHANGES. Since the Statement Date, other than pursuant to the
Loan Documents, there has not been to the Company's knowledge:

                  (A)   Any change in the assets, liabilities, financial
condition or operations of the Company from that reflected in the Financial
Statements, other than changes in the ordinary course of business, none of which
individually or in the aggregate has had a material adverse effect on such
assets, liabilities, financial condition or operations of the Company;

                  (B)   Any resignation or termination of any officer, key
employee or group of employees of the Company;

                  (C)   Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;

                  (D)   Any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;

                  (E)   Any waiver by the Company of a valuable right or of a
material debt owed to it;

                  (F)   Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;

                  (G)   Any labor organization activity related to the Company;

                                       6.
<PAGE>
                  (H)   Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;

                  (I)   Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;

                  (J)   Any change in any material agreement to which the
Company is a party or by which it is bound which materially and adversely
affects the business, assets, liabilities, financial condition, operations or
prospects of the Company;

                  (K)   Any other event or condition of any character that,
either individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition or operations of the Company;
or

                  (L)   Any arrangement or commitment by the Company to do any
of the acts described in subsection (a) through (k) above.

            3.9   TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to its properties and assets, including the properties
and assets reflected in the most recent balance sheet included in the Financial
Statements, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those
resulting from taxes which have not yet become delinquent, (b) minor liens and
encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company, and (c)
those that have otherwise arisen in the ordinary course of business. The Company
is in compliance with all material terms of each lease to which it is a party or
is otherwise bound.

            3.10  INTELLECTUAL PROPERTY.

                  (A)   To the best of its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now conducted and
as presently proposed to be conducted, without any known infringement of the
rights of others. There are no outstanding options, licenses or agreements of
any kind relating to the foregoing proprietary rights, nor is the Company bound
by or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products.

                  (B)   The Company has not received any communications alleging
that the Company has violated or, by conducting its business as presently
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity.

                  (C)   The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other

                                       7.
<PAGE>
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
that would conflict with the Company's business as proposed to be conducted.
Each employee, officer and consultant of the Company has executed a proprietary
information and inventions agreement in the form(s) as delivered to Purchasers.
No employee, officer or consultant of the Company has excluded works or
inventions made prior to his or her employment with the Company from his or her
assignment of inventions pursuant to such employee, officer or consultant's
proprietary information and inventions agreement and, to the Company's
knowledge, none of its present or former employees, officers or consultants are
in violation thereof.

                  (D)   The Company is not subject to any "open source" or
"copyleft" obligations or otherwise required to make any public disclosure or
general availability of source code either used or developed by the Company.

            3.11  COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its charter documents, each as amended, or
of any provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order or writ other than any such violation that would not have a
material adverse effect on the Company. The execution, delivery, and performance
of and compliance with the Loan Documents, and the issuance of the Notes
pursuant hereto and the consummation of the transactions contemplated hereby or
thereby, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
material default under any such term, or result in the creation of any mortgage,
pledge, lien, encumbrance or charge upon any of the properties or assets of the
Company or the suspension, revocation, impairment, forfeiture or nonrenewal of
any permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.

            3.12  LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened in
writing against the Company that questions the validity of the Loan Documents,
or the right of the Company to enter into any of such agreements, or to
consummate the transactions contemplated hereby or thereby, or which would
reasonably be expected to result, either individually or in the aggregate, in
any material adverse change in the assets, condition, affairs or prospects of
the Company, financially or otherwise, or any change in the current equity
ownership of the Company, nor is the Company aware that there is any basis for
any of the foregoing. The Company is not a party or, to its knowledge, subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.

            3.13  TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing, have been paid or will be paid prior to the time they become
delinquent. The Company has no knowledge of any liability of any tax to be
imposed upon its properties or assets as of the date of this Agreement that is
not adequately provided for. The Company has not elected pursuant to the
Internal Revenue Code of 1986, as

                                       8.
<PAGE>
amended (the "CODE") to be treated as a Subchapter "S" corporation or a
collapsible corporation pursuant to Section 341(f) or Section 1362(a) thereof.
The Company has withheld and paid all taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.

            3.14  EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. The
Company is not a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement, nor has the Company ever maintained or contributed to any employee
benefit plan subject to the Employee Retirement Income Security Act of 1974
("ERISA"). The Company has never contributed to any "multi-employer plan" as
such term is defined in ERISA. To the Company's knowledge, no employee of the
Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company; and to the Company's knowledge
the continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company has not received any notice
alleging that any such violation has occurred. No employee of the Company has
been granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. The Company
is not aware that any officer, key employee or group of employees intends to
terminate his, her or their employment with the Company, nor does the Company
have a present intention to terminate the employment of any officer, key
employee or group of employees. There are no actions pending, or to the
Company's knowledge, threatened, by any former or current employee concerning
such person's employment by the Company.

            3.15  REGISTRATION RIGHTS AND VOTING RIGHTS. Except as required
pursuant to the Investor Rights Agreement, the Company is presently not under
any obligation, and has not granted any rights, to register (as defined in
Section 1.1 of the Investor Rights Agreement) any of the Company's presently
outstanding securities or any of its securities that may hereafter be issued. To
the Company's knowledge, except as provided for in the Voting Agreement, no
stockholder of the Company has entered into any agreement with respect to the
voting of equity securities of the Company.

            3.16  COMPLIANCE WITH LAWS; PERMITS. To the best of its knowledge,
the Company is not in violation of any applicable statute, rule, regulation,
order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which violation would materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of the Loan Documents or the issuance of the Notes, except such as have
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, as will be filed in a timely manner. The Company
has all franchises, permits, licenses and any similar authority necessary for
the conduct of its business as now being

                                       9.
<PAGE>
conducted by it, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company and believes it can
obtain, without undue burden or expense, any similar authority for the conduct
of its business as planned to be conducted.

            3.17  OFFERING VALID. Assuming the accuracy of the representations
and warranties of Purchasers contained in Section 4.2 hereof, the issuance of
the Notes and the Conversion Securities will be exempt from the registration
requirements of the Securities Act, and will have been registered or qualified
(or are exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable state securities laws.

            3.18  ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge,
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation.

            3.19  FULL DISCLOSURE. The Company has provided Purchasers with all
information requested by the Purchasers in connection with their decision to
loan the Loan Amounts, including all information the Company believes is
reasonably necessary to make such investment decision. To the Company's
knowledge, neither this Agreement, the exhibits hereto, the Notes, nor any other
document delivered by the Company to Purchasers or their attorneys or agents in
connection herewith or therewith or with the transactions contemplated hereby or
thereby, contain any untrue statement of a material fact nor, to the Company's
knowledge, omit to state a material fact necessary in order to make the
statements contained herein or therein not misleading.

            3.20  MINUTE BOOKS. The minute books of the Company heretofore made
available to Purchasers or their counsel for inspection contain a complete and
accurate summary of all meetings and other corporate actions taken by the
directors and stockholders of the Company.

            3.21  INSURANCE. The Company has or will obtain promptly following
the Closing general commercial, product liability, fire and casualty insurance
policies with coverage customary for companies similarly situated to the
Company.

            3.22  REAL PROPERTY HOLDING CORPORATION. The Company is not a real
property holding corporation within the meaning of Code Section 897(c)(2) and
any regulations promulgated thereunder.

            3.23  SECTION 83(B) ELECTIONS. To the Company's knowledge, all
individuals who have purchased unvested shares of the Company's Common Stock
have timely filed elections under Section 83(b) of the Code and any analogous
provisions of applicable tax laws.

            3.24  PRODUCT REGULATORY REVIEW. To the Company's knowledge, as to
each of the products of the Company, including, without limitation, products or
compounds currently under research and/or development by the Company, subject to
the jurisdiction of the United States Food and Drug Administration ("FDA") under
the Federal Food, Drug and Cosmetic Act and the regulations thereunder ("FDCA")
each such product, a "LIFE SCIENCE PRODUCT"), such Life Science Product is being
researched, developed, manufactured, tested, distributed and/or

                                      10.
<PAGE>
marketed in compliance in all material respects with all applicable requirements
under the FDCA and similar laws and regulations applicable to such Life Science
Product, including those relating to investigational use, premarket approval,
good manufacturing practices, labeling, advertising, record keeping, filing of
reports and security. To the Company's knowledge, the Company has not received
any notice or other communication from the FDA or any other federal, state or
foreign governmental entity (a) contesting the premarket approval of, the uses
of or the labeling and promotion of any Life Science Product or (b) otherwise
alleging any violation by the Company of any law, regulation or other legal
provision applicable to a Life Science Product. To the Company's knowledge,
neither the Company, nor any officer, employee or agent of the Company has made
an untrue statement of a material fact or fraudulent statement to the FDA or
other Federal, state or foreign governmental entity performing similar functions
or failed to disclose a material fact required to be disclosed to the FDA or
such other Federal, state or foreign governmental entity.

            3.25  USE OF PROCEEDS. The Company shall use the cash proceeds from
the issuance of the Notes solely for working capital, capital expenses and
general corporate purposes and shall not be used to satisfy or repay any
indebtedness except as contemplated by the Loan Documents.

      4.    REPRESENTATIONS AND WARRANTIES OF PURCHASERS.

            Each Purchaser hereby represents and warrants to the Company,
severally and not jointly, as follows (provided that such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):

            4.1   REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority to execute and deliver this Agreement and to carry out the
provisions herein. All action on Purchaser's part required for the lawful
execution and delivery of this Agreement has been taken. Upon execution and
delivery, this Agreement will be a valid and binding obligation of Purchaser,
enforceable in accordance with its terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (b) as limited by
general principles of equity that restrict the availability of equitable
remedies.

            4.2   INVESTMENT REPRESENTATIONS. Purchaser understands that neither
the Notes nor the Conversion Securities have been registered under the
Securities Act. Purchaser also understands that the Notes are being offered and
sold pursuant to an exemption from registration contained in the Securities Act
based in part upon Purchaser's representations contained in the Agreement.
Purchaser hereby represents and warrants as follows:

                  (A)   PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Notes and/or the Conversion Securities
are registered pursuant to the Securities Act, or an exemption from registration
is available. Purchaser understands that the Company has no present intention of
registering the

                                      11.
<PAGE>
Notes or the Conversion Securities. Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow Purchaser to
transfer all or any portion of the Securities under the circumstances, in the
amounts or at the times Purchaser might propose.

                  (B)   ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Notes and the Conversion Securities issuable upon conversion of the Notes for
Purchaser's own account for investment only, and not with a view towards their
distribution.

                  (C)   PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in the Loan Documents. Further, Purchaser is aware of
no publication of any advertisement in connection with the transactions
contemplated in the Agreement.

                  (D)   QUALIFIED INSTITUTIONAL BUYER OR INSTITUTIONAL
ACCREDITED INVESTOR. Canaan Equity III L.P., Caduceus Private Investments II,
L.P., Caduceus Private Investments II (QP), L.P., UBS Juniper Crossover Fund,
LLC and Bay Area Equity Fund I, L.P. each represents, severally and not jointly,
that it is a "qualified institutional buyer" as defined in Rule 144A promulgated
under the Securities Act. Each such other Purchaser represents, severally and
not jointly, that it is an institutional accredited investor as defined in Rule
501(a)(1),(2),(3),(7) or (8) of Regulation D promulgated under the Securities
Act.

                  (E)   COMPANY INFORMATION. Purchaser has received and read the
Financial Statements and has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the Company's
operations and facilities. Purchaser has also had the opportunity to ask
questions of and receive answers from, the Company and its management regarding
the terms and conditions of this investment.

                  (F)   RULE 144. Purchaser acknowledges and agrees that the
Notes, and, if issued, the Conversion Securities are "restricted securities" as
defined in Rule 144 promulgated under the Securities Act as in effect from time
to time and must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser has been advised or is aware of the provisions of Rule 144, which
permits limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions.

                  (G)   RESIDENCE. If Purchaser is an individual, then Purchaser
resides in the state or province identified in the address of Purchaser set
forth on EXHIBIT A; if Purchaser is a partnership, corporation, limited
liability company or other entity, then the office or offices of Purchaser in
which its investment decision was made is located at the address or addresses of
Purchaser set forth on EXHIBIT A.

                  (H)   FOREIGN INVESTORS. If Purchaser is not a United States
person (as defined by Section 7701(a)(30) of the Code), Purchaser hereby
represents that it has satisfied itself as to the full observance of the laws of
its jurisdiction in connection with any invitation to

                                      12.
<PAGE>
subscribe for the Securities or any use of the Loan Documents, including (i) the
legal requirements within its jurisdiction for the purchase of the Securities,
(ii) any foreign exchange restrictions applicable to such purchase, (iii) any
government or other consents that may need to be obtained, and (iv) the income
tax and other tax consequences, if any, that may be relevant to the purchase,
holding, redemption, sale or transfer of the Securities. Purchaser's
subscription and payment for and continued beneficial ownership of the
Securities will not violate any applicable securities or other laws of
Purchaser's jurisdiction.

            4.3   TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees
that the Notes and, if issued, the Conversion Securities are subject to
restrictions on transfer as set forth in the Investor Rights Agreement.

      5.    CONDITIONS TO CLOSING.

            5.1   CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING. Each
Purchaser's obligations under Section 2 of this Agreement, at or prior to the
Closing Date, of the following conditions:

                  (A)   REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by the Company in Section 3 hereof shall be true and correct
in all material respects as of the Closing Date with the same force and effect
as if they had been made on and as of the Closing Date.

                  (B)   PERFORMANCE OF OBLIGATIONS. The Company shall have
performed all obligations and conditions herein required to be performed or
observed by it on or prior to the Closing and shall have obtained any and all
consents, permits and waivers necessary or appropriate for consummation of the
transactions contemplated by the Loan Documents (except as may be properly
obtained subsequent to the Closing).

                  (C)   CORPORATE DOCUMENTS. The Company shall have delivered to
Purchasers or their counsel, copies of all corporate documents of the Company as
Purchasers shall reasonably request.

                  (D)   COMPLIANCE CERTIFICATE. The Company shall have delivered
to Purchasers a Compliance Certificate, executed by the President of the
Company, dated the Closing Date, to the effect that the conditions specified in
subsections (a) and (b) of this Section 5.1 have been satisfied.

                  (E)   SECRETARY'S CERTIFICATE. Purchasers shall have received
from the Company's Secretary, a certificate having attached thereto (i) the
Company's Certificate of Incorporation as in effect at the time of the Closing,
(ii) the Company's Bylaws as in effect at the time of the Closing, (iii)
resolutions approved by the Board of Directors authorizing the transactions
contemplated hereby, and (iv) good standing certificates (including tax good
standing) with respect to the Company from the applicable authority(ies) in
Delaware and any other jurisdiction in which the Company is qualified to do
business, dated a recent date before the Closing.

                                      13.
<PAGE>
            5.2   CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligations under Section 2 of this Agreement are subject to the satisfaction or
waiver, on or prior to the Closing Date, of the following conditions:

                  (A)   REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties in Section 4 made by those Purchasers acquiring Shares hereof
shall be true and correct in all material respects as of the Closing Date, with
the same force and effect as if they had been made on and as of the Closing
Date.

                  (B)   PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by such Purchasers on or before the Closing.

                  (C)   CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Loan Documents (except for
such as may be properly obtained subsequent to the Closing).

      6.    MISCELLANEOUS.

            6.1   GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California in all respects as such laws
are applied to agreements among California residents entered into and performed
entirely within California. The parties agree that any action brought by either
party under or in relation to this Agreement, including without limitation to
interpret or enforce any provision of this Agreement, shall be brought in, and
each party agrees to and does hereby submit to the jurisdiction and venue of,
any state or federal court located in the County of San Mateo, California.

            6.2   SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive the closing of the transactions
contemplated hereby. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall be
deemed to be representations and warranties by the Company hereunder solely as
of the date of such certificate or instrument.

            6.3   SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding upon
the parties hereto and their respective successors, assigns, heirs, executors
and administrators. The Company may not assign, hypothecate or transfer any of
its rights, duties or obligations under the Loan Documents.

            6.4   ENTIRE AGREEMENT. This Agreement, the exhibits and schedules
hereto, and the Notes constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any oral or written
representations, warranties, covenants and agreements except as specifically set
forth herein and therein. Each party expressly represents and warrants that it
is not relying on any oral or written representations, warranties, covenants or
agreements outside of the Loan Documents.

                                      14.
<PAGE>
            6.5   SEVERABILITY. In the event one or more of the provisions of
this Agreement or any other Loan Document should, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement or any
other Loan Document, and this Agreement and any other Loan Document shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.

            6.6   AMENDMENT AND WAIVER. This Agreement and the Notes may be
amended or modified only upon the written consent of the Company and Purchasers
holding Notes equal to or greater than fifty percent (50%) of the outstanding
principal amount of all outstanding Notes issued under this Agreement (the
"MAJORITY HOLDERS"). PURCHASER ACKNOWLEDGES THAT THIS AGREEMENT AND THE NOTES
MAY BE AMENDED WITH THE CONSENT OF THE "MAJORITY HOLDERS," AND PURCHASER'S
RIGHTS HEREUNDER AND THEREUNDER MAY BE AMENDED OR WAIVED WITHOUT PURCHASER'S
CONSENT.

            6.7   DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under the Loan Documents, shall impair
any such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
any party's part of any breach, default or noncompliance under this Agreement,
or any waiver on such party's part of any provisions or conditions of the
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to any party, shall be cumulative and
not alternative.

            6.8   WAIVER OF CONFLICTS. Each party to this Agreement acknowledges
that Cooley Godward LLP ("COOLEY GODWARD"), outside general counsel to the
Company, has in the past performed and is or may now or in the future represent
one or more Purchasers or their affiliates in matters unrelated to the
transactions contemplated by this Agreement (the "BRIDGE FINANCING"), including
representation of such Purchasers or their affiliates in matters of a similar
nature to the Bridge Financing. The applicable rules of professional conduct
require that Cooley Godward inform the parties hereunder of this representation
and obtain their consent. Cooley has served as outside general counsel to the
Company and has negotiated the terms of the Bridge Financing solely on behalf of
the Company. The Company and each Purchaser hereby (a) acknowledge that they
have had an opportunity to ask for and have obtained information relevant to
such representation, including disclosure of the reasonably foreseeable adverse
consequences of such representation; (b) acknowledge that with respect to the
Bridge Financing, Cooley Godward has represented solely the Company, and not any
Purchaser or any stockholder, director or employee of the Company or any
Purchaser; and (c) gives its informed consent to Cooley Godward's representation
of the Company in the Bridge Financing.

            6.9   NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified, (b) when sent by confirmed electronic mail, telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day, or (c) one (1) day after deposit with a

                                      15.
<PAGE>
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof and to Purchaser at the
address set forth on EXHIBIT A attached hereto or at such other address or
electronic mail address as the Company or Purchaser may designate by ten (10)
days advance written notice to the other parties hereto.

            6.10  EXPENSES. Each party shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the Agreement and the transactions contemplated herein; provided, however, that
the Company shall, at the Closing, reimburse the reasonable fees of and expenses
of one special counsel to the Purchasers, not to exceed $15,000.

            6.11  ATTORNEYS' FEES. In the event that any suit or action is
instituted under or in relation to this Agreement, including without limitation
to enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.

            6.12  TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.

            6.13  COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

            6.14  BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 6.14 being untrue.

            6.15  EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that
it is not relying upon any person, firm, or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Notes and Conversion Securities.

            6.16  PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.

            6.17  CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN

                                      16.
<PAGE>
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION OR IN THE ABSENCE OF AN
EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH
CONSIDERATION BY THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION
FROM SUCH QUALIFICATION BEING AVAILABLE.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                      17.
<PAGE>
      IN WITNESS WHEREOF, the parties hereto have executed this NOTE PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.

<TABLE>
<S>                                             <C>
COMPANY:                                        PURCHASERS:

PENINSULA PHARMACEUTICALS, INC.                 DOMAIN PARTNERS V, L.P.

                                                By: One Palmer Square Associates V, L.L.C.
                                                Its: General Partner

By:                                             By:
    -------------------------------------           -------------------------------------
    Dennis Podlesak                                 Kathleen K. Schoemaker,
    President and Chief Executive Officer           Managing Member
</TABLE>

                            NOTE PURCHASE AGREEMENT
                                 SIGNATURE PAGE
<PAGE>
                                              CANAAN EQUITY III L.P.

                                              By: Canaan Equity Partners III LLC

                                              By:
                                                  ------------------------------
                                                  Member/Manager:

                            NOTE PURCHASE AGREEMENT
                                 SIGNATURE PAGE
<PAGE>
                                     EGS PRIVATE HEALTHCARE PARTNERSHIP II, L.P.

                                     By:  EGS Private Healthcare Investments,
                                          L.L.C.,
                                     Its: General Partner

                                     By:
                                         ---------------------------------------
                                         Terry Vance
                                         Member of Board of Managers

                            NOTE PURCHASE AGREEMENT
                                 SIGNATURE PAGE
<PAGE>
                                  CADUCEUS PRIVATE INVESTMENTS II, L.P.

                                  By:  OrbiMed Capital II LLC
                                  Its: General Partner

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

                                  Name:
                                        --------------------------------------

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

                                  CADUCEUS PRIVATE INVESTMENTS II (QP), L.P.

                                  By:  OrbiMed Capital II LLC
                                  Its: General Partner

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

                                  Name:
                                        --------------------------------------

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

                                  UBS JUNIPER CROSSOVER FUND, LLC

                                  By:  OrbiMed Advisors LLC
                                       Member of UBS Juniper Management, L.L.C.,
                                       Managing Member

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

                                  Name:
                                        --------------------------------------

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

                            NOTE PURCHASE AGREEMENT
                                 SIGNATURE PAGE
<PAGE>
                                    BAY AREA EQUITY FUND I, L.P.

                                    By: Bay Area Equity Fund Managers I, L.L.C.,
                                        its General Partner

                                    By: H&Q Venture Management L.L.C.,
                                        its Managing Member

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

                                    Name:
                                          --------------------------------------

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

                            NOTE PURCHASE AGREEMENT
                                 SIGNATURE PAGE
<PAGE>
                                     A. M. PAPPAS LIFE SCIENCE VENTURES II, L.P.

                                     By:  AMP&A Management II, LLC
                                     Its: General Partner

                                     By:
                                         ---------------------------------------
                                         Ford S. Worthy
                                         Partner

                            NOTE PURCHASE AGREEMENT
                                 SIGNATURE PAGE
<PAGE>
                                   EXHIBIT A

                             SCHEDULE OF PURCHASERS

<TABLE>
<CAPTION>
                                                    COMMITMENT       PRO RATA
            NAME AND ADDRESS                          AMOUNT        PERCENTAGE
---------------------------------------------    ---------------   ------------
<S>                                              <C>               <C>
Domain Partners V, L.P.                            $4,000,000.00         33.33%
      c/o Domain Associates, L.L.C.
      Attn: Kathleen K. Schoemaker
      One Palmer Square
      Princeton, NJ  08542

Canaan Equity III L.P.                             $3,300,000.00         27.50%
      2884 Sand Hill Road, Suite 115
      Menlo Park, CA  94025

EGS Private Healthcare Partnership II, L.P.        $2,000,000.00         16.67%
      105 Rowayton Ave., 2nd Floor
      Rowayton, CT 06853

Caduceus Private Investments II, L.P.              $  667,389.15          5.56%

Caduceus Private Investments II (QP), L.P.         $  249,884.18          2.08%

UBS Juniper Crossover Fund, LLC                    $   82,726.67          0.69%
      OrbiMed Advisors LLC
      767 Third Avenue, 30th Floor
      New York, NY  10017

Bay Area Equity Fund I, LP                         $1,000,000.00          8.33%
      560 Mission Street
      San Francisco, CA 94105

A. M. Pappas Life Science Ventures II, L.P.          $700,000.00          5.84%
      Emerging Technologies Center
      7030 Kit Creek Road
      P.O. Box 110287
      Research Triangle Park, NC 27709

TOTAL:                                            $12,000,000.00        100.00%
                                                  ==============   ============
</TABLE>
<PAGE>
                                   EXHIBIT B

                      FORM OF CONVERTIBLE PROMISSORY NOTE

THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN
COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.

                          CONVERTIBLE PROMISSORY NOTE

$__________                                                   ____________, 200_
                                                             ALAMEDA, CALIFORNIA

      For value received PENINSULA PHARMACEUTICALS, INC., a Delaware corporation
("PAYOR" or the "COMPANY") promises to pay to __________ or its assigns
("HOLDER") the principal sum of $__________ with simple interest on the
outstanding principal amount at the rate of 8% per annum. Interest shall
commence with the date hereof and shall continue on the outstanding principal
until paid in full or converted. Interest shall be computed on the basis of a
year of 365 days for the actual number of days elapsed.

      1.    This note (the "NOTE") is issued as part of a series of similar
notes (collectively, the "NOTES") to be issued pursuant to the terms of that
certain Note Purchase Agreement (the "AGREEMENT") dated as of December 23, 2004
to the persons or entities listed on the Schedule of Purchasers thereof
(collectively, the "HOLDERS").

      2.    All payments of interest and principal under this Note shall be in
lawful money of the United States of America at such place as Holder may from
time to time designate in writing to the Company. All payments shall be applied
first to accrued interest, and thereafter to principal.

      3.    The entire outstanding principal balance of this Note plus all
accrued interest thereon, if any, shall be due and payable in full immediately
upon the earlier of the following (the "MATURITY DATE"): (i) five (5) years from
the date of this Note, or (ii) any Event of Default (as defined in Section 9
below).

      4.    At any time prior to the Maturity Date, the principal balance and
accrued and unpaid interest of this Note shall automatically convert in whole
without any further action by the Holders as follows:

            (A)   upon the closing of the first firmly underwritten primary
offering of the Company's common stock (the "COMMON STOCK") to the public (the
"IPO"), into shares of Common Stock at a conversion price equal to eighty
percent (80%) of the price per share of the Common Stock issued in the IPO; or
<PAGE>
            (B)   upon the closing of the Company's next round of private equity
financing with total proceeds to the Company of not less than $10,000,000 (the
"FINANCING"), into shares of the Company's preferred stock (the "PREFERRED
STOCK") issued in the Financing at a conversion price equal to eighty percent
(80%) of the price per share of the Preferred Stock issued in the Financing and
on the same terms and conditions extended to all other investors in the
Financing.

      5.    At any time prior to the Maturity Date, the principal balance and
accrued and unpaid interest of this Note may be converted, at the option of the
Holder, as follows:

            (A)   upon the closing of the Company's next round of private equity
financing with total proceeds to the Company of less than $10,000,000 (the
"ALTERNATE FINANCING"), into shares of Preferred Stock issued in the Alternate
Financing at a conversion price equal to eighty percent (80%) of the price per
share of the Preferred Stock issued in the Alternate Financing and on the same
terms and conditions extended to all other investors in the Alternate Financing;
or

            (B)   in the event of a corporate transaction that would trigger the
liquidation rights or asset transfer or acquisition rights in the Company's then
current Certificate of Incorporation (a "CORPORATE TRANSACTION"), into shares of
the Company's Series C Preferred Stock at a conversion price equal to $5.61 per
share (as adjusted for stock splits, stock dividends, recapitalizations,
combinations or the like); provided, however, if the Company enters into a
definitive agreement or a non-binding letter of intent on or before March 1,
2005 regarding a Corporate Transaction, this Note may not be converted and shall
be repaid immediately following the closing of such Corporate Transaction in an
amount equal to the sum of (a) one hundred twenty-five percent (125%) of the
principal amount of the Note and (b) all accrued and unpaid interest under the
Note.

      6.    No fractional shares of Common Stock or Preferred Stock will be
issued upon conversion of this Note. In lieu of any fractional share to which
Holder would otherwise be entitled, Payor will pay to Holder in cash the amount
of the unconverted principal balance of this Note that would otherwise be
converted into such fractional share. Upon conversion of this Note pursuant to
Section 4 or Section 5 above, Holder shall surrender this Note, duly endorsed,
at the principal offices of Payor. At its expense, Payor will, as soon as
practicable thereafter, issue and deliver to Holder a certificate or
certificates for the number of shares to which Holder is entitled upon such
conversion, together with any other securities and property to which Holder is
entitled upon such conversion under the terms of this Note, including a check
payable to Holder for any cash amounts payable as described herein.

      7.    Unless this Note has been converted in accordance with the terms of
Section 4 or Section 5 above, or repaid in accordance with the terms of Section
5 above, the entire outstanding principal balance and all unpaid accrued
interest shall become fully due and payable on the Maturity Date.

      8.    Payor may not prepay this Note prior to the Maturity Date.

      9.    If there shall be any Event of Default hereunder, at the option and
upon the declaration of Holder of this Note and upon written notice to Payor
(which election and notice shall not be required in the case of an Event of
Default under Section 9(b) or 9(c)), this Note
<PAGE>
shall accelerate and all principal and unpaid accrued interest shall become due
and payable. The occurrence of any one or more of the following shall constitute
an Event of Default:

            A.    Payor fails to pay timely any of the principal amount due
under this Note on the date the same becomes due and payable or any accrued
interest or other amounts due under this Note on the date the same becomes due
and payable;

            B.    Payor files any petition or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law or any other law for
the relief of, or relating to, debtors, now or hereafter in effect, or makes any
assignment for the benefit of creditors or takes any corporate action in
furtherance of any of the foregoing; or

            C.    An involuntary petition is filed against Payor (unless such
petition is dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee, assignee
for the benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Payor.

      10.   Payor hereby waives demand, notice, presentment, protest and notice
of dishonor.

      11.   This Note shall be governed by construed and under the laws of the
State of California, as applied to agreements among California residents, made
and to be performed entirely within the State of California, without giving
effect to conflicts of laws principles.

      12.   Any term of this Note may be amended or waived with the written
consent of Payor and the Holders of a majority in interest of the outstanding
principal amount of all Notes, as provided in the Agreement. Holder acknowledges
that because this Note may be amended with the consent of such majority in
interest of the outstanding principal amount of the Notes, Holder's rights
hereunder (including, without limitation, Holder's right to receive principal
and interest as due) may be amended or waived without Holder's consent.

      13.   All notices or other communications required or given hereunder
shall be in writing and shall be deemed effectively given when presented
personally or on the date of receipt (or refusal of delivery) if sent by courier
service or U.S. Mail (certified or registered, postage prepaid, return receipt
requested) to the parties at the addresses given below or such other addresses
as the parties may hereafter designate in writing. The date shown on the
courier's confirmation of delivery or return receipt shall be conclusive as to
the date of receipt.

            PAYOR:      Peninsula Pharmaceuticals, Inc.
                        1751 Harbor Bay Parkway
                        Alameda, California 94502

            HOLDER:
                        ------------------------------------

                        ------------------------------------

                        ------------------------------------

                        Attn:
                             -------------------------------

      14.   This Note may be transferred only upon its surrender to the Company
for registration of transfer, duly endorsed, or accompanied by a duly executed
written instrument of
<PAGE>
transfer in form satisfactory to the Company. Thereupon, this Note shall be
reissued to, and registered in the name of, the transferee, or a new Note for
like principal amount and interest shall be issued to, and registered in the
name of, the transferee. Interest and principal shall be paid solely to the
registered holder of this Note. Such payment shall constitute full discharge of
the Company's obligation to pay such interest and principal.

                                    PENINSULA PHARMACEUTICALS, INC.

                                    By:
                                       ----------------------------------------
                                    Name:  Dennis Podlesak
                                    Title: President and Chief Executive OfficerOEM PURCHASE AGREEMENT

                                 BY AND BETWEEN

                           PHILIPS MEDICAL SYSTEMS AND

                                  BRAEMAR, INC.

                                  OEM AGREEMENT

                                      REV.5

                              Philips Confidential

<PAGE>

                                TABLE OF CONTENTS

1.    SCOPE OF AGREEMENT.......................................................3

2.    DEFINITIONS..............................................................4

3.    ORDERS AND SHIPMENT OF OEM PRODUCTS......................................5

4.    PRICES AND PAYMENT TERMS.................................................6

5.    NONCOMPLYING PRODUCTS....................................................6

6.    RETURN OF PRODUCTS.......................................................6

7.    ENGINEERING PROCESS OR DESIGN CHANGES....................................7

8.    QUALITY..................................................................8

9.    WARRANTIES...............................................................8

10.      SUPPORT SERVICES......................................................8

11.      OBSOLESCENCE AND MANUFACTURING RIGHTS................................10

12.      TRAINING.............................................................11

13.      MARKETING AND LICENSING..............................................11

14.      INTELLECTUAL PROPERTY PROTECTION.....................................12

15.      COUNTRY OF MANUFACTURE AND DUTY DRAWBACK RIGHTS......................12

16.      GOVERNMENTAL COMPLIANCE..............................................12

17.      FORCE MAJEURE EVENTS.................................................13

18.      EVENTS OF DEFAULT....................................................13

19.      CONFIDENTIAL INFORMATION.............................................14

20.      INSURANCE REQUIREMENTS...............................................14

21.      LIMITATION OF LIABILITY..............................................15

22.      TERMINATION..........................................................15

23.      MISCELLANEOUS........................................................15

                             Philips Confidential

<PAGE>

                             OEM PURCHASE AGREEMENT

THIS AGREEMENT is entered into between PHILIPS MEDICAL SYSTEMS, a division of
Philips Electronics North American Corporation, a Delaware corporation
("Philips") and BRAEMAR, INC., a North Carolina corporation ("Supplier"),
effective as of September 1, 2003 (the "Effective Date"). The parties hereby
agree as follows:

1.     SCOPE OF AGREEMENT

1.1    General. This Agreement specifies the terms and conditions under which
       Supplier will sell, license and support the OEM Products listed in
       Exhibit A to this Agreement. The OEM Products are regarded as "Original
       Equipment Manufacturer" products that will either be sold separately or
       incorporated into Philips Products for resale worldwide under the
       Supplier's label or under Philips private label. The OEM Products and the
       Philips Products will be marketed, serviced, and supported by Philips
       field organization and channel partners, subject to the marketing,
       service, and support obligations of Supplier pursuant to this Agreement.

1.2    Eligible Purchasers. This Agreement enables Philips, Philips Subsidiaries
       and Philips Subcontractors to purchase OEM Products from Supplier under
       the terms of this agreement or any subsequent Product Addendum. Unless a
       Product Addendum specifically refers to and amends a term of this
       Agreement, the terms and conditions of this Agreement will control and
       take precedence over any conflicting terms in a Product Addendum.

1.3    Term Of Agreement. This Agreement will commence as of the Effective Date
       and continue for a three-year period (the "Term"), unless terminated
       earlier under the terms of this Agreement. After the initial Term, this
       Agreement will continue automatically for two additional one-year
       periods. This Agreement may be terminated at the end of the initial Term
       or at the end of any subsequent renewal period if one party provides the
       other at least 60 days prior notice of its intent to terminate.

1.4    Non-exclusive Appointment. Subject to the terms and conditions of this
       Agreement the Supplier appoints Philips as the Supplier's non-exclusive
       distributor of the OEM Products worldwide commencing on the Effective
       Date. Philips' distribution rights shall extend to any improved OEM
       Products for Holter and event monitoring recorders.

1.5    Exclusive Appointment. Subject to the terms and conditions of this
       Agreement and commencing on the Effective Date, the Supplier appoints
       Philips as the Supplier's exclusive distributor of the OEM Products that
       have been made compatible with [****]. The Supplier has the royalty free
       rights to distribute through Philips the OEM Products that have been made
       compatible with the [****] technology. The royalty free license for
       [****] in the OEM Products is in effect only for the period of the
       Agreement.

1.6    Product Ownership.
       (1)  Philips owns the case, mold, and [****] circuit. Braemar owns the
            electrical design, circuits, firmware, cabling, and developer
            software.
       (2)  7XX Event Recorders Braemar owns 100%.
       (3)  930 Event Recorder with [****] front end in the [****] case: Philips
            will own 40% of the ER930 case with planned NRE funds. If the 930
            Event Recorder with [****] front end is released in the new [****]
            improved case -- Philips owns the case and the associated tools.
       (4)  For simplicity, Braemar will sell the ER 930 with [****] only to
            Philips.

1.7    Sub-distributors and Manufacturer's Representatives. Philips may appoint
       Sub-distributors, sales agents and manufacturer's representatives to
       promote, distribute and sell the OEM Products in Accordance with this
       Agreement. Philips shall be entitled to use its standard form of
       distribution agreement for such Sub-distributors; provided, however, that
       Philips shall at all times remain responsible for performance of all of
       its obligations under this Agreement and shall use its commercially
       reasonable efforts to bring its Sub-distributors into compliance with
       this Agreement. If Supplier has actual knowledge of improper acts or
       omissions on the part of such Sub-distributors, it will use reasonable
       efforts to inform Philips of such acts or omissions; provided, however,
       that such obligation shall not relieve Philips of any of its obligations
       under this Agreement with respect to such Sub- distributors.

1.8    Alliance Managers and Meetings. Each of the parties has appointed an
       individual, to facilitate communications between the Parties relating to
       the OEM Products and the relationship contemplated herein. These
       individuals are shown in Exhibit C. These individuals shall meet not less
       than quarterly to discuss the marketing, distribution, forecasts, sales
       and business issues of the OEM Products as contemplated hereunder;
       provided, however, that

                             Philips Confidential

<PAGE>

       nothing in this Agreement shall limit Philips' ability to set prices
       or ASP for the OEM Products which charges to third parties. Notice of
       any change to these appointed individuals shall be provided to the
       other party.

2.     DEFINITIONS

The following capitalized terms will have these meanings throughout this
Agreement.

2.1    "Delivery Date" means the date specified in an Order for the delivery of
       OEM Products by Supplier to the destination required under the Order.

2.2    "Documentation" means the user and technical manuals and other
       documentation that Supplier will make available with the OEM Products.

2.3    "Eligible Purchasers" mean those parties authorized to purchase OEM
       Products under this agreement as listed in Section 1.2 above.

2.4    "Failure Rate" means defects in design, material and workmanship
       (excluding customer abuse) that occurred in warranted product over the
       past year divided by the number of OEM products under warranty in the
       past year.

2.4    "Forecast" means Philips' estimate of its purchase requirements over a
       six-month period, or such other period designated by the parties.

2.5    "Intellectual Property Rights" means all rights in patents, copyrights,
       moral rights, trade secrets, mask works, Marks and other similar rights.

2.6    "Lead Time" means the time between the date an Order is sent and the
       Delivery Date.

2.7    "Marks" means the trademarks, service marks, trademark and service mark
       applications, trade dress, trade names, logos, insignia, symbols, designs
       or other marks identifying a party or its products.

2.8    "Noncomplying Product" means any OEM Product received by Philips that
       does not comply with the Specifications, or otherwise does not comply
       with the requirements of an Order or other provisions of this Agreement.
       Noncomplying Products include, without limitation, dead-on-arrival
       products, overshipment and early shipments.

2.9    "OEM Products" means the products listed in Exhibit A all related
       Documentation, Parts and other Deliverables provided pursuant to this
       Agreement.

2.10   "Orders" means a written or electronic purchase order or release issued
       by Philips to Supplier for purchase of the OEM Products.

2.11   "Parts" means the replacement parts, components, consumables or other
       products that may be supplied in conjunction with or as additions to the
       OEM Products.

2.12   "Philips Products" means the Philips products or systems that will
       incorporate or be sold with the OEM Products and that will be marketed
       and sold to end-user customers by Philips and its distributors.

2.13   "Philips Property" means all property, including without limitation,
       models, tools, equipment, copies of designs, documentation and other
       materials that may be furnished to Supplier by Philips or on Philips'
       behalf or separately paid for by Philips for use by Supplier in
       connection with this Agreement.

2.14   "Product Addendum" means an addendum to this Agreement entered into
       between Supplier and an Eligible Purchaser naming additional OEM Products
       and product specific requirements in addition to those requirements
       specified in this Agreement.

2.15   "Software" means any software or firmware included or bundled with the
       OEM Products, as designated in the description of OEM Products in Exhibit
       A.

2.16   "Specifications" means the technical and functional requirements for the
       OEM Products as specified or referenced in Exhibit A or as agreed to by
       the parties.

                             Philips Confidential

<PAGE>

2.17   "Subcontractor" means Philips dealers, distributors and manufacturers
       representatives that may purchase OEM Products under the terms of this
       Agreement on behalf of Philips.

2.18   "Subsidiary" means an entity controlled by or under common control with a
       party to this Agreement, through ownership or control of more than 50% of
       the voting power of the shares or other means of ownership or control,
       provided that such control continues to exist.

2.19   "Support" means ongoing maintenance and technical support for the OEM
       Products provided by Supplier to Philips as more fully described in
       Exhibit D.

2.20   "Technical Information" means Information means Supplier's manufacturing
       information and technology deemed necessary by Philips to support OEM
       Products and to exercise any manufacturing rights provided under this
       Agreement, including, but not limited to: (i) specifications, software,
       schematics, designs, drawings or other materials pertinent to the most
       current revision level of manufacturing of the OEM Products; (ii) copies
       of all inspection, manufacturing, test and quality control procedures and
       any other work processes; (iii) jig, fixture and tooling designs; (iv)
       supplier history files; (v) support documentation; and (vi) any
       additional technical information or materials listed in the Escrow
       Agreement (as described in Exhibit F hereto) agreed to by the parties.

2.21   "Technical Materials" means jigs, fixtures, production software and tools
       used by Supplier to manufacture the OEM Products.

3.     ORDERS AND SHIPMENT OF OEM PRODUCTS

3.1    Orders, Order Acknowledgment, Forecasts, Lead Time, Inventory
       Requirements, Order Changes, Shipment Requirements, Philips Options to
       Accept Overshipments, Requirements for Meeting Delivery Dates and
       Information Regarding No Advance Shipments. Each delivery of OEM Products
       will be initiated by an Order issued to Supplier by Philips. Philips' and
       Supplier's purchasing terms are listed in Exhibit G SMI Agreement and the
       Philips Purchase Order Terms and Conditions attached to each purchase
       order.

3.2    Emergency Orders. If Philips deems it necessary, Philips may order OEM
       Products by facsimile on an emergency basis ("Emergency Order") subject
       to the availability of such OEM Products in Supplier's inventory.
       Supplier will use its best efforts to ship the Emergency Order to
       Philips' stipulated destinations within [****] after the receipt by
       Supplier. Subject to Philips' approval, Philips will pay any additional
       expenses related to such Emergency Orders.

3.3    Title and Risk of Loss. Unless otherwise specified in writing by Philips,
       shipments will be F.O.B. destination. If Philips designates the carrier,
       shipments will be F.O.B. carrier. Title to OEM Product hardware and media
       ordered under this Agreement and risk of loss or damage will pass from
       Supplier to Philips upon Supplier's delivery of the OEM Products to the
       common carrier specified by Philips, subject to the provisions in
       Sections 3.4 and 3.5 below with respect to packing and handling.

3.4    Packing List. Each delivery of OEM Products to Philips must include a
       packing list that contains at least:
       (a)  The Order number and the Philips part number;
       (b)  The quantity of OEM Products or Parts shipped; and
       (c)  The date of shipment.

3.5    Packaging. Supplier must preserve, package, handle, and pack all OEM
       Products so as to protect the OEM Products from loss or damage, in
       conformance with good commercial practice, the Specifications, Government
       Regulations, and other applicable standards. Special static protection
       must be provided for OEM Products requiring such packaging.

3.6    Responsibility for Damage. Supplier will be liable for any loss or damage
       due to its failure to properly preserve, package, handle, or pack OEM
       Products. Philips will not be required to assert any claims for such loss
       or damage against the common carrier involved. Further, Philips will not
       be liable for any loss or damage due to a release of chemicals or other
       hazardous materials to the environment prior to Philips' actual receipt
       of the corresponding OEM Products.

                             Philips Confidential

<PAGE>

4.     PRICES AND PAYMENT TERMS

4.1    OEM Product Prices. Supplier's prices for the OEM Products are listed in
       Exhibit B in U.S. currency unless otherwise stated, and may not be
       increased without Philips' consent. The prices for Parts will be
       Supplier's published prices, less any applicable discounts, unless the
       parties agree to a price schedule for Parts. OEM Products and Parts will
       also be subject to any applicable prompt payment discounts. Supplier and
       Philips agree to review OEM Product prices semi-annually. If, during the
       term, Supplier effectuates cost reductions in its manufacturing and
       delivery processes, it will pass such reductions to Philips and amend the
       prices accordingly.

4.2    Changed Prices. If during the Term changed prices or price formulas are
       put in effect by mutual agreement of Philips and Supplier, or reduced
       prices or price formulas are otherwise put in effect by Supplier, such
       prices or price formulas (if resulting in lower prices than the then
       current price) will apply to all Orders issued by Philips after the
       effective date of such prices or price formulas and to all unshipped
       Orders.

4.3    Payment Procedure. Philips' and Supplier's purchasing terms are listed in
       Exhibit G SMI Agreement and the Philips' Purchase Order Terms and
       Conditions attached to each purchase order.

4.4    [****]. [****]. In addition, Philips may credit any amounts due under
       this Agreement against future invoices.

4.5    Sales Taxes And Duties. Prices are exclusive of all taxes or duties after
       delivery to the designated destination (other than taxes levied on
       Supplier's income) that Supplier may be required to collect or pay upon
       shipment of the OEM Products. Any such taxes or duties must appear as a
       separate item on Supplier's invoice. Philips agrees to pay such taxes or
       duties unless Philips is exempt from such taxes or duties. Where
       applicable, Philips will provide Supplier with an exemption resale
       certificate.

5.     NONCOMPLYING PRODUCTS

5.1    Repairs Or Replacement. Philips may elect in its sole discretion, subject
       to the provisions of Article 18 below, to return a Noncomplying Product
       for replacement at Supplier's expense. In addition, Philips may return
       for replacement an entire lot of OEM Products if a tested sample of that
       lot contains Noncomplying Products. In the event of an overshipment,
       Philips may elect to keep the additional units, subject to the payment
       procedures in Section 4.3.

5.2    Repair Period. Supplier will return the replacement OEM Products as soon
       as possible but in no event later than [****] workdays after receipt of
       the Noncomplying Product from Philips. Supplier's opportunity to cure any
       failure to meet such deadline, pursuant to Article 18 below, will apply
       to only one such breach per part number during the Term.

5.3    Product Defect. Supplier will notify Philips should a defect in any of
       the OEM Products be found which it believes is likely to be associated
       with an Epidemic Failure as set forth in Section 10.5 or cause a Safety
       Standard Change as set forth in Section 7.5.

6.     RETURN OF PRODUCTS

6.1    Return Materials Authorization. All OEM Products returned by Philips to
       Supplier must be accompanied by a Return Materials Authorization ("RMA")
       as noted in Exhibit D. Unless further verification is reasonably required
       by Supplier, Supplier will supply an RMA within [****] of Philips'
       request. Philips may return the OEM Product without an RMA if Supplier
       fails to provide one.

6.2    Return Charges. All Noncomplying Products returned by Philips to
       Supplier, and all replacement or repaired OEM Products shipped by
       Supplier to Philips to replace Noncomplying Products, will be at
       Supplier's risk and expense, including transportation charges (round trip
       charges for replacement or repaired OEM Products).

6.3    Duty To Remove Marks Or Destroy Noncomplying Products. Supplier agrees
       not to sell, transfer distribute or otherwise convey any part, component,
       product or service bearing or incorporating Philips Marks, part numbers
       or other identifiers, including any Philips packaging, copyrights or
       code, to any party other than to Eligible Purchasers. Supplier will
       remove from all rejected, returned or un purchased OEM Products any such
       Philips Marks or identifiers, even if such removal would require
       destruction of the OEM Products. Supplier further agrees not to represent
       that such OEM Products are built for Philips or to Philips
       specifications. Supplier will defend and indemnify Philips

                             Philips Confidential

<PAGE>

       against any claims, losses, liabilities, costs or expenses that Philips
       may incur as a result of Supplier's breach of this obligation.

7.     ENGINEERING PROCESS OR DESIGN CHANGES

7.1    Supplier Proposed Changes. Supplier will not, without the prior written
       consent of Philips, make or incorporate in OEM Products any of the
       following changes (collectively, "Engineering Changes"):

       (1)  Process or design changes;

       (2)  Geographical relocation of manufacturing processes; or

       (3)  Process step discontinuances affecting the electrical performance,
            the mechanical form, fit, or function, the environmental
            compatibility or chemical characteristics, software compatibility,
            or the life, reliability, or quality of OEM Products.

7.2    Notice Of Proposed Change. Supplier will give Philips notice of any
       proposed Engineering Change, and wilt provide evaluation samples and
       other appropriate information as specified by Philips at least 90 days
       prior to the first proposed shipment of any OEM Products involving an
       Engineering Change. Regardless of whether Philips approves a proposed
       Engineering Change, Lead Time will not be changed except as provided in
       Section 3.1 above.

7.3    Philips Proposed Changes. Philips may change Philips-supplied drawings,
       designs, or Specifications at any time prior to manufacture of
       corresponding released OEM Products. Any such change will be effective
       upon notice to Supplier. If any such change reasonably and directly
       affects the prices or delivery schedules of OEM Products, an equitable
       adjustment will be made provided that Supplier makes a written claim for
       an adjustment within 30 days from the date Philips gives notice to
       Supplier of the change and Philips agrees in writing to the adjustment.

7.4    Option To Terminate. If the parties are unable to agree, acting
       reasonably and in good faith, upon an adjustment pursuant to Section 7.3
       above, Philips may without any liability terminate this Agreement as to
       any OEM Products affected.

7.5    Safety Standard Changes. Supplier will immediately give notice to Philips
       if any upgrade, substitution or other change to an OEM Product is
       required to make that product meet applicable safety standards or other
       governmental statutes, rules, orders or regulations, even those that are
       not defined as Engineering Changes is Section 7.1 above. All affected OEM
       Products already purchased by Philips may, at Philips' election, either
       be returned to Supplier for upgrade to current revisions or upgraded by
       Philips in the field pursuant to the procedures outlined in Section 10.7
       below. If an OEM Product meets applicable safety standards and other
       governmental requirements at the time of manufacture, Supplier will
       absorb the costs of any subsequent upgrade; substitution or other
       required change between the parties. If such discussions render no
       equitable solution, the parties may either mutually agree to escalate the
       matter to their respective vice presidents or general managers, as
       applicable, or in the alternative, divide the costs equally between them.

7.6    Supplier Product Development. Supplier agrees to integrate Philips'
       algorithm and software code into the OEM Products with NRE funding as
       specifically identified in the addendums attached. Philips retains
       ownership of the design of the OEM Products as adapted to work with the
       [****] algorithm. Specific ownership rights are detailed in Section 1.6.
       Supplier will be responsible for improvements to the design, manufacture
       and verification of the OEM Products. Philips will be responsible for NRE
       to complete product improvements above and beyond product specification.
       Supplier agrees to supply Philips updateable software releases with
       complete documentation to aid the Philips in updating the OEM Products.
       Philips is responsible for using best efforts to fully implement all
       Supplier provided software releases across the entire installed product
       base in a timely manner. [****].

7.7    Philips Product Development. Philips will be available to support the
       Supplier's efforts to integrate the [****] algorithm and as apart of the
       acceptance testing of the adapted OEM Products (which include the [****]
       algorithm), will test to verify that the Holter software and the OEM
       Products continue to be compatible. It is understood by both parties that
       the PC platforms to be tested include Windows 98, Windows 2000, and
       Windows XP. Philips agrees to fund this testing as well as any
       incremental regulatory approvals and localizations of the manuals that
       are not covered in Exhibit A.

                             Philips Confidential

<PAGE>

8.     QUALITY

8.1    Quality Program. Supplier agrees to maintain an objective quality program
       for all OEM Products. Supplier's program will be in accordance with the
       current revision of Philips' Supplier Quality System Requirements, and if
       applicable, any additional or substitute quality requirements agreed to
       by the parties. Supplier will, upon Philips' request, provide to Philips'
       copies of Supplier's program and supporting test documentation.

8.2    Philips' Right To Inspect. Philips has the right to inspect, at
       Supplier's plant, the OEM Products and associated manufacturing
       processes. Manufacturing processes may be inspected at any time during
       the Term. Philips' inspection may be for any reason reasonably related to
       this Agreement, including assuring Supplier's compliance with Philips'
       requirements. Philips' right of inspection will apply as well to any
       vendor or subcontractor of Supplier. Supplier will inform such vendors
       or, subcontractors of Philips' right to inspect, and, if necessary, use
       all reasonable effort to secure such rights for Philips.

8.3    Supplier's Right to Audit. Supplier has the right to audit, at Philips
       repair facilities, the service and repair processes at any time during
       the Term. Supplier's audit may be Philips compliance with Supplier's
       service repair requirements. This includes any vendor of Philips. Philips
       will inform such vendors of Supplier's right to audit.

9.     WARRANTIES

9.1    Product Warranties. Supplier warrants that all OEM Products will:

       (1)  Be manufactured, processed, and assembled by Supplier or by
            companies under Supplier's direction.

       (2)  Conform to the Product Specifications, and other criteria referred
            to in this Agreement or agreed to by the parties in writing.

       (3)  Be new, except as otherwise provided by the parties.

       (4)  Conform strictly to the requirements of all Orders.

       (5)  Be free from defects in Supplier's design, material and workmanship.

       (6)  Be free and clear of all liens, encumbrances, restrictions, and
            other claims against title or ownership.

       (7)  Not violate or infringe any third party Intellectual Property Rights
            and Supplier warrants that it is not aware of any facts upon which
            such claim could be made. If Supplier learns of any claim or any
            facts upon which claim could be made, it will promptly notify
            Philips of this information.

       (8)  The [****] 24 hour, 48 hours, and [****] labeled OEM products are
            sold to Philips with the understanding that Philips will absorb the
            cost of repair up to the repair rate identified in Section 10.5.

       (9)  Excluded from this Warranty are expendable supply items including,
            but not limited to electrodes, lead wires, patient cables and
            batteries. End user abuse of any kind is also excluded from the
            limited warranty.

9.2    Epidemic Failure Warranty. In addition to the warranties specified above,
       Supplier warrants all OEM Products against epidemic failure for a period
       of three years after receipt of that OEM Product or the associated
       Philips Product by Philips customers. An epidemic failure means the
       occurrence of same failure in any [****] or [****]% of OEM Products,
       within a one-year time frame.

10.    SUPPORT SERVICES

10.1   General. Philips will provide Primary Support for the Products supplied
       by Supplier. Supplier will provide Philips with Secondary Support as
       outline in Exhibit D. Supplier will maintain such number of qualified
       personnel as necessary to provide timely and knowledgeable maintenance
       and support service. Supplier warrants that all Support will be provided
       in a professional and workmanlike manner. However, in no event may
       Supplier us Philips Confidential Information or Philips Property to
       provide such support without Philips' prior consent.

                             Philips Confidential

<PAGE>

10.2   New Philips Products. Upon request by Philips, Supplier will use all
       reasonable efforts to provide Philips with the OEM Products adapted for
       use with new releases of Philips Products within timeframes and at such
       additional costs, if any, to be negotiated by the parties, provided that
       Philips makes available to Supplier such Philips Property as may be
       reasonably necessary for Supplier to develop any adaptation.

10.3   Philips Property. Philips may provide to Supplier Philips Property solely
       for use in Supplier's manufacturing, testing, adapting and supporting the
       OEM Products. This includes latest versions of Philips Analysis Software
       for product development and testing. All Philips Property will be clearly
       segregated from Supplier's property and identified as the sole property
       of Philips. Philips Property may not be transferred, assigned, loaned or
       otherwise encumbered in any way. Philips Property may be provided to
       third parties for fulfillment of Supplier's obligations hereunder only
       upon Philip's prior written consent. Philips property will be returned to
       Philips, at Supplier's expense, upon termination of this Agreement.

10.4   Substitute Products. If Supplier develops any products that are more
       efficient or less expensive than the comparable OEM Products available
       under this Agreement, Philips will have the right to substitute the newer
       products at the same price as the comparable OEM Products for all
       subsequent purchases under this Agreement. Such substitute products must
       be compatible with the current version of the Philips Products.

10.5   Failure Rate. Notwithstanding that the warranties given in Section 9.1
       above apply to 100% of OEM Products, Supplier and Philips acknowledge
       that the OEM Products are software based and it is expected that defects
       will be addressed through software patches designed to be installed
       directly by the Customers. Any defects that prohibit the normal use of
       the OEM Products, as defined, or that require significant workarounds
       must be addressed in a timely fashion, free of charge to all Customers
       for the life of the OEM Products. A failure rate (as defined in Section
       2.4) of [****]% per year or less is expected. If the actual failure rate
       for OEM Products exceeds this expected rate, Supplier will provide
       additional engineering and technical support as needed to bring the
       actual failure rate within the specified failure rate. Supplier and
       Philips will review this data quarterly. Complete documentation (as
       attached to Exhibit D), and reporting of product failures, service,
       repair, and any RMA documentation shall be reported monthly to Supplier
       as per Supplier's written requirements. Defective materials, parts shall
       be returned with documentation monthly by the tenth of each month to
       Supplier for ongoing Quality Improvement initiatives.

10.6   Cost of Repair. The expected annualized failure rate is [****]%
       (excluding customer abuse). Philips will absorb the cost of repair for
       all products below that rate. Philips agrees to service, repair OEM
       products in accordance with Supplier service and repair standards.
       However, cost sharing for failure rate analysis will commence six months
       after contract signature and final agreement of Supplier service/repair
       form with monthly service/repair data is fully functional. Failed parts
       will be sent with service forms to Supplier for product quality analysis
       and continual quality improvement. After these conditions have been met
       for every percentage point above [****]% that has been calculated at the
       quarterly review the Supplier will cover the cost of parts and direct
       labor costs of product repair above [****]% annualized failure rate until
       the rate falls below [****]; (excluding any unit opened outside Supplier
       factory after original ship date). This Cost of Repair basis assumes that
       the actual measured failure rate during the period from Contract signing
       until June 1, 2004 is around [****]%. If the actual failure rate is
       substantively different Philips and the Supplier may renegotiate the
       failure rate for cost of repair.

10.7   Class Failure Remedies. Upon the occurrence of any of the following
       events: (i) a failure rate exceeding the rate specified in Section 10.5
       above; (ii) an epidemic failure as described in Section 9.2; or (iii) a
       safety standard change under Section 7.5 above (each referred to as a
       "Class Failure"), Philips will have the following additional remedies for
       a three-year period commencing upon receipt by Philips' end-user customer
       of the OEM Product or the corresponding Philips Product.

       (1)  In the event of a Class Failure, Supplier will provide Philips no
            later than [****] days following the Class Failure a root cause
            analysis and corrective action plan. Philips will make available
            such information and assistance reasonably required to allow
            Supplier to conduct its root cause analysis and provide its
            corrective action report.

       (2)  If, after review of the root cause analysis and corrective action
            plan, Philips determines in its reasonable opinion that the Class
            Failure necessitates a field stocking recall or customer based
            recall or retrofit, Philips may then elect to have the OEM Products:
            (i) updated by Supplier (via Customer installable updater); (ii)
            replaced by Supplier in the field; or (iii) replaced by Philips in
            the field, including products in distributor inventory and Philips'
            installed base. If Philips chooses to perform a field repair,
            Supplier will cover the costs of the Philips Support organization as
            well as provide the appropriate replacement OEM Products, Parts or
            upgrades free of charge to Philips. Such OEM Products, Parts or
            upgrades will have the highest shipping priority.

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<PAGE>

       (3)  Except as provided in Section 7.5 above regarding safety standard
            changes, Supplier will, within [****] days after completion of the
            recalls or retrofits, reimburse Philips for its reasonable and
            direct costs in performing such services.

10.8   Survival Of Support Obligations. Supplier's maintenance and support
       obligations specified in this Section 10, and in the Support Terms in
       Exhibit D will run for the Term and any additional periods under Section
       1.3 above and will continue for a period of five years after Philips
       ships the last Philips Product or an OEM Product. This obligation
       includes making necessary Parts available to Philips, as further provided
       in the Support Terms.

11.    OBSOLESCENCE AND MANUFACTURING RIGHTS

11.1   Lifetime Buy Rights. Supplier acknowledges its obligation to manufacture,
       supply and support the OEM Products without interruption for the Term.
       If, however, after the first year of shipment of such products, Supplier
       seeks to discontinue the supply or support of any OEM Product (a
       "Discontinued Product"), Supplier will give notice to Philips no less
       than [****] months in advance of the last date the Discontinued Product
       can be ordered. After receipt of notice of discontinuance, Philips may,
       at its option:

       (1)  Purchase from Supplier such quantity of the Discontinued Product as
            Philips deems necessary for its future requirements; and

       (2)  Manufacture the Discontinued Product under the manufacturing rights
            granted in Section 11.2 below, without payment to Supplier of any
            royalties or other charges.

11.2   Philips' Right To Manufacture. Subject to the terms of Section 11.1
       above, Supplier grants to, under Supplier's Intellectual Property
       Rights, a perpetual, non-exclusive, worldwide, royalty-free license to
       use, modify, reproduce, import, manufacture, distribute, offer for sale
       and sell the Discontinued Product. Philips may sublicense these rights to
       third parties, provided any such third party complies with the terms of
       this license and any associated obligations of confidentiality. In the
       event Philips elects to exercise this right:

       (1)  Supplier will release to Philips all Technical Information or other
            materials deposited under the terms of the Deposit Agreement,
            described below in Section 11.4, necessary for the manufacture of
            the Discontinued Product. Philips will keep all Technical
            Information confidential in accordance with the terms of Article 19
            below. If Supplier has failed to place Technical Information in
            escrow or to update the escrow as provided below, Philips might use
            the measures described in paragraph (b) below to obtain such
            information.

       (2)  Supplier will furnish to Philips all Technical Materials at their
            book value within [****] days after Philips has notified Supplier of
            its exercise of its rights under this Article 11. If the materials
            are not delivered within this time period, Philips will have the
            right to collect such materials at Supplier's plant or offices and
            Supplier agrees to assist Philips in such collection. Philips will
            pay amounts due on such materials within [****] days after receipt
            of Supplier's invoice or receipt of the materials, whichever is
            later. If Philips has to use measures to collect the materials
            itself, it may deduct its costs from the book value of the
            materials.

       (3)  Supplier will furnish to Philips within seven days after Philips'
            written request, the names and addresses of Supplier's sources for
            Parts not manufactured by Supplier, including the appropriate part
            numbers for commercially available equivalents of electronic parts.
            Supplier will use all reasonable efforts to ensure that Philips will
            have the right to purchase all such Parts directly from Supplier's
            vendors.

       (4)  Supplier will furnish to Philips without charge all Parts
            catalogues, schematics, material lists, engineering change orders,
            and other servicing documentation deemed necessary by Philips to
            service and support the Discontinued Product.

       (5)  Supplier will assign to Philips any license rights it may have with
            third parties for software, documentation or any intellectual
            property used in the manufacture of the Discontinued Product.

11.3   Consulting Services. In support of Technical Information conveyed to
       Philips, Supplier will provide:

       (1)  Up to [****] hours of consulting services, as required by Philips,
            provided that Philips bears the cost of reasonable travel expenses;
            and

                             Philips Confidential

<PAGE>

       (2)  Additional consulting services at the rate of [****] per eight-hour
            workday, plus reasonable travel expenses of those so engaged.

11.4   Escrow Agreement. At Philips' request and as security for the fulfillment
       of Supplier's obligations under this Agreement, Supplier will deposit a
       copy of the Technical Information, including any source code for all
       software contained in the OEM Products (the "Deposit") pursuant to the
       terms of Philips' standard Deposit Agreement, [attached as Exhibit F].
       Philips will have the right to inspect and verify that the appropriate
       Deposit of current and complete information is being made. Supplier will
       update the Deposit on a regular basis, but no less than semi-annually,
       and at least once immediately prior to Philips' exercise of its rights
       hereunder.

12.    TRAINING

12.1   Technical Training. Supplier will provide to Philips up to three
       technical/service training sessions for up to one day each, sufficient to
       allow Philips to become fully familiar with the technical/support
       attributes, service, and repair requirements/standards for each new OEM
       Product. Training will be at no charge to Philips. Supplier wilt provide
       product literature, learning products and service manuals for each new
       OEM Product. Training may be conducted at the Supplier factory or at the
       Philips repair center.

12.2   Sales Training. Supplier will develop for Philips to use with Customers a
       computer based or web based training for use for each new OEM Product. In
       addition Supplier will hold up to three sales training sessions for up to
       one day each to allow Philips to become fully familiar with each new OEM
       Product and its market. Training will be at no charge to Philips.
       Supplier will provide product literature, learning products; laptop based
       sales demonstration software, and all other sales tools that have been
       created (such as PowerPoint presentations) for each new OEM Product.

12.3   Additional Training. Philips may further request and Supplier will
       provide additional training at no charge as reasonably necessary to
       inform Philips personnel of upgraded, enhanced or new versions of the OEM
       Products. Other training will be provided upon mutually agreeable terms
       and conditions.

12.4   Philips' Rights In Training Classes And Materials. Philips may at no
       charge use, reproduce, modify, display and perform either internally or
       for Philips' customers, all training classes, methods, and materials
       supplied or developed by Supplier under this Agreement. Philips' use may
       be in any manner Philips reasonably deems appropriate.

13.    MARKETING AND LICENSING

13.1   Marketing Authority. Philips will have the authority to market the OEM
       Products and the Philips Products containing the OEM Products to the
       extent it deems appropriate, in its sole discretion. Without limiting the
       generality of the foregoing sentence, nothing in this Agreement will be
       construed or interpreted to place a "best efforts" obligation upon
       Philips with respect to marketing the Philips Products or OEM Products or
       preclude Philips from independently developing, purchasing, licensing, or
       marketing any product which performs the same or similar function as the
       OEM Products. Philips will have the right to use its own business and
       license terms for all marketing and distribution of the OEM Products and
       Philips Products.

13.2   No Rights In Marks. Except as otherwise specified in the private labeling
       section below, nothing in this Agreement should be construed to grant
       either party any rights in the Marks of the other party. Supplier
       acknowledges, however, that Philips may use the name of Supplier and the
       name of the OEM Products in advertising and marketing the OEM Products or
       the Philips Products. The OEM Products will be affixed with copyright
       notices sufficient to give notice as to the rights of the parties in
       their respective products.

13.3   Private Labeling. If Philips decides during the Term to create Philips
       private label versions of the OEM Products, Supplier will ensure that the
       OEM Products contain the Philips Marks, serial number format and
       packaging specified by Philips and conforming to Philips specifications
       for external appearance (which will not require any material change in
       form or dimensions of the OEM Products or require commercially
       unreasonable actions). Except as provided herein, Supplier will have no
       other right or license in any Philips and are Philips private labels.

13.4   Software License. If the OEM Products include Software, Supplier hereby
       grants to Philips, under Supplier's Intellectual Property Rights in such
       Software, a non-exclusive, worldwide, fully paid-up license to use,
       import, offer for sale and distribute the Software in object code form as
       integrated with the OEM Products or the Philips Products. These rights
       will extend to Philips Subsidiaries and third party channels of
       distribution.

                             Philips Confidential

<PAGE>

13.5   Documentation License. Supplier hereby grants Philips a non-exclusive,
       non-transferable, worldwide, fully paid up license to use, reproduce,
       distribute and prepare derivative works in Philips' name all
       Documentation and other information, other than confidential information,
       furnished by Supplier under this Agreement. Philips may reproduce such
       Documentation without Supplier's logo or other identification of source,
       subject to affixing copyright notices to all copies of Documentation.
       These rights with respect to the Documentation will extend to Philips
       Subsidiaries and third party channels of distribution.

14.    INTELLECTUAL PROPERTY PROTECTION

14.1   Supplier's Duty To Defend. Except as provided in Section 14.4 below,
       Supplier will defend and hold harmless Philips and its Subsidiaries,
       Subcontractors and customers from any claim that any OEM Product, any
       combination of an OEM Product with an Philips Product, any Software,
       Documentation or a Supplier Mark, or any product provided as part of
       Supplier's Support services constitutes an unauthorized use or
       infringement of any third party's Intellectual Property Rights. Supplier
       will pay all costs; damages and expenses (including reasonable attorneys'
       fees) incurred by Philips, its Subsidiaries, Subcontractors or customers
       and will pay any award with respect to any such claim or agreed to in any
       settlement of that claim.

14.2   Philips' Duty To Notify. Philips will give Supplier prompt notice of any
       such claim or action, and will give Supplier the authority, information,
       and reasonable assistance (at Supplier's expense) necessary to defend. If
       Supplier does not diligently pursue resolution of the claim nor provide
       Philips with reasonable assurances that it will diligently pursue
       resolution, then Philips may, without in any way limiting its other
       rights and remedies, defend the claim.

14.3   Remedies For Infringing Products. If the use or combination of any
       product provided hereunder is enjoined (the "Infringing Product"),
       Supplier will, at its sole expense and option:

       (1) Procure for Philips and its customers the right to continue using or
           combining the Infringing Product;

       (2) Replace the Infringing Product with a non-infringing product of
           equivalent function and performance; or

       (3) Modify the Infringing Product to be non-infringing, without
           detracting from function or performance.

14.4   Limitations. Supplier will be relieved of its indemnification obligations
       under this Article 14 to the extent that the claim arises solely and
       directly from Supplier's compliance with an Philips Specification
       provided that all implementations of that Specification constitute an
       unauthorized use or infringement of a third party Intellectual Property
       Right.

15.    COUNTRY OF MANUFACTURE AND DUTY DRAWBACK RIGHTS

15.1   Country Of Origin Certification. Upon Philips' request, Supplier will
       provide Philips with an appropriate certification stating the country of
       origin for OEM Products, sufficient to satisfy the requirements of the
       customs authorities of the country of receipt and any applicable export
       licensing regulations, including those of the United States.

15.2   Country Of Origin Marking. Supplier will mark each OEM Product, or the
       container if there is no room on the OEM Product, with the country of
       origin. Supplier will, in marking OEM Products, comply with the
       requirements of the customs authorities of the country of receipt.

15.3   Duty Drawback. If OEM Products delivered under this Agreement are
       imported, Supplier will when possible allow Philips to be the importer of
       record. If Philips is not the importer of record and Supplier obtains
       duty drawback rights to OEM Products, Supplier will, upon Philips'
       request, provide Philips with documents required by the customs
       authorities of the country of receipt to prove importation and to
       transfer duty drawback rights to Philips.

16.    GOVERNMENTAL COMPLIANCE

16.1   Duty To Comply. Supplier agrees to comply with all federal, state, local
       and foreign laws, rules, and regulations applicable to its performance of
       this Agreement or to OEM Products. Without limiting the generality of the
       foregoing sentence, Supplier represents that:

       (1)  Supplier will comply with all equal employment opportunity and
            non-discrimination requirements prescribed by Presidential Executive
            Orders, including the requirements of Executive Order 11246, the
            Vocational Rehabilitation Act, and the Vietnam Era Veterans'
            Readjustment Assistance Act.

                             Philips Confidential

<PAGE>

       (2)  Each chemical substance contained in OEM Products is on the
            inventory of chemical substances compiled and published by the
            Environmental Protection Agency pursuant to the Toxic Substances
            Control Act;

       (3)  All OEM Products will be shipped in conformance with government or
            freight regulations and requirements applicable to chemicals; and

       (4)  Supplier will provide complete and accurate material safety data
            sheets prior to shipping any OEM Product.

16.2   Procurement Regulations. For OEM Products purchased under this Agreement
       for incorporation into products to be sold under a federal contract or
       subcontract, those applicable procurement regulations that are required
       by federal statute or regulation to be inserted in contracts or
       subcontracts will be deemed incorporated in this Agreement and made to
       apply to all Orders.

16.3   Ozone Depleting Substances. Supplier hereby certifies that no OEM Product
       nor any component of any OEM Product:

       (1)  Contains any "Class I Substance" or "Class 2 Substance", as those
            term are defined in 42 USC Section 767: and implementing regulations
            of the United States Environmental Protection Agency at 40 CFR Part
            82; as now in existence or hereafter amended; or

       (2)  Has been manufactured with a process that uses any Class or Class 2
            Substance within the meaning of 42 USC Section 7671 and implementing
            regulations of the United States Environmental Protection Agency at
            40 CFR Part 82, as now in existence or hereafter amended.

17.    FORCE MAJEURE EVENTS

17.1   Delaying Causes. Subject to the provisions of this Article, Supplier will
       not be liable for any delay in performance under this Agreement caused by
       any "act of God" or other cause beyond Supplier's control and without
       Supplier's fault or negligence (a "delaying cause"). Notwithstanding the
       above, Supplier will not be relieved of any liability for any delay or
       failure to perform its defense obligations with respect to third party
       Intellectual Property Rights or furnish remedies for Infringing Products
       as described in Article 14 above.

17.2   Philips Option. Supplier will immediately give Philips notice of any
       delaying cause and its best estimate of the expected duration of such
       case. In the event of a delaying cause, Philips agrees to work with
       Supplier to resolve the delay in a reasonable timeframe acceptable to
       both parties. If agreement is not reached, Philips may act in its sole
       discretion to:

       (1)  Terminate this Agreement or any part hereof as to OEM Products not
            shipped; or

       (2)  Suspend this Agreement in whole or in part for the duration of the
            delaying cause, buy similar products elsewhere, and deduct from any
            quantities specified under this Agreement the quantity so purchased.

17.3   Resumption Of Agreement. If Philips elects to purchase other similar
       products in the event of a delaying cause, Philips may resume performance
       under this Agreement once the delaying cause ceases and extend the Term
       up to the length of time the delaying cause endured. Unless Philips gives
       notice of termination as provided above within 30 days after notice from
       Supplier of the delaying cause, Philips will be deemed to have elected to
       suspend this Agreement for the duration of the delaying cause.

18.    EVENTS OF DEFAULT

18.1   Notice Of Breach. If either party is in breach of any provision of this
       Agreement, the non-breaching party may, by notice to the breaching party,
       except as otherwise prohibited by the United States bankruptcy laws,
       terminate the whole or any part of this Agreement or any Order, unless
       the breaching party cures the breach within 30 days after receipt of
       notice.

18.2   Causes Of Breach. For purposes of Section 18.1 above, the term "breach"
       includes without limitation any:

       (1)  Proceeding, whether voluntary or involuntary, in bankruptcy or
            insolvency by or against a party;

                             Philips Confidential

<PAGE>

       (2)  Appointment, with or without a party's consent, of a receiver or an
            assignee for the benefit of creditors;

       (3)  Failure by Supplier to make a delivery of OEM Products in accordance
            with the requirements of this Agreement or any Order;

       (4)  Failure by Supplier to replace or repair Noncomplying Products in a
            timely manner as required by Article 5 above; or

       (5)  Other failure by a party to comply with any material provision of
            this Agreement with additional failure to provide the non-breaching
            party, upon request, with reasonable assurances of future
            performance.

18.3   Philips' Rights Upon Breach by Supplier for Cause. In the event Philips
       terminates this Agreement in whole or in part as provided above, in
       addition to any other remedies provided Philips under this Agreement,
       Philips may procure, upon such terms and in such manner as Philips
       reasonably deems appropriate, products similar to the OEM, Product as to
       which this Agreement is terminated. Supplier agrees to reimburse Philips
       upon demand for all additional costs incurred by Philips in purchasing,
       qualifying and testing such similar products. Supplier further agrees to
       continue the performance of this Agreement to the extent not terminated
       under the provisions of this Section.

18.4   Purchase Hold. If any Eligible Purchaser having the right to purchase an
       OEM Product under this Agreement or under any other agreement with
       Supplier believes in good faith that an OEM Product is defective, then,
       irrespective of any other rights provided Philips hereunder, Philips may
       implement a purchase hold to suspend purchases of such OEM Products
       without any liability. Such purchase hold may be removed if Philips
       reasonably believes that Supplier has taken sufficient action to correct
       the defect or given sufficient assurances that such defect will be
       corrected within a reasonable time.

19.    CONFIDENTIAL INFORMATION

19.1   Confidential Information. During the Term, a party (the "Recipient") may
       receive or have access to certain information of the other party (the
       "Discloser") that is marked as "Confidential Information," including,
       though not limited to, information or data concerning the Discloser's
       products or product plans, business operations, strategies, customers and
       related business information. The Recipient will protect the
       confidentiality of Confidential Information with the same degree of care
       as the Recipient uses for its own similar information, but no less than a
       reasonable degree of care, under the terms of the Confidential Disclosure
       Agreement attached as Exhibit E (the "CDA"). To the extent any term of
       this Agreement conflicts with any term in the CDA, the terms of this
       Agreement will control and take precedence. Confidential Information may
       only be used by those employees of the Recipient who have a need to know
       such information for the purposes related to this Agreement. The parties
       acknowledge that all Technical Information and Forecasts are deemed
       Confidential Information to be protected for a term of three years from
       the date of disclosure.

19.2   Exclusions. The foregoing confidentiality obligations will not apply to
       any information that is (a) already known by the Recipient prior to
       disclosure, (b) independently developed by the Recipient prior to or
       independent of the disclosure, (c) publicly available through no fault of
       the Recipient, (d) rightfully received from a third party with no duty of
       confidentiality, (e) disclosed by the Recipient with the Discloser's
       prior written approval, or (f) disclosed under operation of law.

20.    INSURANCE REQUIREMENTS

20.1   Insurance Coverage. Supplier will maintain Comprehensive or Commercial
       General Liability Insurance (including but not limited to premises and
       operations, products and completed operations, broad form contractual
       liability, broad form property damage and personal injury liability) with
       the following minimum limits:

           Comprehensive General Liability: $1,000,000 combined single limit
            Bodily Injury/Property Damage per occurrence and $1,000,000
            Products/Completed Operations Aggregate.

           Commercial General Liability: $1,000,000 combined single limit Bodily
            Injury/Property Damage per occurrence; and $1,000,000 General
            Aggregate (where applicable); $1,000,000 Products/Completed
            Operations Aggregate; and $1,000,000 Personal/Advertising Injury.

                             Philips Confidential

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       Coverage provided will extend to Supplier's legal liabilities that may
       arise from use of the OEM Products or acts or omissions of Supplier under
       this Agreement. Each policy obtained by Supplier will name Philips, its
       officers, directors and employees as additional insureds. In addition,
       such policies will permit Supplier to waive, on its own behalf and on
       behalf of its insurers, any rights of subrogation against Philips.

       Such insurance policies will be written with appropriately licensed and
       financially responsible insurers, and will provide for a minimum of 30
       days written notice to Philips of any cancellation or reduction in
       coverage. Certificates of insurance evidencing the required coverage and
       limits will be furnished to Philips before any work is commenced
       hereunder, and Supplier will deliver copies of policies or certificates
       to the Philips contact listed in Exhibit C.

20.2   Claims Made Coverage. If any policies have "claims made" coverage,
       Supplier will maintain such coverage with named as an additional insured
       for a minimum of three years after termination of this Agreement. Any
       such coverage must have a retroactive date no later than the date upon
       which work commenced under this Agreement.

20.3   Additional Requirements. All deductibles on policies providing coverage
       will be paid by Supplier. In the event Supplier is self insured for
       matters described in Section 20.1, Supplier agrees to respond to any
       claims or losses made against or incurred by Philips in the same fashion
       as if insurance had been purchased with the same or broader coverage
       terms than what is generally available to similar suppliers. In no event
       will the coverages or limits of any insurance required under this
       Article, or the lack or unavailability of any other insurance, be deemed
       to limit or diminish Supplier's obligations or liability to Philips under
       this Agreement.

21.    LIMITATION OF LIABILITY

       UNLESS OTHER WISE STATED IN THIS AGREEMENT, NEITHER PARTY WILL BE LIABLE
       FOR ANY SPECIAL OR CONSEQUENTIAL DAMAGES OF THE OTHER ARISING OUT OF ANY
       PERFORMANCE OF THIS AGREEMENT OR IN FURTHERANCE OF THE PROVISIONS OR
       OBJECTIVES OF THIS AGREEMENT, REGARDLESS OF WHETHER SUCH DAMAGES ARE
       BASED ON TORT, WARRANTY, CONTRACT OR ANY OTHER LEGAL THEORY, EVEN IF
       ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NOTWITHSTANDING THE ABOVE,
       SUPPLIER WILL BE RESPONSIBLE FOR ANY DAMAGES OF ANY KIND INCLUDED IN AN
       AWARD OR SETTLEMENT OF A THIRD PARTY CLAIM UNDER ARTICLE 14 ABOVE.

22.    TERMINATION

22.1   Outstanding Orders. All Orders issued prior to the expiration of this
       Agreement must be fulfilled pursuant to and subject to the terms of this
       Agreement, even if the Delivery Dates are after expiration. Upon
       termination of this Agreement for Supplier's breach, Philips may cancel
       any outstanding Order or require Orders to be fulfilled even if a
       Delivery Date is after the date of termination.

22.1   Return Of Property. Supplier must return all Philips Property to Philips
       upon expiration or termination. All such property must be in good
       condition, normal wear and tear expected. Philips will determine the
       manner and procedure for return. Philips will bear all return freight
       costs if return is due to Philips convenience or an uncured breach by
       Philips. Otherwise, Supplier will bear all such costs.

22.2   Surviving Provisions. Notwithstanding the expiration or early termination
       of this Agreement, the provisions regarding Warranties in Article 9,
       Support in Article 10, Manufacturing Rights in Article 11, Marketing and
       Licensing in Article 13, Intellectual Property in Article 14,
       Confidentiality in Article 19, Insurance Requirements in Article 20,
       Limitation of Liability in Article 21, and the Miscellaneous provisions
       below will each survive in accordance with their terms.

23.    MISCELLANEOUS

23.1   Notices. All notices to be given under this Agreement must be in writing
       addressed to the receiving party's designated recipient specified in
       Exhibit C. Notices are validly given upon the earlier of confirmed
       receipt by the receiving party or three days after dispatch by courier or
       certified mail, postage prepaid, properly addressed to the receiving
       party. Notices may also be delivered by telefax and will be validly given
       upon oral or written confirmation of receipt. Either party may change its
       address for purposes of notice by giving notice to the other party in
       accordance with these provisions.

23.2   Exhibits. Each Exhibit attached to this Agreement is deemed a part of
       this Agreement and incorporated herein wherever reference to it is made.

                             Philips Confidential

<PAGE>

23.3   Independent Contractors. The relationship of the parties established
       under this Agreement is that of independent contractors and neither party
       is a partner, employee, agent or joint venturer of or with the other.
       Nothing in this Agreement precludes either party from independently
       developing, manufacturing, selling or supporting products similar to the
       OEM Products.

23.4   Assignment. Neither this Agreement nor any right, license, privilege or
       obligation provided herein may be assigned, transferred or shared by
       either party without the other party's prior written consent, and any
       attempted assignment or transfer is void. Any merger, consolidation,
       reorganization, transfer of substantially all assets of a party, or other
       change in control or ownership will be considered an assignment for the
       purposes of this Agreement {other than an Philips merger into a wholly
       owned subsidiary}. This Agreement will be binding on the successors and
       permitted assigns of the parties and the name of the party appearing
       herein will be deemed to include the names of such party's successors or
       permitted assigns to the extent necessary to carry out the intent of this
       Agreement.

23.5   No Waiver. The waiver of any term, condition, or provision of this
       Agreement must be in writing and signed by an authorized representative
       of the waiving party. Any such waiver will not be construed as a waiver
       of any other term, condition, or provision except as provided in writing,
       nor as a waiver of any subsequent breach of the same term, condition, or
       provision.

23.6   Reference To Days. All references in this Agreement to "days" will,
       unless otherwise specified herein, mean calendar days.

23.7   Headings. The Section headings used in this Agreement are for convenience
       of reference only. They will not limit or extend the meaning of any
       provision of this Agreement, and will not be relevant in interpreting any
       provision of this Agreement.

23.8   No Publication. Neither party may publicize or disclose to any third
       party, without the written consent of the other party, the terms of this
       Agreement. Without limiting the generality of the foregoing sentence, no
       press releases may be made without the mutual written consent of each
       party.

23.9   Severability. If any provision in this Agreement is held invalid or
       unenforceable by a body of competent jurisdiction, such provision will be
       construed, limited or, if necessary, severed to the extent necessary to
       eliminate such invalidity or unenforceability. The parties agree to
       negotiate in good faith a valid, enforceable substitute provision that
       most nearly effects the parties' original intent in entering into this
       Agreement or to provide an equitable adjustment in the event no such
       provision can be added. The other provisions of this Agreement will
       remain in full force and effect.

23.10  Entire Agreement. This Agreement comprises the entire understanding
       between the parties with respect to its subject matters and supersedes
       any previous communications, representations, or agreements, whether oral
       or written. For purposes of construction, this Agreement will be deemed
       to have been drafted by both parties. No modification of this Agreement
       will be binding on either party unless in writing and signed by an
       authorized representative of each party.

23.11  Governing Law. This Agreement will be governed in all respects by the
       laws USA without reference to any choice of laws provisions.

APPROVED AND AGREED TO:

SUPPLIER:                                 PHILIPS TECHNOLOGIES, INC.

By:  /s/ Harry A. Strandquist             By:  [****]
     -----------------------------------

Typed Name:  Harry A. Strandquist         Typed Name:  [****]
             --------------------

                                          Title:  Vice President/General
Title:  President and CEO                           Manager - [****]
        -----------------                        -------------------------------

                             Philips Confidential

<PAGE>

              EXHIBIT A - EXISTING OEM PRODUCTS AND SPECIFICATIONS

------------------------------ ---------------------- --------------------------
          PHILIPS                     SUPPLIER                PRODUCT NAME
          PART NO.                    PART NO.
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------

                ACCESSORIES / SPARES / EVENT RECORDERS / SCANNERS

------------------------------ ---------------------- --------------------------
          PHILIPS                     SUPPLIER                PRODUCT NAME
          PART NO.                    PART NO.
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------
          [****]                       [****]                   [****]
------------------------------ ---------------------- --------------------------

LANGUAGES: English, Spanish, French, German, Italian and Dutch. All languages
are included on each recorder.

                             Philips Confidential

<PAGE>

          EXHIBIT B - EXISTING OEM PRODUCTS SUPPLIER PRICING
          OCTOBER 1, 2003

<TABLE>
<CAPTION>
---------------------------- ------------------ -------------------------------------------- -----------------------
          PHILIPS                SUPPLIER                      PRODUCT NAME                       PHILIPS COST
         PART NO.                PART NO.
---------------------------- ------------------ -------------------------------------------- -----------------------
<S>                          <C>                <C>                                          <C>
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
          [****]                  [****]        [****]                                               [****]
---------------------------- ------------------ -------------------------------------------- -----------------------
</TABLE>
                             ACCESSORIES AND SPARES
<TABLE>
<CAPTION>
------------------------------- ------------------- --------------------------------------------- ----------------------
           PHILIPS                   SUPPLIER                       PRODUCT NAME                  PHILIPS COST
           PART NO.                  PART NO.
------------------------------- ------------------- --------------------------------------------- ----------------------
<S>                             <C>                 <C>                                           <C>
[****]                                [****]        [****]                                        [****]
------------------------------- ------------------- --------------------------------------------- ----------------------
[****]                                [****]        [****]                                        [****]
------------------------------- ------------------- --------------------------------------------- ----------------------
[****]                                [****]        [****]                                        [****]
------------------------------- ------------------- --------------------------------------------- ----------------------
[****]                                [****]        [****]                                        [****]
------------------------------- ------------------- --------------------------------------------- ----------------------
[****]                                [****]        [****]                                        [****]
------------------------------- ------------------- --------------------------------------------- ----------------------
[****]                                [****]        [****]                                        [****]
------------------------------- ------------------- --------------------------------------------- ----------------------
[****]                                [****]        [****]                                        [****]
------------------------------- ------------------- --------------------------------------------- ----------------------
[****]                                [****]        [****]                                        [****]
------------------------------- ------------------- --------------------------------------------- ----------------------
[****]                                [****]        [****]                                        [****]
------------------------------- ------------------- --------------------------------------------- ----------------------
</TABLE>

                             Philips Confidential

<PAGE>

                  EXHIBIT C- RECIPIENTS FOR RECEIPT OF NOTICES

                                    [****]
                                    Materials Manager
                                    Philips Medical Systems
                                    1201 N. Rice Ave.
                                    Oxnard, CA  93030
                                    (805) 988-7344 phone
                                    (805) 604-0493 fax

                                    Harold Strandquist
                                    President & CEO
                                    BRAEMAR, Inc.
                                    11481 Rupp Drive
                                    Burnsville, MN 55337-1276
                                    (952) 822-6543 phone
                                    (952) 882-6550 fax

                             Philips Confidential

<PAGE>

                            EXHIBIT D -SUPPORT TERMS

                                     [****]

                             Philips Confidential

<PAGE>

                  EXHIBIT E - CONFIDENTIAL DISCLOSURE AGREEMENT

                    PHILIPS CONFIDENTIAL DISCLOSURE AGREEMENT

--------------------------------------------------------------------------------

Effective Date:  4/1/02

The parties as specified below agree on the following terms:

I.   DEFINITION OF CONFIDENTIAL INFORMATION

     In this Agreement, Confidential Information shall mean information
         exchanged on or after the Effective Date, which:
       is disclosed by both parties, or, if checked here, is disclosed only by
       Participant or only by Philips, concerns WIRELESS CONNECTIVITY, [****]
       ALGORITHM AND HOLTER FORECAST/FUTURE PLANS AND EVENT RECORDER FUTURES is
       MARKED AS BEING CONFIDENTIAL at the time of disclosure, or if unmarked
       (e.g. orally or visually disclosed), is designated as being confidential
       at the time of disclosure and is confirmed as such in writing by the
       disclosing party within thirty days of the disclosure, and prior to
       receipt from the disclosing party was neither publicly available nor in
       the receiving party's possession without a duty of confidentiality.
       Information shall cease to qualify as Confidential Information once it
       becomes publicly available without breach of this Agreement, is
       rightfully obtained by the receiving party from another source without a
       duty of confidentiality, or is independently developed or ascertained by
       the receiving party.

     1. In this Section 1, the term 'receiving party' shall include such party's
Associates. An Associate is any subsidiary, parent, subsidiary of the parent, or
corporate affiliate of a receiving party, whether any such relationship is of
direct or indirect nature.

II.  OBLIGATIONS

     1.  Confidential Information may only be used:
         (a) if received by Participant or its Associates, for the purpose of:
         DEVELOPING FUTURE PRODUCT PLANS AND ENHANCING THE PARTNERSHIP. THIS
         INFORMATION IS ACCEPTED "AS IS" PHILIPS MEDICAL SYSTEMS  MAKES NO
         WARRANTY, EXPRESSED OR IMPLIED TO THE FITNESS OF THIS INFORMATION FOR
         ANY PURPOSE.  NO SUPPORT, TECHNICAL OR OTHERWISE, WILL BE PROVIDED BY
         PHILIPS MEDICAL SYSTEMS  IN CONNECTION WITH THE USE OF THIS
         INFORMATION, AND PHILIPS MEDICAL SYSTEMS DOES NOT GUARANTEE THAT THIS
         APPLICATION WILL FUNCTION.

         (b) if received by Philips or its Associates, for the purpose of:

     2.  A party receiving Confidential Information shall use the same degree of
         care, but in any case no less than a reasonable degree of care, to
         prevent unauthorized use, dissemination or publication thereof, as it
         uses to protect its own information of a similar confidential nature.

     3.  The obligations under this Section II shall terminate three years or,
         if filled in here, then 10 years after the Effective Date.

III. WARRANTIES

     4.  A receiving party may pass Confidential Information to its Associates
         and hereby warrants that these Associates will abide by all terms and
         conditions of this Agreement.

     5.  Each party warrants that it has the right to make the disclosures under
         this Agreement.

                             Philips Confidential

<PAGE>

     6.  NO OTHER WARRANTIES ARE MADE BY EITHER PARTY UNDER THIS AGREEMENT.
         CONFIDENTIAL INFORMATION IS PROVIDED "AS IS" WITH NO WARRANTY AS TO ITS
         ACCURACY OR COMPLETENESS.

IV.  MISCELLANEOUS

     7.  Without regard to choice of law provisions, this Agreement is governed
         by and will be construed in accordance with the laws of the State of
         New York and the USA or, if filled in here, then the laws of:_______

     8.  Neither party acquires any intellectual property rights under this
         Agreement except the rights granted in Section 11.1.

     9.  This Agreement imposes no obligation on either party to purchase, sell,
         license, transfer or otherwise dispose of any technology, services or
         products.

     10. This Agreement does not create any agency or partnership relationship.

<TABLE>
<S>                                                           <C>
Philips                                                       Participant

Philips Medical Systems North America Company                 Company Name:  BRAEMAR, Inc

Address:  [****]                                              Address:  11481 Rupp Drive

Address:  [****], [****]                                      Address:  Burnsville, MN 55337
                                                              Functional Mgr.'s Signature:
                                                              Authorized Signature: /s/ Harry Strandquist

Printed Name:  [****]                                         Printed Name:  Harold Strandquist

Title, Entity/Division:  Marketing/OP Manager [****]          Title:  Vice President and General Manager
</TABLE>

                             Philips Confidential

<PAGE>

                     EXHIBIT F- THREE PARTY ESCROW AGREEMENT

                                       BY

                                       AND

                                      AMONG

                            PHILIPS MEDICAL SYSTEMS,

                                  BRAEMAR, INC.

                                       AND
                                     [****]

                                      DATED

                                 OCTOBER 1, 2003

                             Philips Confidential

<PAGE>

                          THREE PARTY ESCROW AGREEMENT

Account Number:  __________________________

THIS ESCROW AGREEMENT is entered into by and among, [****] ESCROW SERVICES,
INC., a Delaware corporation located at [****], San Diego, CA 92123 ("[****]");
BRAEMAR, Inc., a corporation with offices at 11481 Rupp Drive, Burnsville, MN
55337 ("Supplier") and Philips Medical Systems, a Delaware corporation with
principal offices at Philips, [****] [****] ("[****]").

AGREEMENT

The parties hereby agree as follows:

1.       GENERAL. This Escrow Agreement is entered into in furtherance of the
         provisions and objectives of that certain OEM Purchase Agreement
         effective as of September 1, 2003 between Philips and Supplier (the
         "Master Agreement") regarding supply of those products specified in
         such Master Agreement ("Product(s)"). This Escrow Agreement is
         effective as of (the "Effective Date"). Contrary terms contained in the
         Master Agreement will supersede and take precedence over the terms
         contained in this Escrow Agreement.

2.       DEPOSIT.

         2.1      Supplier will deposit with [****] those materials specified in
                  Exhibit I (the "Deposit"), and keep the Deposit at the current
                  revision level on a quarterly basis commencing with the
                  Effective Date. All Deposits will be in either printed or
                  machine-readable format. The Deposit must also include current
                  regulatory concurrence letters.

         2.2      In addition, during the initial or any renewal term of this
                  Escrow Agreement, Supplier will promptly update the Deposit
                  whenever Supplier issues a new version or release of the
                  product that is the subject matter of the Master Agreement, or
                  otherwise makes any revisions or changes to its manufacturing
                  process relating to the Deposit. Supplier also agrees to
                  comply with [****]'s reasonable requests for the replacement
                  of Deposit materials likely to physically degrade.

         2.3      [****] will destroy any replaced Deposit unless Philips
                  instructs [****] to retain it within twenty (20) days of
                  notice from [****] of such replacement. Retention of the
                  replaced Deposit may incur an additional fee, as specified in
                  [****]'s fee schedule.

3.       VERIFICATION AND DELIVERY. The Deposit will be packaged for storage as
         reasonably instructed by [****] and accompanied by a cover sheet
         identifying the contents as indicated in Exhibit 2. Risk of loss or
         damage to the Deposit during shipment will lie with the party sending
         it. Philips will have the right to verify, at Supplier's site, each
         Deposit before shipment. Supplier will give Philips fifteen (15) days
         advance written notice and opportunity to inspect, witness
         compilation, test and otherwise reasonably assure itself of the
         contents of the Deposit to be shipped. Philips may authorize a third
         party to act in its place, provided that the third party agrees to any
         confidentially obligations assumed by Philips in the Master Agreement.
         Supplier hereby grants Philips and [****], free of charge, the right
         to use the facilities of Supplier, including its computer systems, to
         verify the Deposit. Supplier will make available technical support
         personnel as necessary to verify the Deposit.

                             Philips Confidential

<PAGE>

4.       STORAGE OF DEPOSIT. [****] will safe keep the Deposit in a security
         vault and exercise the same high standard of care to protect the
         Deposit which [****] would use to protect other items of this nature
         which [****] might hold, but in no event less than that standard of
         care customary in the industry.

5.       USE AND NONDISCLOSURE. Except as provided in this Escrow Agreement,
         [****] will not disclose or make any use of the Deposit, nor will
         [****] disclose or make use of any confidential information provided to
         [****] by Supplier or Philips in connection with this Escrow Agreement
         without the prior written consent of Supplier or Philips, respectively.
         These obligations will continue indefinitely notwithstanding
         termination of this Escrow Agreement.

6.       RECORDS AND AUDIT RIGHTS. [****] will keep complete written records of
         the activities undertaken and materials prepared pursuant to this
         Escrow Agreement. Upon reasonable notice to [****] during the term of
         this Escrow Agreement, Supplier and Philips will be entitled to inspect
         the records of [****] with respect to this Escrow Agreement at
         reasonable times during normal business hours at [****]'s facilities
         and to inspect the Deposit required then to be held by [****];
         Provided, however, that Supplier shall be given the opportunity to be
         present whenever Philips inspects the Deposit.

7.       RELEASE OF DEPOSIT

         7.1. The Deposit will be released to Philips upon the occurrence of any
              of the following events:

              Failure of Supplier, within ninety (90) days after Philips'
              giving notice, to fulfill a material obligation as required in
              the Master Agreement (e.g. manufacturing, required engineering
              changes, support);

              Failure of Supplier, within (90) days after Philips' giving
              notice, to fulfill its obligations to update the Deposit as
              required hereunder;

              Immediately upon breach by Supplier of Section 11.6 or 11.7 of
              the Master Agreement;

              Failure of the Supplier to continue to do business in the
              ordinary course;

              Unless prohibited by law, the filing of a petition by or against
              Supplier for relief under the United States Bankruptcy Code; a
              general assignment for the benefit of creditors by Supplier; the
              appointment of a general receiver or trustee in bankruptcy for
              Supplier's business or property; or action by Supplier under any
              state insolvency or similar law for the purpose of its
              bankruptcy, reorganization, or liquidation. However, the
              occurrence of the described events will not apply if, within
              thirty days thereafter, Supplier (including its receiver or
              trustee in bankruptcy) provides assurances, reasonably
              satisfactory to Philips, of Supplier's continuing ability and
              willingness to fulfill all of its material obligations under the
              Master Agreement; or

              The occurrence of a force majeure, event relating to an
              obligation of Supplier under the Master Agreement uncured within
              120 days after its occurrence.

         7.2  If Philips notifies [****] of the occurrence of a release
              condition as defined above, and a request for release, [****]
              will immediately notify Supplier and provide Supplier with a copy
              of the notice from Philips. Supplier will have ten (10) business
              days from the date [****] sends its notice to notify [****], with
              a copy to Philips, that the release condition has not occurred or
              has been cured. Failing such timely notice, [****] will release a
              copy of the Deposit to Philips. However, if [****] receives
              timely notice from Supplier, [****] will not, unless Philips
              exercises its rights to the procedures as specified below in
              Section 9,

                             Philips Confidential

<PAGE>

              release a copy of the Deposit but will instead institute the
              Dispute Resolution Process in Section 10 within ten (10) business
              days of such timely notice.

8.       RELEASE PENDING DETERMINATION. In the event that Philips, despite
         Supplier's assertion otherwise, determines in good faith that an
         uncured release condition has occurred, then Philips will have the
         right to demand immediate release of the Deposit, subject to the
         following. Prior to the release of the Deposit, Philips will be
         required to post a bond with Supplier, payable to Supplier, in an
         amount to be mutually agreed not to exceed the total amount Philips
         would owe Supplier under the Master Agreement with respect to the
         Product that is subject of the Deposit. Should the Dispute Resolution
         Process ultimately determine that an uncured release condition has in
         fact not occurred, then Philips will immediately return the Deposit to
         [****] and Philips will release the bond to Supplier. Philips'
         aggregate liability to Supplier under this Article for causing a
         release of the Deposit under this Section 8 based on an alleged
         uncured release condition which has in fact not occurred will be
         limited to the sum of: (a) the $1,000 royalties for each [****] and
         [****] Software Kit payable to Supplier in accordance with Section
         12.2 of the Master Agreement; and (b) $2,000 for each [****] and $500
         for each [****] Software Kit which is sold by Philips after such
         release of the Deposit.

9.       DISPUTE RESOLUTION PROCESS. [****] will first notify Supplier and
         Philips in writing of contrary instructions from Philips and Supplier
         for release of the Deposit. Within ten (10) business days after the
         date the notice is sent by [****], three neutral, independent
         arbitrators will be appointed from a list supplied by either the
         American Arbitration Association or JAMS Endispute, one each by
         Supplier, Philips and [****]. Each party will notify the others of its
         arbitrator's identity within the ten-day (10) period or forfeit its
         right to appoint one.

         On the tenth (10th) business day after the dispute notice from [****]
         notifying Supplier and Philips of the receipt of contrary instructions,
         the arbitrators will meet at the offices of [****] and will hear
         testimony and other evidence that Supplier and Philips may wish to
         present with respect to the dispute. The meetings will proceed with at
         least two appointed arbitrators who attend the meetings, and will be
         conducted from 8:00 am. to 5:00 p.m. on no more than five (5)
         consecutive business days, national holidays excluded. Philips will
         present up to two days of evidence followed by up to two days of
         presentation from Supplier, followed by a final day reserved for
         rebuttal by each party in the morning and afternoon, respectively.
         Supplier, Philips and [****] agree that the evidence and, results of
         the hearings will not be disclosed to third parties.

         Within two (2) business days after the close of the presentations, the
         arbitrators will resolve the dispute by majority vote. An abstention
         will be deemed a vote in favor of release. The parties agree that this
         decision will be final, binding, not subject to appeal and enforceable
         by a court of competent jurisdiction. All costs of the arbitrators will
         be borne by the unsuccessful party.

10.      JOINT RELEASE. Philips and Supplier may, by joint written instruction
         to [****], authorize the release of the Deposit or a copy of it to the
         party named in the instruction.

11.      RIGHTS IN THE DEPOSIT

         11.1     [****]'s Rights. Supplier hereby grants to [****] ownership of
                  and title to those physical copies of the Deposit delivered to
                  [****] subject to [****]'s agreement to use, reproduce and
                  release the Deposit only as necessary to fulfill its
                  obligations under this Escrow Agreement.

         11.2     Philips' Rights. Supplier hereby grants to Philips a present
                  license in the intellectual property content of the Deposit,
                  exercisable upon release of the Deposit by [****] to Philips.
                  Philips' license is worldwide, non-exclusive and royalty
                  bearing in accordance with Section 12.2 of the Master
                  agreement. Philips' license is Limited in duration to the term
                  of the Master Agreement, as may be renewed. Philips' license
                  is restricted to the furtherance of Philips' rights or
                  fulfillment of Supplier's obligations as set forth in the
                  Master Agreement, as may be amended or extended. If the Master
                  Agreement is terminated before, concurrently with or after the
                  exercise of Philips' right to access the Deposit under this
                  Escrow Agreement, the duration and scope of the foregoing
                  license will be interpreted as if the Master Agreement was not
                  so terminated. The foregoing license includes the right to
                  reproduce, translate, modify and distribute copies,

                             Philips Confidential

<PAGE>

                  translations, derivative works, compilations and collective
                  works of any Deposit user documentation or software (in
                  machine-readable form only). For all other intellectual
                  property content of the Deposit, Philips' license includes the
                  right to make, have made, use, sell, import, offer for sale
                  and distribute products based on the Deposit under any
                  intellectual property right including patent, copyright, mask
                  work, trade secret or other similar right. In all cases,
                  Philips' license includes the right to use subcontractors or
                  sublicensees provided they comply with any confidentiality
                  obligations assumed by Philips in the Master Agreement. In
                  addition, Supplier grants to Philips the right to use the
                  materials from Supplier's vendors and subcontractors
                  reasonably required for the manufacture, support and
                  distribution of the products to Which the Deposit relates
                  ("Related Materials") or Will use its best efforts to allow
                  Philips to procure the Related Materials from Supplier's
                  vendors and subcontractors. Philips will treat the Deposit and
                  Related Materials as confidential information according to the
                  terms of the Master Agreement. If permitted by local
                  authority, Supplier hereby grants to Philips the right to
                  utilize its manufacturing and distribution approvals anywhere
                  in the world.

12.      TERM AND TERMINATION. This Escrow Agreement will have an initial term
         of one (1) year, renewable upon receipt by [****] of the specified
         renewal fee. If [****] does not receive the renewal fee by the
         anniversary date of this Escrow Agreement, [****] will give notice to
         Supplier and Philips. If the fee is not received from Supplier or
         Philips within thirty (30) days of such notice, this Escrow Agreement
         will expire. Upon expiration of this Escrow Agreement, [****] will, at
         Supplier's option, either destroy or return the Deposit to Supplier.
         All obligations of [****] under this Escrow Agreement will terminate
         thereafter, except for those stated in the Use and Nondisclosure
         Section of this Escrow Agreement.

13.      FEES. Unless otherwise agreed, all fees will be due from Philips in
         full upon receipt of [****]'s invoice. Fees will be those specified in
         [****]'s schedule of fees in effect for the initial term of this Escrow
         Agreement plus taxes. [****] shall notify Supplier and Philips at least
         ninety (90) days prior to expiration of the initial term (or any
         renewal term) of this Escrow Agreement of any scheduled increase for
         the succeeding renewal term.

14.      INDEMNIFICATION. [****] will be responsible for performing its
         obligations under this Agreement and to act in a reasonable and prudent
         manner with regard to this escrow arrangement. Provided [****] has
         acted in the manner stated in the preceding sentence, Supplier and
         Philips each agree to indemnify, defend and hold harmless [****] from
         any and all claims, actions, damages, arbitration fees and expenses,
         costs, attorney's fees and other liabilities incurred by [****]
         relating in any way to this escrow arrangement.

15.      MISCELLANEOUS.

         15.1     Account Representatives and Notices. Supplier, Philips and
                  [****] will each designate an authorized individual(s) to
                  receive notices and otherwise act on behalf of Supplier in
                  connection with this Escrow Agreement, as set forth in Exhibit
                  3 Representatives may be changed by written notice to the
                  other parties. Notices are validly given upon the earlier of
                  confirmed receipt. by the receiving, party or three days after
                  dispatch by courier or certified mail, postage prepaid,
                  properly addressed to the receiving party. Notices may also be
                  delivered by telefax and will be deemed received upon oral or
                  written confirmation of receipt. Unless otherwise provided in
                  this Agreement, all documents and communications may be
                  delivered by first class mail.

         15.2     Authenticity. [****] may act in reliance upon any instruction;
                  instrument or signature believed to be genuine and may assume
                  that it has been duly authorized. [****] will not be required
                  to inquire into the truth or evaluate the merit of any
                  statement or representation contained in any notice or
                  document.

         15.3     Merger. The Master Agreement and this Escrow Agreement,
                  including the Exhibits, constitutes the entire agreement
                  between the parties concerning the subject matter hereof and
                  will supersede all previous communications, representations,
                  understandings, and agreements, oral or written, between the
                  parties. [****] is not a party to the License Agreement
                  between Supplier and Philips and has no knowledge of the terms
                  or provisions of any such License Agreement. [****]'s only
                  obligations to Supplier and Philips are as set forth in this
                  Agreement.

                             Philips Confidential

<PAGE>

         15.4     Depositor's Representations. Supplier represents as follows:
                  Supplier lawfully possesses all of the Deposit Materials
                  deposited with [****]; With respect to all of the Deposit
                  Materials, Supplier has the right and authority to grant to
                  [****] and Philips the rights as provided in this Agreement;
                  The Deposit Materials are not subject to any lien or other
                  encumbrance.

         15.5     Right to Make Copies. [****] shall have the right to make
                  copies of the Deposit Materials as reasonably necessary to
                  perform this Agreement. [****] shall copy all copyright,
                  nondisclosure, and other proprietary notices and titles
                  contained on the Deposit Materials onto any copies made by
                  [****]. With all Deposit Materials submitted to [****],
                  Supplier shall provide any and all instructions as may be
                  necessary to duplicate the Deposit Materials including but not
                  limited to the hardware and/or software needed.

         15.6     Disposition of Deposit Materials Upon Termination. Subject to
                  the foregoing termination provisions, and upon termination of
                  this Agreement, [****] shall destroy, return, or otherwise
                  deliver the Deposit Materials in accordance with Supplier's
                  instructions. If there are no instructions, [****] may, at its
                  sole discretion, destroy the Deposit Materials or return them
                  to Supplier. [****] shall have no obligation to destroy or
                  return the Deposit Materials if the Deposit Materials are
                  subject to another escrow agreement with [****].

         15.7     Regulations. Supplier and Philips are responsible for and
                  warrant compliance with all applicable laws, rules and
                  regulations, including but not limited to customs laws,
                  import, export, and re-export laws and government regulations
                  of any country from or to which the Deposit Materials may be
                  delivered in accordance with the provisions of this Agreement.

         15.8     Assignment. No party may assign any rights or obligations of
                  this Escrow Agreement without the prior written consent of the
                  others Notwithstanding the foregoing, PHILIPS, or its
                  permitted successive assignees or transferees, may assign or
                  transfer this Agreement or delegate any rights or obligations
                  hereunder without consent in connection with a merger,
                  reorganization, transfer, sale of assets or product lines, or
                  change of control or ownership of PHILIPS or all or
                  substantially all of the assets or business of the [****], or
                  its permitted successive assignees or transferees. Without
                  limiting the foregoing, this Agreement will be binding upon
                  and inure to the benefit of the parties and their permitted
                  successors and assigns. However, [****] shall have no
                  obligation in performing this Agreement to recognized any
                  successor or assign of Depositor or Preferred Beneficiary
                  unless [****] receives clear, authoritative and conclusive
                  written evidence of the change of parties.

         15.9     Exhibits. Each Exhibit attached to this Agreement is deemed a
                  part of this Escrow Agreement and incorporated herein wherever
                  reference to it is made.

         15.10    Independent Contractors. The relationship of the parties
                  established under this Agreement is that of independent
                  contractors and neither party is a partner, employee, agent
                  or joint venturer of or with the other.

         15.11    No Waiver. The waiver of any term, condition, or provision of
                  this Agreement must be in writing and signed by an authorized
                  representative of the waiving party. Any such waiver will not
                  be construed as a waiver of any other term, condition, or
                  provision except as provided in writing, nor as a waiver of
                  any subsequent breach of the same term, condition, or
                  provision.

         15.12    Definition Of Days. All references in this Agreement to "days"
                  will, unless otherwise specified herein, mean calendar days.

         15.13    Headings. The Section headings used in this Agreement are for
                  convenience of reference only. They will not limit or extend
                  the meaning of any provision of this Agreement, and will not
                  be relevant in interpreting any provision of this Agreement.

         15.14    No Publication. Neither party may publicize or disclose to any
                  third party, without the written consent of the other party,
                  the terms of this Agreement. Without limiting the generality
                  of the foregoing sentence, no press releases may be made
                  without the mutual written consent of each party.

         15.15    Severability. If any provision in this Agreement is held
                  invalid or unenforceable by a body of competent jurisdiction,
                  such provision will be modified or, if

                             Philips Confidential

<PAGE>

                  necessary, severed to the extent necessary to eliminate such
                  invalidity or unenforceability. The parties agree to negotiate
                  in good faith a valid, enforceable substitute provision that
                  most nearly effects the parties' original intent in entering
                  into this Agreement or to provide an equitable adjustment in
                  the event no such provision can be added. The other provisions
                  of this Agreement will remain in full force and effect.

         15.16    Governing Law. This Agreement will be governed in all respects
                  by the laws of the State of California without reference to
                  any choice of laws provisions. The parties hereby consent to
                  the exclusive jurisdiction and venue of the courts located in
                  California. The parties hereby waive any application of the
                  United Nations Convention on the Sale of Goods with respect to
                  the performance or interpretation of this Agreement.

         15.17    Counterparts.  This Agreement may be executed in counterparts,
                  each of which will be deemed an original.

                             Philips Confidential

<PAGE>

EXHIBIT 1:  DEPOSIT

Hardware Manufacturing Materials (whenever relevant)

     1.   Design Specifications for the Product.
     2.   Electronic or paper copies of manufacturing drawings, specifications,
          schematics, and other drawings pertinent to manufacture Products and
          Spare Parts at the revision level then in effect.
     3.   Final test procedures.
     4.   Printed circuit board layouts in machine-readable form.
     5.   Materials lists, broken down by assembly, including reference
          designators.
     6.   Source code of and master samples of programmable hardware, such as
          ROM/PROM firmware, PALs,
     7.   Vendor contact information.

Source Code (whenever relevant)
     1.   A copy of source code.
     2.   A description of the development system, hardware, software,
          compilers and the like sufficient for Philips to continue
          development and support of the software included in the Master
          Agreement.

                             Philips Confidential

<PAGE>

EXHIBIT 2:  DEPOSIT COVER SHEET

Deposit Account Name ____________________________

Deposit Account Number _________________________

_____ Deposit _____ Supplement to Deposit _____ Replacement of Deposit

Program Name ______________________________________________________ Version ____
Date _____________CPU/OS _____________ Compiler______________
Application ___________
Utilities needed ___________
Special Operating Instructions _________________________________________________
Media _______________________________________ Quantity _____

                             Philips Confidential

<PAGE>

EXHIBIT 3:  ACCOUNT REPRESENTATIVES

SUPPLIER:
                                                              Copy to:
Name
     ---------------------------------------
Title
      --------------------------------------
Address
       -------------------------------------

Phone
      --------------------------------------

PHILIPS:
                                                              Copy to:
Name
     ---------------------------------------
Title
      --------------------------------------
Address
       -------------------------------------

Phone
      --------------------------------------

HOLDER:
Name
     ---------------------------------------

                             Philips Confidential

<PAGE>

                           EXHIBIT G -[****] AGREEMENT

1.   This Agreement is effective as of _____4/01/03______ (Effective Date)
     between Philips Medical Systems, 3000 Minuteman Road, Andover, MA 01810
     USA, and BRAEMAR INC., BURNSVILLE, MN 55337

2.   The intent of this Agreement is to outline items and topics specific to the
     [****] ([****]) Program. This Agreement, and attached exhibits, represent
     the entire agreement of the parties with respect to supply of Philips
     Product and notice of objection to any additional or different terms or
     conditions is hereby given. No modification of any of the terms or
     conditions of this Agreement shall be binding on either party unless in
     wilting and signed by the authorized representative of each party. In the
     event of a conflict between the terms in the body of this Agreement and the
     terms in the Exhibits to this Agreement or purchase order terms, the terms
     stated in the body of this Agreement shall control.

3.   Supplier shall deliver the finished goods inventory listed in Exhibit B to
     Philips as Philips Product.

4.   The Agreement Term shall be for a period of [ONE (1) YEAR], unless
     otherwise terminated. This Term may be extended by mutual agreement between
     Philips and Supplier. Upon expiration of the Term, existing stock will be
     carried over to the next agreement.

5.   This [****] Agreement may be terminated at the option of either party upon
     [SIXTY (60)] days written notice to the other. Philips will only be
     responsible for finished goods inventory as described in Exhibit A plus raw
     materials and work in process required to support the Upper Stock Limits
     (USL) and Lower Stock Limits (LSL) for the finished goods inventory, up to
     the maximum commitment levels associated with each part number.

     Upon notice of termination of Agreement, Supplier agrees (a) to offer
     Philips first right of purchase, then (b) to dispose of finished goods
     inventory described in Exhibit A, raw materials and work in process at no
     charge to Philips where possible, and to inform Philips of potential
     charges for disposal otherwise. Supplier agrees not to sell, transfer,
     distribute or otherwise convey any part, component, product or service --
     bearing or incorporating Philips Marks, part numbers or other identifiers,
     including any Philips packaging, copyrights or code, to any other party.
     Upon Philips approval, Supplier will remove from all Philips Products at
     Supplier any such Philips Marks or identifiers, even if such removal would
     require destruction of the Philips Products. Supplier further agrees not to
     represent that such Philips Products are built for Philips or to Philips
     specifications. Supplier will defend and indemnify Philips against any
     claims, losses, liabilities, costs or expenses that Philips may incur as a
     result of Supplier's breach of this obligation.

     The rights and obligations of this Agreement, which by their nature extend
     beyond the termination or expiration of this Agreement, shall survive and
     continue after any termination or expiration of this Agreement.

6.   Philips will issue blanket purchase orders to serve as authorizations for
     receipt of Philips Product. Supplier will use the [****] forecasts, USL and
     LSL in determining shipment quantity and frequency for each Philips Product
     listed in Exhibit A. At any time during the term of this agreement, [****]
     forecast quantities may be increased or decreased by Philips.

                             Philips Confidential

<PAGE>

     If during the Term changed prices or price formulas are put in effect by
     mutual agreement of Philips and Supplier, or reduced prices or price
     formulas are otherwise put in effect by Supplier, such prices or price
     formulas (if resulting in lower prices than the then current price) will
     apply to all purchase orders issued by Philips after the effective date of
     such prices or price formulas and to all unshipped purchase orders.

7.   Supplier has the responsibility to direct their procurement, production,
     and shipping activities in part by utilizing the tools/data available in
     the Noctume daily reports to deliver Philips Product at levels driven by
     the agreed upon metrics/parameters. The primary measures of success are the
     Supplier's ability to maintain inventory levels between the USL and LSL,
     and further to meet the targeted inventory levels for each part. If due to
     Supplier's failure to timely ship Philips Product the specified method of
     transportation would not permit Supplier to maintain the LSL, the actions
     and consequences specified in Section 3.2 of Philips Purchase Order Terms
     and Conditions ([****]) apply. If the Supplier exceeds the USL by more than
     three days of inventory over the Average Usage reported by Nocturne for the
     previous thirty (30) days, the actions and consequences specified in
     Section 3.3 of Philips Purchase Order Terms and Conditions ([****]) apply.

8.   The parties designated the following persons as their agreement
     Coordinators. Each party will advise the other party in writing of any
     successor or designee of the named Agreement Coordinator. Unless otherwise
     agreed by the parties, notices concerning this Agreement will be provided
     to the appropriate Agreement Coordinator and addressed as follows:

-------------------------------------- -----------------------------------------
         PHILIPS MEDICAL SYSTEMS                     BRAEMAR INC.
-------------------------------------- -----------------------------------------
Coordinator:  [****]                    Coordinator: Harry Strandquist President
-------------------------------------- -----------------------------------------
[****]                                  11481 RUPP DRIVE
[****], [****]                          BURNSVILLE, MINNESOTA 55337-1276
-------------------------------------- -----------------------------------------
Phone:  [****]                          Phone:  952-882-6543
Fax:  [****]                            Fax:  952-882-6550
-------------------------------------- -----------------------------------------
By signing and dating this document, the parties below indicate their agreement
with and acceptance of this Agreement, including all Exhibits.

                                              /s/ Harry Strandquist
  --------------------------------            ----------------------------------
  Name                 Date                   Name                      Date
  Title:                                      Title: President & CEO
        ---------------------------                 ----------------------------
        PHILIPS MEDICAL SYSTEMS                         BRAEMAR INC.

                             Philips Confidential

<PAGE>

              EXHIBIT H- NEW EVENT RECORDER WITH LCD SPECIFICATION
                              ([****] REPLACEMENT)

1.   SCOPE

This device is intended to replace the [****] model [****] product. The design
is to incorporate the [****] case with new LCD and utilize the new technology
(ER800) platform. Hardware, interfaces, and programming, etc. will be the same
as existing [****] device as much as possible to speed time to market and
minimize costs. This document is to define the market requirements for an EGG
measurement device to be used by the patient in the home. The device will
automatically send the ECG data file via RF to another device in the house. The
cost of the device is a primary consideration. Cost goal does not include
accessories (manuals, cases, lead set, or batteries) but these designs are to be
equally cost effective.

This document is to be superseded by an Engineering Specification at an
appropriate point in the project as defined by the project plan.

2.   APPLICABLE DEVICE REQUIREMENTS: THE DEVICE WILL MEET THE REQUIREMENTS OF
     THE FOLLOWING:
     2.1.  ANSI/AAMI EC38-1998
     2.2.  FDA 510K
     2.3.  Medical Device Directive
     2.4.  FDAQSR
     2.5.  EN60601-1-1 Safety
     2.6.  EN60601-1-2 Emissions & Immunity
     2.7.  EN60601-2-47

3.   DEVICE DESIGN

     3.1.  The [****] is to incorporate all the features and functions of the
           current [****] and the new ER800 series device with the following
           requirements of this document.

     3.2.  Physical Requirements

         3.2.1.   Case Design
                  3.2.1.1.     [****]
                  3.2.1.2.     [****]
                  3.2.1.3.     [****]
                  3.2.1.4.     [****]
                  3.2.1.5.     [****]
                  3.2.1.6.     [****]
                  3.2.1.7.     [****]
                  3.2.1.8.     [****]
                  3.2.1.9.     [****]
                  3.2.1.10.    [****]
                  3.2.1.11.    [****]
                  3.2.1.12.    [****]
                  3.2.1.13.    [****]

         3.2.2.   Case LCD
                  3.2.2.1.     [****]
                  3.2.2.2.     [****]

         3.2.3.   Case Power
                  3.2.3.1.     [****]
                  3.2.3.2.     [****]
                  3.2.3.3.     [****]
                  3.2.3.4.     [****]

         3.2.4.   Case Ruggedness
                  3.2.4.1.     [****]
                  3.2.4.2.     [****]
                  3.2.4.3.     [****]
                  3.2.4.4.     [****]

         3.2.5.   Patient Cabling
                  3.2.5.1.     [****]
                  3.2.5.2.     [****]
                  3.2.5.3.     [****]
                  3.2.5.4.     [****]
                  3.2.5.5.     [****]

         3.2.6.   Programming
                  3.2.6.1.     [****]
                  3.2.6.2.     [****]
                  3.2.6.3.     [****]
                  3.2.6.4.     [****]
                  3.2.6.5.     [****]

         3.2.7.   Speaker
                  3.2.7.1.     [****]
                  3.2.7.2.     [****]
                  3.2.7.3.     [****]
                  3.2.7.4.     [****]

     3.3.Functional requirements

         3.3.1 .Algorithm
                  3.3.1.1.     [****]
                  3.3.1.2.     [****]
                  3.3.1.3.     [****]
                  3.3.1.4.     [****]
                  3.3.1.5.     [****]
                  3.3.1.6.     [****]
                  3.3.1.7.     [****]
                  3.3.1.8.     [****]

         3.3.2.   Data Communication
                  3.3.2.1.     [****]
                  3.3.2.2.     [****]
                  3.3.2.3.     [****]
                  3.3.2.4.     [****]
                  3.3.2.5.     [****]
                  3.3.2.6.     [****]
                  3.3.2.7.     [****]
                  3.3.2.8.     [****]
                  3.3.2.9.     [****]
                  3.3.2.10.    [****]

         3.3.3.   Patient Cable
                  3.3.3.1.     [****]
                  3.3.3.2.     [****]
                  3.3.3.3.     [****]
                  3.3.3.4.     [****]
                  3.3.3.5.     [****]
                  3.3.3.6.     [****]

         3.3.4.   Program Protocols - Pre/Post (exact) recording time TBD by
                  Philips
                  3.3.4.1.     [****]
                  3.3.4.2.     [****]
                  3.3.4.3.     [****]
                  3.3.4.4.     [****]
                  3.3.4.5.     [****]
                               3.3.4.5.1. [****]
                               3.3.4.5.2. [****]
                               3.3.4.5.3. [****]
                               3.3.4.5.4. [****]
                               3.3.4.5.5. [****]
                               3.3.4.5.6. [****]
                  3.3.4.6.     [****]

         3.3.5.   Audible Indicators - Polite Tones
                  3.3.5.1.     [****]
                  3.3.5.2.     [****]
                  3.3.5.3.     [****]
                  3.3.5.4.     [****]
                  3.3.5.5.     [****]
                  3.3.5.6.     [****]

                             Philips Confidential

<PAGE>

         3.3.6.   Battery Life
                  3.3.6.1.     [****]
                  3.3.6.2.     [****]

         3.3.7.   Upgrade Strategy
                  3.3.7.1.     [****]
                  3.3.7.2.     [****]
                  3.3.7.3.     [****]

     3.4.  Electrical Requirements similar new technology ER800 platform

         3.4.1.   [****]
         3.4.2.   [****]
         3.4.3.   [****]
         3.4.4.   [****]
         3.4.5.   [****]
         3.4.6.   [****]
         3.4.7.   [****]
         3.4.8.   [****]
         3.4.9.   [****]
         3.4.10.  [****]

     3.5.  Data Communications requirement

         3.5.1.   [****]
         3.5.2.   [****]
         3.5.3.   [****]

     3.6.  Patient Interface requirements

         3.6.1.   [****]
         3.6.2.   [****]
         3.6.3.   [****]
         3.6.4.   [****]
                  3.6.4.1. [****]
                  3.6.4.2. [****]
                  3.6.4.3. [****]
                  3.6.4.4. [****]
                  3.6.4.5. [****]
                  3.6.4.6. [****]

     3.7.Language Support requirements

         3.7.1.   Same as [****]
         3.7.2.   Will support Philips CE Mark
         3.7.3.   Operation/Service manuals must be localized and available on a
                  single CD - Dutch, French, German, Italian, Spanish

     3.8.  ESD/EMC requirements
         3.8.1.   [****]
         3.8.2.   [****]

4.   DESIGN VERIFICATION AND VALIDATION

     4.1.  [****]
     4.2.  [****]
     4.3.  [****]

5.   PROJECT DELIVERABLES

     5.1.  [****]
     5.2.  [****]
     5.3.  [****]
     5.4.  [****]
     5.5.  [****]
     5.6.  [****]
     5.7.  [****]

6.   NRE REQUIREMENTS

     6.1.[****]

         6.1.1.   [****]
                  6.1.1.1.     [****]
                  6.1.1.2.     [****]
                  6.1.1.3.     [****]

         6.1.2.   [****]

         6.1.3.   [****]

         6.1.4.   [****]

         6.1.5.   [****]

7.   DEVICE COST

         7.1. Complete kit cost including device, cable, case, IFU, physician
              user IFU, foam, patient use card will be $[****] per unit.

8.   PRODUCT FORECAST

     8.1.  Philips to provide six month rolling forecast

9.   PROJECTED SCHEDULE

     9.1.[****]
     9.2.[****]
     9.3.[****]
     9.4.[****]

                             Philips Confidential

<PAGE>

           EXHIBIT I - NEW EVENT RECORDER WITHOUT LCD SPECIFICATION
                              ([****] REPLACEMENT)

1.0 SCOPE
This document is intended to define the market requirements for a next
generation Philips Event Recorder targeted at the low cost market segment. The
device is not to have an LCD and provide similar functionality as the [****]
with ER 800 platform technology - I channel recording, with and without
algorithm, basic feature set. It is designed to be a low end offering along with
an updated [****] with LCD full-featured model. The Low Cost ER will be cased in
the [****] case (without LCD) and will be offered with the updated LCD model to
Philips customers. The Low Cost ER will replace the [****] device. This document
is to define the market requirements for an ECG measurement device to be used by
the patient in the home. The device will automatically send the ECG data file
via RF to another device in the house. The cost of the device is a primary
consideration. Cost goal does not include accessories (manuals, cases, lead set,
or batteries) but these designs are to be equally cost effective. Utilize parts
from the [****] and [****] programs if they are compatible with the design
concepts of this ER. Likely candidates may be patient cables, battery doors,
belt clips, necklaces, program plugs, etc.

2.   APPLICABLE DEVICE REQUIREMENTS: THE DEVICE WILL MEET THE REQUIREMENTS OF
     THE FOLLOWING:
     2.1.  ANSI/AAMI EC38-1998
     2.2.  FDA 510K
     2.3.  Medical Device Directive
     2.4.  FDA QSR
     2.5.  EN60601-1-1 Safety
     2.6.  EN60601-1-2 Emissions & Immunity
     2.7.  EN606601-2-47

3.   DEVICE DESIGN

     3.1.  The [****] is a low cost design intended to incorporate the BASIC
           features and functions of the ER800 series device with the following
           requirements of this document. The device will not incorporate lead
           loss or two channel recording.

     3.2.  Physical Requirements

         3.2.1.   Case Design
                  3.2.1.1.     [****]
                  3.2.1.2.     [****]
                  3.2.1.3.     [****]
                  3.2.1.4.     [****]
                  3.2.1.5.     [****]
                  3.2.1.6.     [****]
                  3.2.1.7.     [****]
                  3.2.1.8.     [****]
                  3.2.1.9.     [****]
                  3.2.1.10.    [****]
                  3.2.1.11.    [****]

         3.2.2.   Case Power
                  3.2.2.1.     [****]
                  3.2.2.2.     [****]
                  3.2.2.3.     [****]

         3.2.3.   Case Ruggedness
                  3.2.3.1.     [****]
                  3.2.3.2.     [****]
                  3.2.3.3.     [****]
                  3.2.3.4.     [****]

         3.2.4.   Patient Cabling
                  3.2.4.1.     [****]
                  3.2.4.2.     [****]

         3.2.5.   Programming
                  3.2.5.1.     [****]
                  3.2.5.2.     [****]
                  3.2.5.3.     [****]
                  3.2.5.4.     [****]
                  3.2.5.5.     [****]
                  3.2.5.6.     [****]
                  3.2.5.7.     [****]
                  3.2.5.8.     [****]
                  3.2.5.9.     [****]
                  3.2.5.10.    [****]
                  3.2.5.11.    [****]
                  3.2.5.12.    [****]
                  3.2.5.13.    [****]

         3.2.6.   Speaker
                  3.2.6.1.     [****]
                  3.2.6.2.     [****]
                  3.2.6.3.     [****]
                  3.2.6.4.     [****]
                  3.2.6.5.     [****]
                  3.2.6.6.     [****]

     3.3.  Functional requirements

         3.3.1.   Algorithm
                  3.3.1.1.     [****]
                  3.3.1.2.     [****]
                  3.3.1.3.     [****]
                  3.3.1.4.     [****]
                  3.3.1.5.     [****]
                  3.3.1.6.     [****]
                  3.3.1.7.     [****]
                  3.3.1.8.     [****]
                  3.3.1.9.     [****]

         3.3.2.   Recording Time
                  3.3.2.1.     [****]
                  3.3.2.2.     [****]
                  3.3.2.3.     [****]
                  3.3.2.4.     [****]
                  3.3.2.5.     [****]

         3.3.3.   Data Communication
                  3.3.3.1.     [****]
                  3.3.3.2.     [****]
                  3.3.3.3.     [****]
                  3.3.3.4.     [****]
                  3.3.3.5.     [****]
                  3.3.3.6.     [****]
                  3.3.3.7.     [****]
                  3.3.3.8.     [****]
                  3.3.3.9.     [****]
                  3.3.3.10.    [****]
                  3.3.3.11.    [****]
                  3.3.3.12.    [****]
                  3.3.3.13.    [****]

                             Philips Confidential

<PAGE>

         3.3.4.   Audible Indicators - Polite Tones
                  3.3.4.1.     [****]
                  3.3.4.2.     [****]
                  3.3.4.3.     [****]
                  3.3.4.4.     [****]
                  3.3.4.5.     [****]
                  3.3.4.6.     [****]

         3.3.5.   Battery Life
                  3.3.5.1.     [****]
                  3.3.5.2.     [****]

         3.3.6.   Upgrade Strategy
                  3.3.6.1.     [****]
                  3.3.6.2.     [****]

     3.4.  Electrical Requirements similar new technology ER800 platform

         3.4.1.   [****]
         3.4.2.   [****]
         3.4.3.   [****]
         3.4.4.   [****]
         3.4.5.   [****]
         3.4.6.   [****]
         3.4.7.   [****]
         3.4.8.   [****]
         3.4.9.   [****]
         3.4.10.  [****]

     3.5.  Data Communications requirement

         3.5.1.   [****]
         3.5.2.   [****]
         3.5.3.   [****]

     3.6.  Patient Interface requirements

         3.6.1.   [****]
         3.6.2.   [****]
         3.6.3.   [****]
         3.6.4.   [****]

     3.7.  Language Support requirements

         3.7.1.   Same as [****]
         3.7.2.   Will support Philips CE Mark
         3.7.3.   Operation/Service manuals must be localized and available on a
                  single CD - Dutch, French, German, Italian, Spanish

     3.8.  ESD/EMC requirements

         3.8.1.   [****]
         3.8.2.   [****]

4.   DESIGN VERIFICATION AND VALIDATION

     4.1.  [****]
     4.2.  [****]
     4.3.  [****]

5.   PROJECT DELIVERABLES

     5.1.  [****]
     5.2.  [****]
     5.3.  [****]
     5.4.  [****]
     5.5.  [****]
     5.6.  [****]
     5.7.  [****]

6.   NRE REQUIREMENTS

     6.1.[****]
     6.2.[****]
     6.3.[****]

7.   DEVICE COST

     7.1.  The device is intended to fill a low cost product niche for Event
         Recording identified by Philips. Complete kit cost (no LCD, without
         algorithm) including device, cable, case, IFU, physician user IFU,
         foam, patient use card will be $[****] per unit.
     7.2.  Complete kit cost (no LCD, with algorithm) including device, cable,
         case, IFU, physician user IFU, foam, patient use card will be $[****]
         per unit.

8.   PRODUCT FORECAST

     8.1.  Philips to provide six month rolling forecast. Currently projected at
         [****] levels but Philips has had historically low unit sales
         experience. Therefore, this device will be launched with minimal
         inventory and sales will drive inventory levels and finished goods
         levels.

9.   PROJECTED SCHEDULE

     9.1.  [****]
     9.2.  [****]
     9.3.  [****]

                             Philips Confidential

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