Document:

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                                                                    Exhibit 10.4

                              EMPLOYMENT AGREEMENT

     This Employment Agreement dated May 12, 1998 is made by and between Escalon
Medical Corp. (the "Company"), a California corporation with its principal
offices located at 351 East Conestoga Road, Wayne, Pennsylvania 19087, and
Richard J. DePiano (the "Executive"), an individual residing at 44 Righters Mill
Road, Gladwyne, Pennsylvania 19035.

                                   RECITALS:

     The parties hereto desire to enter into this Agreement to set forth the
terms and conditions pursuant to which the Executive will be employed as
Chairman and Chief Executive Officer of the Company and to address certain other
matters in connection with such employment.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:

     1.   EMPLOYMENT.

          1.1  POSITION AND DUTIES. The Company hereby employs the Executive as
Chairman and Chief Executive Officer of the Company upon the terms and
conditions set forth in this Agreement, and the Executive hereby accepts such
employment. Subject to the direction and control of the Board of Directors
(the "Board"), the Executive, as Chairman and Chief Executive Officer, shall
perform such executive, managerial and administrative duties as are from time
to time assigned to him by the Board and are consistent with his position as
Chairman and Chief Executive Officer.

          1.2  OBLIGATIONS OF THE EXECUTIVE. The Executive shall devote
sufficient business time, attention and energies to the business of the Company
to perform his duties hereunder. The Company understands that the Executive has
been engaged and will continue to engage in certain other business and
investment activities and agrees that the Executive may continue to engage in
such other activities provided that the Executive shall continue to fulfill the
obligations of his position with the Company as provided in the preceding
sentence.

     2.   TERM OF AGREEMENT. The initial term of this Agreement shall commence
on the date hereof and shall continue through June 30, 2001. This Agreement
shall be renewed automatically on July 1 of each year for successive terms of
three years each, unless either party notifies the other party at least 30 days
prior to such date of such party's determination not to renew this Agreement
beyond the then existing term. It is the intention of the parties that this
Agreement be "Evergreen" unless (i) either party gives written notice to the
other party of his or its intention
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not to renew this Agreement as provided above or (ii) this Agreement is
terminated pursuant to Section 7 hereof. Each reference herein to "the term of
this Agreement" shall include the initial term and any renewal term.

     3.   BASE SALARY. The Executive shall be paid, as base compensation for
all services to be rendered by the Executive hereunder, a salary at the rate of
$240,000 per year, payable on a current basis in accordance with the Company's
standard payroll practices for executives. Such annual rate of base
compensation in effect at any time during the term of this Agreement shall
hereinafter be referred to as the "Base Salary."

     4.   BONUS. At the end of each fiscal year of the Company that ends during
the term of this Agreement, the Compensation Committee of the Board shall
determine whether to pay to the Executive a bonus (the "Bonus") with respect to
such fiscal year. The award of any Bonus shall be in the sole discretion of the
Compensation Committee.

     5.   ADDITIONAL BENEFITS. While this Agreement is in effect, the Company
shall provide the following additional benefits, which benefits shall be
continued after the termination of this Agreement to the extent provided in
Section 7.2 hereof:

          5.1  VACATION. The Executive shall receive six weeks paid vacation
each calendar year.

          5.2  AUTOMOBILE OR AUTOMOBILE ALLOWANCE. The Company shall provide
the Executive with an automobile allowance of $800 per month.

          5.3  EXPENSE REIMBURSEMENT. Upon submission of proper vouchers, the
Company shall pay or reimburse the Executive for all necessary business and
entertainment expenses reasonably incurred by the Executive in connection with
the business of the Company.

          5.4  INSURANCE BENEFITS. The Company shall reimburse the Executive
medical, hospital, disability, life and other insurance benefits having a total
cost comparable to the cost of such benefits provided to the other senior
executive officers of the Company.

          5.5  RETIREMENT PLAN. The Executive shall be entitled to participate
in any profit sharing or pension plan made available to full-time employees of
the Company in accordance with the terms of such plans.

          5.6  OTHER BENEFITS. Without limiting any of the foregoing benefits,
the Executive shall receive all benefits and participate in all benefit
programs generally made available to other senior executive officers of the
Company.

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     6.   STOCK OPTIONS. Promptly after the date of this Agreement, the
Company's Board of Directors shall consider the grant to the Executive of
additional incentive stock options exercisable for the purchase of shares of the
Company's Common Stock at a per share exercise price equal to the fair market
value per share of the Company's Common Stock on the date of grant. Such stock
options shall be vested in full on the date of grant.

     7.   TERMINATION.

          7.1  TERMINATION UPON DEATH. The Executive's employment hereunder and
any and all rights under this Agreement or otherwise as an employee of the
Company shall terminate upon the death of the Executive, and thereafter the
Company shall have no liability or obligation to the Executive's estate or legal
representatives hereunder, provided that the Executive shall be entitled to
receive the Base Salary, Bonus and other compensation earned by the Executive,
but not paid, prior to his death.

     7.2  OTHER TERMINATION. The Company may terminate the Executive's
employment at any time, with or without cause. If the Company terminates the
Executive's employment during the term of this Agreement, the Company shall pay
to the Executive, as severance pay or liquidated damages or both, salary
continuance equal to his full Base Salary that would have been paid to the
Executive had the Executive's employment continued hereunder for a period of one
year from the date of termination of service. If a termination of the
Executive's employment occurs pursuant to this Section 7.2, the Company shall
continue to provide the benefits described in Section 5 hereof for one year
after the date of termination unless the Executive is paid such severance
amounts in a lump sum, in which event all entitlement to benefit continuation
shall cease upon the payment of such lump sum.

     8.   CONFIDENTIALITY; PUBLIC STATEMENTS. The Company may, pursuant to the
Executive's employment hereunder, provide to him and confide in him business
methods and systems, techniques and methods of operation developed at great
expense by the Company ("Trade Secrets") and which the Executive recognizes to
be unique assets of the Company hereunder, directly or indirectly, in any manner
utilize or disclose to any person, firm, corporation, association or other
entity, except to directors, consultants or employees of the Company in the
course of his duties and where required by law: (a) any such Trade Secrets, (b)
any sales prospects, customers lists, products, research or data of any kind, or
(c) any information relating to strategic plans, sales costs, profits or the
financial condition of the Company or any of its customers or prospective
customers, which are not generally known to the public or recognized as standard
practice in the industries in which the Company shall be engaged. The Executive
further covenants and agrees that he will promptly deliver to the Company all
tangible evidence of the knowledge and information described in (a), (b)
and (c), above, prior to or at the termination of the Executive's employment.

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     9.   Entire Agreement. Except for any agreement evidencing the stock
options to be granted pursuant to Section 6 hereof, this Agreement constitutes
the full and complete understanding and agreement of the Executive and the
Company respecting the subject matter hereof, and supersedes all prior
understandings and agreements, oral or written, express or implied. This
Agreement may not be modified or amended orally, but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.

     10.  Headings. The section headings of this Agreement are for convenience
of reference only and are not to be considered in the interpretation of the
terms and conditions of this Agreement.

     11.  Definition of Company. The Company is governed by its Board and,
accordingly, all references in this Agreement to the actions and discretion of
the Company are meant and deemed to refer to the actions and discretion of the
Board.

     12.  Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when sent
by certified mail, postage prepaid, addressed as follows:

          If to the Company:

               Escalon Medical Corp.
               351 East Conestoga Road
               Wayne, PA 19087
               Attn: Compensation Committee Chairman

          If to the Executive, at his personal residence as set forth above.

Any party may change the persons and address to which notices or other
communications are to be sent by giving written notice of such change to the
other party in the manner provided herein for giving notice.

     13.  Waiver of Breach. No waiver by either party of any condition or of the
breach by the other of any term or covenant contained in this Agreement, whether
by conduct or otherwise, in any one or more instances shall be deemed or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition, or of the breach of any other term or covenant
set forth in this Agreement. Moreover, the failure of either party to exercise
any right hereunder shall not bar the later exercise thereof.

     14.  Inure and Bind; Nonalienation. This Agreement shall inure to the
benefit of and be binding on the parties and their respective successors in
interest. The Executive shall not pledge, hypothecate, anticipate or in any way
create a lien

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upon any amounts provided under this Agreement. This Agreement and the benefits
payable hereunder shall not be assignable by either party without the prior
written consent of the other; provided, however, that nothing in this Section
shall preclude the Executive from designating a beneficiary to receive any
benefit payable hereunder upon his death, or the executors, administrators or
other legal representatives of the Executive or his estate from assigning any
rights hereunder to which they become entitled to the person or persons
entitled thereto.

    15. GOVERNING LAW. This Agreement is entered into and shall be construed in
accordance with the laws of the Commonwealth of Pennsylvania.

    16. INVALIDITY OR UNENFORCEABILITY. If any term of provision of this
Agreement is held to be invalid or unenforceable, for any reason, such
invalidity or unenforceability shall not affect any other term or provision
hereof and this Agreement shall continue in full force and effect as if such
invalid or unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein.

     17. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach hereof, shall be settled by arbitration in
Philadelphia, Pennsylvania, in accordance with the laws of the Commonwealth of
Pennsylvania by three arbitrators, one of whom shall be appointed by the
Company, one by the Executive and third of whom shall be appointed by the first
two arbitrators. If either party fails to select an arbitrator within 30 days
after written notice of demand for arbitration from the other, the other party
may have such arbitrator appointed by the American Arbitration Association. If
the first two arbitrators cannot agree on the appointment of a third arbitrator
within 30 days after their selection, then the third arbitrator shall be
appointed by the American Arbitration Association. The arbitration shall be
conducted in accordance with the rules of the American Arbitration Association.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction hereof. In the event that it shall be necessary or desirable
from the Company and/or the Executive to retain legal counsel and/or incur other
costs and expenses in connection with the enforcement of any or all of either
party's rights under this Agreement, each party shall bear its own costs and
expenses in connection with the enforcement of its rights (including the
enforcement of any arbitration award in court), regardless of the final outcome.

    18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

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     IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written.

                                       ESCALON MEDICAL CORP.

                                       By: /s/ Ronald L. Hueneke
                                          --------------------------------------
                                          Title: President COO
                                                --------------------------------

                                       /s/ Richard J. DePiano
                                       -----------------------------------------
                                       Richard J. DePiano

                                       Approved:

                                       /s/ Robert J. Kunze
                                       -----------------------------------------
                                       Robert J. Kunze

                                       /s/ Jay L. Federman, M.D.
                                       -----------------------------------------
                                       Jay L. Federman, M.D.

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                                                                    Exhibit 10.5

                      NON-EXCLUSIVE DISTRIBUTOR AGREEMENT

This Non-Exclusive Distributor Agreement ("this Agreement"), effective as of the
date of the latest signature below (the "Effective Date") is entered into by
SCOTT MEDICAL PRODUCTS ("Scott"), located at 6141 Easton Road, Plumsteadville,
Pennsylvania 18949-0310, and ESCALON OPTHALMIC, INC. ("Escalon"), located at 351
Easton Conestoga Road, Wayne, PA 19087.

                                    RECITALS

A.   Scott and Escalon are parties to a Distributorship Agreement, dated as of
     September 8, 1992 (the "Former Agreement"), which the parties desire to
     terminate.

B.   Scott and Escalon desire to enter into this Agreement to allow Escalon the
     non-exclusive right to distribute products manufactured by Scott Medical
     Products. The products covered in this agreement ("Products") are limited
     to those products set forth in Exhibit A attached hereto and made a part
     hereof, as amended from time to time pursuant to Section 2.7.

THEREFORE, in consideration of the mutual promises contained in the following
provisions, and intending to be legally bound by this Agreement, the parties
agree as follows:

                  ARTICLE I -- TERMINATION OF FORMER AGREEMENT

1.1  Termination. The Former Agreement is hereby terminated effective as of the
     Effective Date. In connection with the termination of the Former Agreement,
     the parties agree that:

     (a.)   Any products ordered by Escalon under the Former Agreement and not
            shipped by Scott prior to the Effective Date shall be deemed to have
            been ordered under this Agreement and shall be shipped by Scott and
            paid for by Escalon in accordance with the terms of this Agreement.

     (b.)   Any products shipped by Scott under the Former Agreement and not
            paid for by Escalon as of the Effective Date shall be paid for by
            Escalon in accordance with the pricing and terms current at the time
            the product was shipped.

1.2  Release. In consideration of the execution and delivery by Scott of this
     Agreement, and the rights granted to Escalon in this Agreement, Escalon
     does hereby, for itself, its affiliates, successors and assigns, release,
     disclaim and discharge any and all manner of actions and causes of action,
     suits, debts, accounts, covenants, contracts, agreements, damages, claims,
     demands and liabilities whatsoever, of every name and nature, in law or
     equity, or otherwise (any of the foregoing, a "Claim"), which any of them
     ever had, now have, or which they hereafter can, shall or may have, against
     Scott and its affiliates, officers, directors, shareholders, distributors
     and customers under the Former Agreement or by reason of Scott's
     development, manufacture and sale of products to Escalon or any other
     person, or for infringement of any patents owned by, or licensed or
     assigned to, Escalon or any of its affiliates (filed in the United States
     or elsewhere) for, or relating to,
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ophthalmic gases, whether a Claim arises or arose out of any agreement, oral or
written, a course of conduct or otherwise. Escalon covenants and agrees that it
will forever refrain from, directly or indirectly, instituting, prosecuting,
maintaining or pressing any Claim against Scott or any other person based upon
any matter purported to be released hereby.

                         ARTICLE 2 - Supply of Products

2.1  General. Scott shall use commercially reasonable efforts to supply the
Products to Escalon in accordance with Escalon's written purchase orders and the
terms and conditions of this Agreement.

2.2  Estimated Purchases. Escalon will provide Scott at the beginning of each
month with a rolling twelve (12) month forecast of its requirements for the
Products, such forecasts to be considered good-faith estimates only, for
planning purposes, and not to be considered as guarantees of the volumes or
timing of such requirements; provided that the first three (3) months of such
rolling forecast shall constitute a firm commitment unless modified by the
parties by subsequent written agreement.

2.3  Exclusivity of Supplier. Scott shall be considered Escalon's exclusive
supplier of the Products and Escalon agrees to purchase all of its requirements
for the Products from Scott. If Scott is unable to meet the required demand for
the Products for four consecutive calendar months, then Escalon will not be
required to purchase all of its requirements for the Products from Scott and may
purchase from an additional supplier the amount of Products not available from
Scott. Escalon will resume purchasing all of its requirements of the Products
once Scott has demonstrated that it once again has the ability to supply Escalon
with the amount of the Products needed.

2.4  Specifications. All the Products that Scott supplies shall meet or exceed
the relevant specifications set forth in Exhibit A (the "Specifications").

2.5  Manufacturing. All the Products that Scott supplies shall be manufactured
in compliance with or pursuant to: (a) all applicable CGMP procedures; (b) all
other applicable FDA regulations or requirements; (c) all other applicable
federal, state, and local laws and regulations; and (e) all required FDA and
other regulatory validations, permits, registrations, licenses, and approvals.

2.6  Manufacture of Finished Products by Escalon. Upon receipt of the Products
from Scott, Escalon shall integrate the Products into finished products as
components thereof. Escalon shall package and label the finished products in a
manner mutually agreeable to the parties and in conformity with applicable law
and governmental approvals.

2.6  Modifications to Products. From time to time Scott may modify, alter or
improve the Products listed in Exhibit A in whole or in part. Any such
modification, alteration or improvement of the Products shall only occur with
the prior written consent of Escalon, except that Escalon's consent shall not be
required if Scott determines that the modification, alteration or improvement is
necessary in order to correct a defect in a Product or enhance the safety of a
Product, or if the modification, alteration or improvement is required by any
law or regulation or is in conformity with any administrative or regulatory
order or standard. In the event Escalon fails to respond within 30 days of
receipt of notice of a proposed modification, alteration or improvement,

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       the modification, alteration or improvement shall be deemed approved by
       Escalon. The term "Products" shall be deemed to include the modified,
       altered or improved Products.

2.8    Price. The prices for all Products shall be as set forth in Exhibit B
       attached hereto and made a part hereof. Such prices shall remain firm
       for one year after the signing of the Agreement. Thereafter, these
       prices shall be subject to adjustment at the discretion of Scott.

2.9    Escalon Purchase Orders. A specific commitment to purchase the Products
       will be established by Escalon's issuance of a purchase order against
       this Agreement. All Escalon purchase orders shall be deemed to
       incorporate the pricing, delivery, Specification, and other terms and
       conditions contained in this Agreement. None of the terms and
       conditions set forth on any purchase or order form, invoice or like
       document shall change or modify the provisions of this Agreement, unless
       mutually agreed to by the parties in writing. Each purchase order shall
       be considered firm, and shall not be subject to change or cancellation
       without Scott's written consent and will be subject to Scott's normal
       cancellation fees. A purchase order shall be deemed to have been issued
       on the date that it bears if it is received by Scott no later than the
       fourth business day following that date; if it is received later than
       the fourth business day, it shall be considered to have been issued when
       received by Scott.

2.10   Payment. Escalon's payment for all orders of the Products shall be due
       net 30 days after shipment from Scott.

2.11   Interest. Interest shall accrue on any delinquent amounts owed by
       Escalon for Products at the lesser of 10% per year, or the maximum rate
       permitted by applicable law.

2.12   Shipment. Scott shall ship each order of the Products to the destination
       specified in Escalon's purchase order. All shipments will be F.O.B.
       Plumsteadville, PA. Escalon may specify in its purchase order the common
       carrier to be used. If Escalon fails to specify a qualified common
       carrier, Scott shall select the common carrier.

2.13   Risk of Loss. Title and all risk of loss of or damage to the Products
       (other than loss or damage resulting from the acts or omissions of
       Scott, including without limitation acts or omissions in packing the
       Products) will pass to Escalon, or to such financing institution or
       other party or parties as may have been designated to Scott by Escalon,
       upon delivery by Scott to a mutually agreed upon carrier in accordance
       with Section 2.9.

2.14   Partial Delivery. With Escalon's prior written consent, Scott may make
       partial shipment of Escalon's orders, to be separately invoiced and paid
       for when due.

2.15   Delivery Schedule; Delays. Scott will use commercially reasonable efforts
       to meet Escalon's requested delivery schedules for the Products, but
       Scott reserves the right to refuse, cancel or delay shipment to Escalon
       when Escalon is delinquent in payments to Scott, or when Escalon has
       failed to perform its obligations under this Agreement or any other
       Agreement between Escalon and Scott. Reasonable delay in delivery of any
       order shall not relieve Escalon of its obligation to accept the delivery.
       Should orders for Products exceed Scott's available inventory, Scott will
       allocate its available inventory among its customers on a pro rata basis
       based upon orders for the preceding six months. In any event, Scott shall
       not be liable for indirect, consequential, or special damages to

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                                                                               4

     Escalon for failure to deliver or for any delay or error in delivery of
     Products for any reason whatsoever.

2.16 Sales and Use Tax. Escalon shall pay any and all applicable sales or use
     taxes or any other assessment levied upon the sale, transportation,
     delivery, use or consumption of the Products or upon the cylinders in
     connection with any order of the Products.

2.17 Certificate of Analysis. Scott shall provide a certificate of compliance
     for each lot produced for each item of the Products indicating that the
     material has been produced and tested in accordance with the
     Specifications. Scott agrees to provide Escalon (upon request) final
     acceptance and in-process test data to indicate that the process used to
     produce the Products is under control for each lot/batch supplied.

2.18 Acceptance of the Products by Escalon. Escalon shall perform and complete
     its receiving and quality assurance tests and inspections for units of the
     Products shipped to Escalon under this Agreement by no later than 30 days
     after its receipt of such units of the Products from time to time, and
     shall be conclusively deemed to have accepted such units of the Products
     unless it gives written notice of rejection of any such units to Scott
     within such 30 day period and returns the rejected units to Scott within 30
     days after receiving a written return authorization from Scott. Scott shall
     not unreasonably withhold its return authorization and will be deemed to
     have authorized the return of rejected units if it fails to deny such
     return authorization within ten days of receiving Escalon's notice of
     rejection. All shipping charges on authorized returns shall be borne by
     Scott. Escalon acknowledges that the Specification for the Products is as
     set forth in Exhibit A to this Agreement. Escalon's acceptance of the
     Products shall in no way relieve Scott of its obligations and/or warranties
     hereunder.

2.19 Remedies for Failure to Comply with Specification. Should any failure of a
     Product to conform with the Specification appear within the Product
     Warranty Period (as discovered by Escalon) as a result of the testing
     outlined in Section 2.18, and if Escalon gives written notice of such
     failure to Scott within 30 days following discovery of the failure, Scott
     shall replace the nonconforming Product or refund the purchase price
     thereof within 90 days after Escalon's notice to Scott. The foregoing shall
     constitute Escalon's sole remedy with respect to the non-conforming
     Products.

                         ARTICLE 3 -- Escalon's Duties

3.1  No Additional Warranties. Escalon agrees that it will not make any
     representations, guarantees or warranties (whether written or oral)
     regarding the efficacy or any other characteristics of the Products on
     Scott's behalf other than as contained in written promotional literature
     prepared by Scott, or as required by any governmental law, regulation or
     agency.

3.2  Claims. Escalon will provide Scott with copies of all product liability
     claims and complaint letters relating to the Products within 72 hours of
     claim. Scott agrees to promptly notify Escalon of any laws, regulations,
     decrees, orders or judgments of courts, tribunals or government agencies,
     of which Scott is aware, that require any of the Products sold or
     distributed by Escalon to be recalled. If the Products are required by any
     government agency to be recalled, Escalon shall be responsible for properly
     effecting the

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                                                                               5

    recall. The party causing the problem resulting in a recall, decree, order
    or judgment of a court, tribunal or agency shall bear the expense related
    thereto. If both parties contributed to the problem resulting in a recall,
    decree, order or judgment of a court, tribunal or agency, the expenses
    thereof shall be split in proportion to each party's relative
    responsibility. The party liable for the cost of a recall shall retain all
    of the Product so recalled. To the extent that the costs of a recall are
    shared, each party shall be entitled to its pro rata share of the recalled
    Products.

3.3 FDA INSPECTION. Escalon will permit the FDA and corresponding drug
    regulatory agencies of foreign jurisdictions to inspect its manufacturing
    facility for finished products in accordance with applicable laws and
    regulations. Escalon will provide Scott with a copy of all FDA
    correspondence relating to finished products which is reasonably necessary
    to Scott's performance hereunder or which could adversely affect Scott.

3.4 SCOTT ACCESS. On reasonable prior notice to Escalon, Escalon will permit a
    representative employed by Scott to have reasonable access during business
    hours to its manufacturing facility solely for the purposes of auditioning
    Escalon's regulatory compliance and its quality control processes, but the
    representative will not have access to any of Escalon's Confidential
    Information (as defined in Section 5.2).

3.5 COMPLIANCE WITH GOVERNMENTAL APPROVALS. Escalon will sell and distribute the
    Products only as a component of finished products and only in the United
    States of America and in such other countries, nations, territories or other
    political subdivisions for which it has received all required Governmental
    Approvals at Escalon's expense and will do so only in accordance with those
    Governmental Approvals and all applicable laws, rules and regulations.
    "Governmental Approval" as used herein shall mean governmental or other
    licenses, consents or approvals necessary for the resale and distribution of
    finished products by Escalon in any country, nation, territory or other
    political subdivision in which Escalon markets or sells the Products.

3.6 QUALITY CONTROL. From time to time, Escalon will notify Scott in writing of
    any problems or concerns that arise out of its quality control and
    regulatory compliance inspections. Escalon will also notify Scott in writing
    of any material quality control problems of which Escalon has knowledge.
    Upon receipt of notice under this Section 3.6, Scott shall use commercially
    reasonable efforts to endeavor to remedy the problem and shall, within 30
    days after receipt of notice, and monthly thereafter for so long as the
    problem continues, provide Escalon a written report of the status of the
    problem and the measures that have been taken to correct it.

3.7 INSURANCE. Escalon shall obtain and maintain comprehensive or commercial
    general liability insurance coverage including products and completed
    operations coverage, blanket contractual coverage and broad form commercial
    general liability coverages affording a minimum limit of liability of
    $1,000,000 combined single limit for bodily injury/property damage per
    occurrence and a minimum limit of liability of $5,000,000 in the aggregate.
    Such policy of insurance shall name Scott as an additional insured
    thereunder and shall provide Scott with 30 days' prior written notice in the
    event of policy cancellation or a material change in its terms or
    provisions. Escalon will, concurrently or within ten days of its execution
    of this Agreement, deliver a certificate evidencing such insurance to Scott.

<PAGE>   6
                                                                               6

3.8  Continuous Compliance by Escalon. Each finished product sold by Escalon
     shall not be adulterated or misbranded and shall not be an article that may
     not be introduced into interstate commerce pursuant to applicable law. With
     respect to labeling, promotional material, packaging, or other
     representations, Escalon shall indemnify Scott for any liability arising
     from (i) errors in translation performed by Escalon or (ii) Escalon's
     failure to comply with applicable law.

                          ARTICLE 4 -- Scott's Duties

4.1  Documentation Transfer. Scott hereby agrees to provide the necessary
     documentation that will allow Escalon to inspect and distribute the
     Products covered by this Agreement ("Documentation"). For purposes of this
     Section 4.1, Documentation includes, but is not limited to CAD engineering
     drawings detailing the contents and labeling of the Products.

4.2  Escalon Reports. Unless required by applicable law, Scott will not directly
     or indirectly through any third party deliver any report, study or other
     similar documentation received from Escalon pursuant to Article 3 to any
     governmental agency or body in connection with any governmental or other
     licenses, consents or approvals necessary for the resale and distribution
     of the Products and/or finished products without Escalon's prior written
     consent.

4.3  FDA Inspection. Scott will permit the FDA and corresponding drug regulatory
     agencies of foreign jurisdictions to inspect its manufacturing facility for
     the Products in accordance with applicable laws and regulations. Scott will
     provide Escalon with a copy of all FDA correspondence relating to the
     Products which is reasonably necessary to Escalon's performance hereunder
     or which could adversely affect Escalon.

4.4  Insurance. Scott shall obtain and maintain comprehensive or commercial
     general liability insurance coverage including products and completed
     operations coverage, blanket contractual coverage and broad form commercial
     general liability coverages affording a minimum limit of liability of
     $1,000,000 combined single limit for bodily injury/property damage per
     occurrence and a minimum limit of liability of $5,000,000 in the aggregate.
     Such policy of insurance shall name Escalon as an additional insured
     thereunder and shall provide Escalon with 30 days prior written notice in
     the event of policy cancellation or a material change in its terms or
     provisions. Scott will deliver a certificate evidencing such insurance to
     Escalon within ten days of execution of the Agreement.

                          ARTICLE 5 --Confidentiality

5.1  Obligations of the Parties. Each party acknowledges that this Agreement
     requires the disclosure to it by the other party of Confidential
     Information. Each party (the "Receiving Party") shall regard and preserve
     Confidential Information that it obtains from the other party (the
     "Disclosing Party") as secret and confidential. During the term of this
     Agreement and for a period of ten years thereafter, no Receiving Party
     shall publish or disclose any Confidential Information in any manner
     without the Disclosing Party's prior written consent. The Receiving Party
     shall use the same level of care to prevent the disclosure of Confidential
     Information that it exercises in protecting its own Confidential
     Information, and shall in any event take all reasonable precautions to
     prevent the disclosure of Confidential Information to third parties.
     Notwithstanding these restrictions,

<PAGE>   7

                                                                               7

     a Receiving Party may disclose Confidential Information to the FDA, to
     persons conducting preclinical or clinical trials of any Product, and to
     such other persons (such as consultants) as may be necessary to the
     performance of this Agreement, upon securing from those persons (except the
     FDA) executed confidentiality agreements in the form customarily employed
     by the Receiving Party when required to disclose its own confidential
     information.

5.2  Confidential Information. "Confidential Information" means information in
     the possession of a party that is not generally known and that gives that
     party a competitive advantage over third parties, including but not limited
     to techniques, designs, drawings, data, processes, inventions, concepts,
     substances, specifications, developments, equipment, protocols, sales and
     customer information, trade secrets, and business and financial information
     relating to the research, products, practices, and businesses of that
     party.

5.3  Exceptions. The following shall not be considered Confidential Information:

     (a.) Information that is public knowledge or that becomes public knowledge
          through no fault of the Receiving Party.

     (b.) Information that is lawfully obtained by the Receiving Party from a
          third party (that to the knowledge of the Receiving Party itself
          lawfully obtained the Confidential Information and has no obligation
          of confidentiality.)

     (c.) Information that is in the Receiving Party's lawful possession, as
          documented by its records, prior to its initial disclosure by the
          Disclosing Party. This exception shall not apply to release either
          party from the terms of any confidentiality agreement it entered into
          prior to the Effective Date.

     (d.) Information that is independently developed by the Receiving Party
          without reference to any Confidential Information of the Disclosing
          Party.

                       ARTICLE 6 -- Terms and Termination

6.1  Term. This Agreement shall commence on the Effective Date and shall
     continue in effect for a period of five years from that date (the
     "Initial Term") unless terminated in accordance with the provisions hereof.
     Upon expiration of the Initial Term, the Agreement shall automatically
     renew on the relevant anniversary date for successive one year terms unless
     either Party, upon not less than 90 days written notice to the other Party
     prior to expiration of the term then in effect, signifies its intention to
     permit the Agreement to expire, whereupon the Agreement shall end upon the
     expiration of such term.

6.2  Termination. This Agreement may be terminated earlier than Section 6.1
     provides under the following circumstances:

     (a.) Insolvency. This Agreement may be terminated by either party by notice
          to the other in the event such other party shall dissolve, cease
          active business operations or liquidate, or in the event such other
          party shall have been determined to be insolvent by a court of
          competent jurisdiction, or insolvency or reorganization

<PAGE>   8
                                                                               8

               proceedings shall have been commenced by such other party, or
               such proceedings shall have been brought against such other party
               and remained undismissed for a period of 60 days, or such other
               party shall have made a general assignment for the benefit of
               creditors, or a receiver of all or substantially all of such
               other party's assets shall have been appointed and not discharged
               within 60 days.

          (b.) Party's Default. This Agreement may be terminated by either
               party if the other materially breaches any provision of this
               Agreement, except that this Agreement shall not be deemed
               breached by a party unless (i) the claiming party has given the
               breaching party written notice specifying the respects in which
               the claiming party claims the Agreement has been breached (the
               "Notice of Breach"); (ii) the breaching party fails to remedy
               such breach, or fails to provide information to the claiming
               party sufficient to show that it has not breached this Agreement,
               within 60 days following the receipt of the Notice of Breach; and
               (iii) no later than 30 days following the expiration of said
               60-day period, the claiming party has served final written notice
               of termination. If this Agreement is terminated by Scott due to a
               material breach of this Agreement by Escalon, Escalon shall,
               within 30 days after the termination, pay to Scott (i) all of
               Scott's costs associated with the purchase of raw materials for
               the purpose of manufacturing the Products; (ii) all of Scott's
               costs associated with work in process relating to the Products;
               and (iii) the price for all finished Products, as set forth in
               Exhibit B. All raw materials, work in process and finished
               Products for which Escalon pays pursuant to the preceding
               sentence shall, at the request of Escalon, be shipped by Scott
               to Escalon at Escalon's expense.

     6.3  No Damages On Termination. Both parties have considered the
          expenditures necessary in preparing for performance of Agreement and
          the possible losses and damages incident to each in the event of
          termination. Each party understands that the other party may terminate
          this Agreement and the distributorship created hereunder as provided
          in Section 6.2 or permit this Agreement to expire without extension or
          renewal. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY
          FOR ANY INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES, INCLUDING BUT
          NOT LIMITED TO LOSS OF PROFITS AND GOODWILL, IN CONNECTION WITH THIS
          AGREEMENT, ITS PERFORMANCE OR TERMINATION (WHETHER OR NOT IN
          ACCORDANCE WITH ITS TERMS), WHETHER OR NOT THE OTHER PARTY'S CLAIM
          ARISES IN TORT, CONTRACT OR OTHERWISE.

                            ARTICLE 7 -- WARRANTIES

     7.1  Product Warranty. Scott warrants that the Products as delivered to
          Escalon hereunder, shall conform to the Specifications, shall comply
          with all applicable FDA requirements, and shall be free from
          manufacturing and workmanship defects under normal care and use for
          their intended purpose. The warranty for defects in material and
          workmanship shall extend for a period of three years after delivery of
          the Product to Escalon ("Product Warranty Period"); except that in the
          case of the Product's failure to comply with the Specifications, the
          Product Warranty Period (and Scott's obligations in respect thereof)
          shall be extended to be consistent with the Specifications. THE
          WARRANTIES SET FORTH IN THIS SECTION 7.1 ARE IN LIEU OF ALL OTHER
          WARRANTIES.

<PAGE>   9
                                                                               9

     EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF
     MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

7.2  Intellectual Property Indemnity. Escalon shall indemnify and hold harmless
     Scott and its affiliates, officers, directors, employees and shareholders
     against and from all claims, demands, suits, costs (including reasonable
     attorneys' fees and costs of investigation) and actions in each case with
     respect to claims that the manufacture, sale and/or use of the Product by
     Escalon or its affiliates infringes any intellectual property right of a
     third party.

7.3  Indemnification Against Product Liability. Escalon shall indemnify and hold
     harmless Scott and its affiliates, officers, directors, employees and
     shareholders against and from all claims, demands, suits, costs (including
     reasonable attorneys' fees), and actions in each case with respect to
     damages to property or injuries to persons that may be sustained by any
     third party and that are asserted against such an indemnified party on the
     basis of a defect in the manufacture or supply of the Products or any other
     products manufactured or sold by Escalon or its affiliates.

7.4  Continuing Obligations. The obligations of the parties set forth in this
     Article 7 shall continue notwithstanding the termination of this Agreement.

7.5  Limitation of Liability. NEITHER PARTY SHALL IN ANY EVENT HAVE OBLIGATIONS
     OR LIABILITIES TO THE OTHER PARTY FOR LOSS OF PROFITS, LOSS OF USE OR
     INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON CONTRACT,
     TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, OR ANY OTHER THEORY OR FORM
     OF ACTION, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY THEREOF,
     ARISING OUT OF OR IN CONNECTION WITH THE MANUFACTURE, SALE, DELIVERY, USE,
     REPAIR OR PERFORMANCE OF THE PRODUCTS, OR ANY FAILURE OR DELAY IN
     CONNECTION WITH ANY OF THE FOREGOING OR FOR BREACH OF ANY REPRESENTATION,
     WARRANTY OR COVENANT IN THIS AGREEMENT. WITHOUT LIMITING THE GENERALITY OF
     THE PRECEDING SENTENCE, SCOTT SHALL NOT BE LIABLE TO ESCALON FOR PERSONAL
     INJURY OR PROPERTY DAMAGE, EXCEPT FOR BODILY INJURY, DEATH OR TANGIBLE
     PROPERTY DAMAGE CAUSED BY THE NEGLIGENCE OF SCOTT OR ANY OF SCOTT'S
     EMPLOYEES. IN NO EVENT SHALL THE LIABILITY OF SCOTT TO ESCALON ARISING
     UNDER OR IN CONNECTION WITH THIS AGREEMENT EXCEED FIVE HUNDRED THOUSAND
     DOLLARS ($500,000) IN THE AGGREGATE FOR ALL CLAIMS UNDER THIS AGREEMENT.

                         ARTICLE 8 - GENERAL PROVISIONS

8.1  Assignment. This Agreement may not be assigned by either party without the
prior written consent of the other. Notwithstanding the foregoing, either party
may assign this Agreement without such consent to a wholly-owned subsidiary,
and Scott may assign this Agreement to a transferee of substantially all of the
assets of its business unit dedicated to the Products. Nothing in this Section
8.1 shall preclude Scott from subcontracting all or any portion of the
manufacturing of the Products.

<PAGE>   10
                                                                              10

     8.2  Notice. Any notices permitted or required to be given hereunder shall
          be effective if they are delivered personally, by certified mail
          (return receipt requested), by overnight air courier (with return
          receipt), or by facsimile machine (with proof of transmission) and
          delivered:

          in the case of Escalon, to:
               President/CEO
               Escalon Ophthalmic, Inc.
               351 East Conestoga Road
               Wayne, PA 19087

          and in the case of Scott, to:
               Vice President/General Manager
               Scott Medical Products, Inc.
               6141 Easton Road, Building 3
               P.O. Box 310
               Plumsteadville, Pennsylvania 18949-0310
               215-766-7250 Facsimile

          Notices may be sent to any changed address of any of the above of
          which the sender has actual knowledge.

     8.3  Integration. This Agreement represents the entire agreement of the
          parties with respect to its subject matter, and supersedes any and all
          prior agreements, understandings, promises, and representations by any
          party to any other respecting its subject matter, including, but not
          limited to, the Former Agreement.

     8.4  No Brokers. No party to this Agreement employed any broker or agent in
          connection with this transaction or its subject matter.

     8.5  Captions; Exhibits. All captions contained in this Agreement are
          inserted for convenience or reference only shall not be deemed a part
          of this Agreement. The Exhibits are incorporated into and deemed a
          part of this Agreement.

     8.6  Severability. If any provision of this Agreement is held
          unenforceable, the provision shall be regarded as severable from this
          Agreement and the remaining provisions shall remain in full force and
          effect.

     8.7  Status of the Parties. Escalon and Scott shall not be deemed to be
          partners, joint ventures or one another's agents, and neither shall
          have the right to act on behalf of the other except as expressly
          provided herein or otherwise expressly agreed in writing.

     8.8  Waiver. The failure or neglect of Escalon or Scott to enforce the
          terms and conditions of this Agreement shall not be deemed a waiver
          thereof nor shall it be deemed a condonation of any breach. Such
          failure or neglect shall not be deemed a waiver or condonation of any
          later breach. All remedies under this Agreement are cumulative and are
          not exclusive of other remedies.

<PAGE>   11
                                                                              11

     8.9  Force Majeure. Neither Party will be held liable or responsible to the
          other Party nor be deemed to have defaulted under or breached this
          Agreement for failure or delay in fulfilling or performing any term of
          this Agreement, except for the payment of any sums owing hereunder,
          when such failure or delay is caused by or results from causes beyond
          the reasonable control of the affected Party including but not limited
          to such causes attributable to fire, floods, earthquakes, shortages,
          failure or delays of energy, materials, supplies or equipment,
          breakdowns in machinery or equipment, embargoes, wars, acts of war
          (whether war be declared or not), insurrection, riots, civil
          commotion, acts of God or acts, omissions or delays in acting by any
          governmental authority or the other Party.

     8.10 Amendment. This Agreement may only be amended by a writing signed by
          the parties hereto and expressly designated as an amendment to this
          Agreement.

     8.11 Binding Effect, Successors and Assigns. This Agreement shall be
          binding upon and inure to the benefit of the parties hereto, their
          subsidiaries, divisions, business units, successors and permitted
          assigns.

     8.12 Affiliate. Affiliate means, in the case of each party, any
          corporation, company, partnership, joint venture and/or firm that is
          directly or indirectly controlled by that party, or that controls or
          is under common control with that party. For purposes of this Section
          8.12, control means (a) in the case of corporate entities, direct or
          indirect ownership of at least 50% of the shares entitled to vote for
          the election of directors; and (b) in the case of non-corporate
          entities, direct or indirect ownership of at least 50% of the equity.

     8.13 Choice of Law. This Agreement shall be construed in accordance with
          the substantive laws of Pennsylvania, without giving effect to the
          choice of law provisions applicable in that or any other jurisdiction.

     8.14 Alternative Dispute Resolution. Disputes under this Agreement will be
          resolved as follows:

          (a.) If a dispute arises under this Agreement which cannot be
               resolved by the personnel directly involved, either party may
               invoke this dispute resolution procedure by giving written notice
               to the other designating a senior executive officer of such party
               or its affiliate with appropriate authority to be its
               representative in negotiations relating to the dispute.

          (b.) Upon receipt of the notice, the other party shall, within five
               business days, designate a senior executive officer of such party
               or its affiliate with similar authority to be its representative.

          (c.) Within 14 business days of the designation of both executives,
               the designated executives shall enter into good-faith
               negotiations concerning the dispute.

          (d.) If an agreement cannot be reached within one month after the
               commencement of negotiations, either party may commence
               litigation to resolve the dispute in question.

     8.15 Counterparts. This Agreement may be executed in counterparts, to be
          evidenced by the simultaneous (within physical limits) exchange of
          signature pages (telefaxed if necessary)
<PAGE>   12
                                                                              12

and confirmatory cover letters, and the counterparts together shall be regarded
as a single instrument binding on the parties.

<PAGE>   13
                                                                              13

WHEREFORE, the parties have executed this Agreement as of the date of the
latest signature below.

ESCALON OPTHAMALIC, INC.                SCOTT MEDICAL PRODUCTS, INC.

By: /s/ Ronald L. Hueneke               By: /s/ Thomas W. Barford
    -------------------------               -----------------------------------
Its: President COO                      Its: Vice President and General Manager
     -------------------------               ----------------------------------
Date: 10-12-00                          Date: 10-13-00
      ------------------------               ----------------------------------

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