-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GHLBiAdrLhzniWqwG5HomaT6KfdZhXJxpXSazLBXQz/feq8IzIm4nQsO+x30PKIz u/qLJ3DPXsdUve1sYbfjlg== 0000910680-10-000308.txt : 20101015 0000910680-10-000308.hdr.sgml : 20101015 20101015171702 ACCESSION NUMBER: 0000910680-10-000308 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20101015 DATE AS OF CHANGE: 20101015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPHTHALMIC IMAGING SYSTEMS CENTRAL INDEX KEY: 0000885317 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 943035367 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-161778 FILM NUMBER: 101126365 BUSINESS ADDRESS: STREET 1: 221 LATHROP WAY STREET 2: SUITE 1 CITY: SACRAMENTO STATE: CA ZIP: 95815 BUSINESS PHONE: 9166462020 MAIL ADDRESS: STREET 1: 221 LATHROP WAY STREET 2: SUITE 1 CITY: SACRAMENTO STATE: CA ZIP: 95815 FORMER COMPANY: FORMER CONFORMED NAME: OPHTHALMIC IMAGING SYSTEMS INC DATE OF NAME CHANGE: 19930328 S-1/A 1 s1a2-333161778.htm FILE NO. 333-161778 s1a2-333161778.htm
 
 


As filed with the Securities and Exchange Commission on October 15, 2010
File No. 333-161778


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form S-1/A
(Amendment No. 2)
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
OPHTHALMIC IMAGING SYSTEMS
 
(Exact name of registrant as specified in its charter)
         
California
 
3841
 
94-3035367
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
__________________________
 
221 Lathrop Way, Suite I
Sacramento, California 95815
(916) 646-2020
 
(Address, including zip code, and telephone number, including
 
area code, of registrant’s principal executive offices)
 
Ariel Shenhar
Chief Financial Officer
Ophthalmic Imaging Systems
221 Lathrop Way, Suite I
Sacramento, California 95815
(916) 646-2020
 
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
__________________________
 
Copies to:
 
Henry I. Rothman
Troutman Sanders LLP
405 Lexington Avenue
New York, New York 10174
(212)704-6000
__________________________
 
Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this registration statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  x
 
 
 
 

 
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer    (Do not check if a smaller reporting company)  o
Smaller reporting company  x
   
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 

 
 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
Subject to completion, dated October 15, 2010.
 
PROSPECTUS
 
2,460,329 SHARES
 
OPHTHALMIC IMAGING SYSTEMS
 
COMMON STOCK
 
This prospectus relates to the resale by the selling security holders for their own accounts of up to an aggregate of 2,460,329 shares of our common stock, of which (1) 2,368,142 shares are held by U.M. AccelMed, Limited Partnership (“AccelMed”), (2) 78,778 shares are issuable upon exercise of a warrant issued to The Tail Wind Fund Ltd. (“Tail Wind”), and (3) 13,409 shares are issuable upon exercise of a warrant issued to Solomon Strategic Holdings, Inc. (“Solomon”).
 
Our common stock trades on the OTC Bulletin Board® under the symbol “OISI.” The last reported sale price of our common stock on October 12, 2010, was $0.90 per share.
 
The mailing address and the telephone number of our principal executive offices are 221 Lathrop Way, Suite I, Sacramento, California 95815, (916) 646-2020.
 
You should read this prospectus carefully before you invest.  Investing in these securities involves significant risks.  See “Risk Factors” beginning on page 3 of this prospectus and as they appear in our reports filed with the Securities and Exchange Commission from time to time.
 
We will not receive any proceeds from the sale of the shares by the selling security holders. We may receive proceeds in connection with the exercise of warrants whose underlying shares may be sold in this offering.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy of accuracy of this prospectus. Any representation to the contrary is a criminal offense.
 
The date of this prospectus is __________, 2010.
 

 
 

 

TABLE OF CONTENTS

 
Page
   
1
   
3
   
8
   
8
   
9
   
10
   
10
   
29
   
39
   
42
   
47
   
49
   
53
   
57
   
58
   
60
   
60
   
60
   
60
   
61
   

 
i

 
 
INDEX TO FINANCIAL STATEMENTS
 
 
 
Ophthalmic Imaging Systems:
Page
   
   
June 30, 2010
 
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009
F-1
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2010 and 2009
F-2
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months ended June 30, 2010 and 2009
F-3
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2010 and 2009
F-4
Notes to Unaudited Condensed Consolidated Financial Statements
F-5
   
December 31, 2009
 
Report of Independent Registered Public Accounting Firm
F-10
Consolidated Balance Sheets as of December 31, 2009 and 2008
F-11
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008
F-13
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2009 and 2008
F-14
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2009 and 2008
F-15
Consolidated Statements of Cash Flow for the Years Ended December 31, 2009 and 2008
F-16
Notes to Consolidated Financial Statements
F-17
   
MediVision Medical Imaging, Ltd.:
 
   
September 30, 2009
 
Unaudited Consolidated Balance Sheets as of September 30, 2009 and 2008, and December 31, 2008
F-44
Unaudited Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2009 and 2008, and for the Year Ended December 31, 2008
F-46
Unaudited Consolidated Statement of Changes in Equity for the Nine Month period ending September 30, 2009, and 2008
F-47
Unaudited Consolidated Statements of Cash Flows for the Three and Nine Months ended September 30, 2009 and 2008, and for the Year Ended December 31, 2008
F-49
Notes to Unaudited Consolidated Financial Statements
F-51
   
December 31, 2008
 
Report of Independent Registered Public Accounting Firm
F-59
Consolidated Balance Sheet as of December 31, 2008
F-60
Consolidated Statement of Operations for the Year Ended December 31, 2008
F-61
Consolidated Statement of Changes in Equity for the Year Ended December 31, 2008
F-62
Consolidated Statement of Cash Flows for the Year Ended December 31, 2008
F-63
Notes to Consolidated Financial Statements
F-64
   
Pro Forma Financial Statements:
 
   
September 30, 2009  
Unaudited Pro Forma Combined Balance Sheet as of September 30, 2009
F-103
Unaudited Pro Forma Combined Statement of Operations for the Nine Months ended September 30, 2009
F-104
Notes to Unaudited Pro Forma Combined Financial Statements
F-106
   
December 31, 2008  
Unaudited Pro Forma Combined Statement of Operations for the Year Ended December 31, 2008  F-105
Notes to Unaudited Combined Pro Forma Financial Statements F-106
 

 
ii

 

References in this prospectus to “the Company,” “we,” “us,” and “our” are to Ophthalmic Imaging Systems and its subsidiaries
 
You should rely only on the information contained or incorporated by reference in this prospectus.  Neither we nor the selling security holders have authorized anyone to provide you with different information.  If anyone provides you with different or inconsistent information, you should not rely on it.  The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or the time of any sale of our common shares under this prospectus.  Our business, financial condition, results of operations and prospects may have changed since such date.  You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this document.  Any statement contained in a document incorporated or deemed to be incorporated by reference in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in any other subsequently filed document which also is or is deemed to be incorporated by reference in this prospectus modifies or supersedes that statement.  Any statement that is modified or superseded will not constitute a part of this prospectus, except as modified or superseded.
 

 
iii

 

 
This summary highlights some information from this prospectus and does not contain all of the information necessary to your investment decision. To understand this offering fully, you should carefully read the entire prospectus, especially the risks of investing in our common stock discussed under “Risk Factors.”
 
Private Placement
 
On June 24, 2009, we completed a private placement transaction in which we issued and sold to AccelMed, 9,633,228 shares of our common stock (the “1st Installment Shares”) at $0.41522 per share and a warrant to purchase up to 3,211,076 shares of our common stock (the “1st Installment Warrant”), for an aggregate purchase price of $3,999,909 million before expenses.  The 1st Installment Warrant is exercisable at $1.00 per share and expires on June 24, 2012. On May 26, 2010, we completed the 2nd and final installment, whereby we issued and sold to AccelMed 3,581,089 shares of common stock at $0.55848 per share at and a warrant to purchase up to 1,193,696 shares of our common stock for an aggregate purchase price of $1,999,967, before expenses. In connection with the 1st installment private placement, we agreed to register, for public resale, the 1st Installment Shares and the shares of common stock issuable upon exercise of the 1st Installment Warrant. This prospectus has been prepared, and the registration statement of which this prospectus is a part has been filed with the Securities and Exchange Commission (the “SEC”), to satisfy our obligations to AccelMed under the 1st i nstallment private placement transaction. Accordingly, this prospectus covers the resale by AccelMed, a selling shareholder of the shares, of our common stock issued in the private placement.  For more details on the terms of the private placement transaction, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Certain Relationships and Related Transactions.”
 
On June 24, 2009, we also entered into an Extension Agreement, pursuant to which, among other things, we issued warrants to Tail Wind and Solomon to purchase an aggregate of 500,000 shares of our common stock (the “Extension Warrants”).  The Extension Warrants have an exercise price of $1.00 per share and expire on June 24, 2012.  This prospectus covers the resale of the shares issuable upon exercise of the Extension Warrants.  For more details on the terms of the Extension, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Our Company
 
We are engaged in the business of designing, developing, manufacturing and marketing digital imaging systems, image enhancement and analysis software and informatics solutions for use by medical practitioners primarily in the ocular health field. Our products are used for a variety of standard diagnostic test procedures performed in most eye care practices. Since our inception, we have developed products that have addressed primarily the needs of the ophthalmic angiography markets, both fluorescein and indocyanine green. The current flagship products in our angiography line are our WinStation digital imaging systems. These WinStation products are targeted primarily at retinal specialists and general ophthalmologists in the diagnosis and treatment of retinal diseases and other ocular pathologies. See “Description of Business̶ 1; for more information.
 

 
1

 

The Offering
Common stock offered by selling security holders  Up to an aggregate of 2,460,329 shares of common stock may be offered under this prospectus, of which (1) 2,368,142 shares are held by AccelMed, (2) 78,778 shares are issuable upon exercise of a warrant issued to Tail Wind, and (3) 13,409 shares are issuable upon exercise of a warrant issued to Solomon.
   
Use of Proceeds All proceeds of this offering will be received by the selling security holders for their own accounts. We may receive proceeds in connection with the exercise of warrants whose underlying shares may be sold in this Offering.
   
Risk Factors
You should read the “Risk Factors” section beginning on page 3, as well as other cautionary statements throughout this prospectus, before investing in shares of our common stock.
   
OTC Bulletin Board
OISI.OB

 
2

 

RISK FACTORS
 
An investment in our common stock involves a high degree of risk. In addition to the other information in this prospectus, you should carefully consider the following risk factors before deciding to invest in shares of our common stock. If any of the following risks actually occurs, it is likely that our business, financial condition and operating results would be harmed. As a result, the trading price of our common stock could decline, and you could lose part or all of your investment.
 
Risks Related to Our Business
 
Current economic conditions may adversely affect our industry, business, financial position and results of operations and could cause the market value of our common stock to decline.
 
The global economy is currently undergoing a period of unprecedented volatility and the future economic environment may continue to be less favorable than that of recent years. It is uncertain how long the economic downturn that the U.S. economy has entered will last. The economic downturn has resulted in, and could lead to, further reduced spending specifically related to physicians’ equipment and software. Our products require a large initial outlay of funds, which physicians in the current economic climate are hesitant to do. Also, the credit markets are currently experiencing unprecedented contraction. If current pressures on credit continue or worsen, future debt financing may not be available to us when required or may not be available on acceptable terms, and as a result we may be unable to grow our business, take advanta ge of business opportunities, respond to competitive pressures or satisfy our obligations under our indebtedness.
 
If we are unable to obtain additional capital, we will be required to eliminate certain operations that may adversely affect our business.
 
Our operations require substantial funds for, among other things, continuing research and development and manufacturing and marketing our existing products. We may need to seek additional capital, possibly through public or private sales of our securities, in order to fund our operations. However, we may not be able to obtain additional funding in sufficient amounts or on acceptable terms when needed. Insufficient funds may require us to delay, scale back or eliminate certain or all of our research and development programs or license from third parties products or technologies that we would otherwise seek to develop ourselves. Any of these may adversely affect our continued operations.
 
If we fail to develop and successfully introduce new and enhanced products that address rapid technological changes in our markets and meet the needs of our customers, our business may be harmed.
 
Our industry is characterized by extensive research and development, rapid technological change, frequent innovations and new product introductions, changes in customer requirements and evolving industry standards. Demand for our products could be significantly diminished by new technologies or products that replace them or render them obsolete, which would have a material adverse effect on our business, financial condition and results of operations.
 
Our future success depends on our ability to anticipate our customers’ needs and develop products that address those needs. This will require us to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. We have incurred substantial research and development expenditures in the past and plan to continue to do so in the future. Over the last three fiscal years, our research and development expenses have been in the range of 18% to 21% of our net revenue. Although we have spent considerable resources on research and development, we may still be unable to introduce new products or, if we do introduce a new product, such product or products may not achieve sufficient market acceptance. Failure to successfully identify new product opportunities and develop an d bring new products to market in a timely and cost effective manner may lead to a reduction in sales and adversely affect our business.
 

 
3

 

The markets in which we sell our products are intensely competitive and increased competition could cause reduced sales levels, reduced gross margins or loss of market share.
 
Competition for products that diagnose and evaluate eye disease is intense and is expected to increase. Although we continue to work on developing new and improved products, many companies are engaged in research and development of new devices and alternative methods to diagnose and evaluate eye disease. Many of our competitors and potential competitors have substantially greater financial, manufacturing, marketing, distribution and technical resources than us. Any business combinations or mergers among our competitors, forming larger competitors with greater resources, or the acquisition of a competitor by a major medical or technology corporation seeking to enter this business, could result in increased competition. Introduction of new devices and alternative methods could hinder our ability to compete effectively and could have a m aterial adverse effect on our business, financial condition and results of operations.
 
We may experience a decline in the selling prices of our products as competition increases, which could adversely affect our operating results.
 
As competing products become more widely available, the average selling price of our products may decrease. Trends toward managed care, health care, cost containment and other changes in government and private sector initiatives in the United States and other countries in which we do business are placing increased emphasis on the delivery of more cost-effective medical therapies which could adversely affect prices of our products. If we are unable to offset the anticipated decrease in our average selling prices by increasing our sales volumes, our net sales will decline. To compete we must continue to reduce the cost of our products. Further, as average selling prices of our current products decline, we must develop and introduce new products and product enhancements with higher margins. If we cannot maintain our net sales and gross m argins, our operating results could be seriously harmed, particularly if the average selling prices of our products decreases significantly.
 
Our products are subject to United States, European Union and international medical regulations and controls, which impose substantial financial costs on us and which can prevent or delay the introduction of new products.
 
Our ability to sell our products is subject to various federal, state and international rules and regulations. In the United States, we are subject to inspection and market surveillance by the U.S. Food and Drug Administration (the “FDA”), to determine compliance with regulatory requirements. The regulatory process is costly, lengthy and uncertain. Any delays in obtaining or failure to obtain regulatory approval of any of our products could cause a loss of sales or incurrence of additional expenses, which could adversely affect our business.
 
The purchase of AcerMed software and the formation of Abraxas Medical Solutions, Inc. (“Abraxas”) may not generate any significant future revenue for us.
 
In January 2008, we purchased substantially all of the assets of AcerMed, Inc., a leading software developer for Electronic Medical Records (EMR) and Practice Management software (PM). Through the acquisition, we gained the rights to software applications that automate the clinical, administrative and the financial operations of a medical office. Due to the formation of Abraxas, NextGen Healthcare Information Systems, Inc., a supplier of EMR and PM software chose to discontinue its relationship with OIS in January 2008. Long sales cycles, new sales training requirements and potential resistance to the initial high cost of the software may be among the factors contributing to us not being successful in selling these products.
 
The purchase of substantially all the assets of MediVision may not generate any significant future revenue for us.
 
On October 21, 2009 we purchased substantially all the assets of MediVision. Such assets included the European operations which consisted of MediVision’s business as conducted by CCS Pawlowski GmbH, its branch office in Belgium, certain agreements under which MediVision contracted with third parties for distribution and other services, and rights to intellectual property which resulted from MediVision’s research and development activities performed in Israel.  We may experience difficulty integrating MediVision’s operations with our own and we may have challenges in achieving strategic objectives and other benefits expected from the MediVision Asset Purchase.  Such difficulties may divert our attention and resources from our operations and other initiatives, potentially impair the acquired assets or result in the potential loss of key employees of MediVision.
 

 
4

 

Our international sales are a growing portion of our business; accordingly, we may increasingly become subject to the risks of doing business in foreign countries.
 
Our international business exposes us to certain unique and potentially greater risks than our domestic business and our exposure to such risks may increase if our international business continues to grow, as we anticipate. Our international business is sensitive to changes in the priorities and budgets of international customers, which may be driven by changes in worldwide economic conditions and regional and local economic factors.
 
Our international sales are also subject to local government laws and regulations and practices which may differ from U.S. Government regulation, including regulations relating to import-export control, investments, exchange controls and varying currency and economic risks.  We are also exposed to risks associated with using foreign representatives and consultants for international sales and operations and teaming with international consultants and partners in connection with international operations. As a result of these factors, we could incur losses on such operations which could negatively impact our results of operations and financial condition.
 
We depend on skilled personnel to effectively operate our business in a rapidly changing market and if we are unable to retain existing or hire additional personnel, our ability to develop and sell our products could be harmed.
 
Our success depends to a significant extent upon the continued service of our key senior management, sales and technical personnel, any of whom could be difficult to replace. Competition for qualified employees is intense and our business could be adversely affected by the loss of the services of any of our existing key personnel. We cannot assure you that we will continue to be successful in hiring and retaining properly trained personnel. Our inability to attract, retain, motivate and train qualified new personnel could have a material adverse effect on our business.
 
We may not be able to protect our proprietary technology, which could adversely affect our competitive advantage.
 
We rely on a combination of patent, copyright, trademark and trade secret laws, non-disclosure and confidentiality agreements and other restrictions on disclosure to protect our intellectual property rights. We cannot assure that our patent applications will be approved, any patents that may be issued will protect our intellectual property, any issued patents will not be challenged by third parties or any patents held by us will not be found by a judicial authority to be invalid or unenforceable. Other parties may independently develop similar or competing technology or design around any patents that may be issued to or held by us. We cannot be certain that the steps we have taken will prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as f ully as in the United States. Moreover, if we lose any key personnel, we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by those former employees.
 
The long sales cycles for our products may cause us to incur significant expenses without offsetting revenue.
 
Customers typically expend significant effort in evaluating, testing and qualifying our products before making a decision to purchase them, resulting in a lengthy initial sales cycle. While our customers are evaluating our products we may incur substantial sales, marketing and research and development expenses to customize our products to the customer’s needs. We may also expend significant management efforts, increase manufacturing capacity and order long-lead-time components or materials. Even after this evaluation process, a potential customer may not purchase our products. As a result, these long sales cycles may cause us to incur significant expenses without ever receiving revenue to offset those expenses.
 
If we fail to accurately forecast components and materials requirements for our products, we could incur additional costs and significant delays in shipments, which could result in the loss of customers.
 

 
5

 

We must accurately predict both the demand for our products and the lead times required to obtain the necessary components and materials for manufacture. Lead times for components and materials that we order vary significantly and depend on factors including the specific supplier requirements, the size of the order, contract terms and current market demand for components. If we overestimate our component and material requirements, we may have excess inventory, which would increase our costs, impair our available liquidity and could have a material adverse effect on our business, operating results and financial condition. If we underestimate our component and material requirements, we may have inadequate inventory, which could interrupt and delay delivery of our products to our customers. Any of these occurrences would negatively impac t our net sales, business and operating results and could have a material adverse effect on our business, operating results and financial condition.
 
Our dependence on sole source suppliers exposes us to possible supply interruptions that could delay or prevent the manufacture of our systems.
 
Certain of the components used in our products are purchased from a single source. While we believe that most of these components are available from alternate sources, an interruption of these or other supplies could have a material adverse effect on our ability to manufacture some of our systems.
 
Some of our medical customers’ willingness to purchase our products depends on their ability to obtain reimbursement for medical procedures using our products and our revenue could suffer from changes in third-party coverage and reimbursement policies.
 
Our medical segment customers include doctors, clinics, hospitals and other health care providers whose willingness and ability to purchase our products depends in part upon their ability to obtain reimbursement for medical procedures using our products from third-party payers, including private insurance companies, and in the U.S. from health maintenance organizations, and federal, state and local government programs, including Medicare and Medicaid. Third-party payers are increasingly scrutinizing health care costs submitted for reimbursement and may deny coverage and reimbursement for the medical procedures made possible by our products. Failure by our customers to obtain adequate reimbursement from third-party payers for medical procedures that use our products or changes in third-party coverage and reimbursement policies could ha ve a material adverse effect on our sales, results of operations and financial condition.
 
We have limited product liability insurance and if we are held liable in a products liability lawsuit for amounts in excess of our insurance coverage, we could be rendered insolvent.
 
There can be no assurance that we will not be named as a defendant in any litigation arising from the use of our products. Although we have a product liability insurance policy which covers up to $4 million, should such litigation ensue and we are held liable for amounts in excess of such insurance coverage, we could be rendered insolvent. In addition, there can be no assurance that product liability insurance will continue to be available to us or that the premiums will not become prohibitively expensive.
 
If our facilities were to experience a catastrophic loss, our operations would be seriously harmed.
 
Our facilities could be subject to a catastrophic loss such as fire, flood or earthquake. A substantial portion of our manufacturing activities and many other critical business operations are located near major earthquake faults in California, an area with a history of seismic events. Our corporate headquarters is also in a possible flood zone. Any such losses at our facilities could disrupt our operations, delay production, shipments and revenue and result in large expenses to repair or replace the facility. Any such loss could have a material adverse effect on our sales, results of operations and financial condition.
 
Any failure to meet our debt obligations could harm our business, financial condition and results of operations.
 
As of October 12, 2010 we had debt outstanding of $2,826,006, consisting of $30,244 for a capital lease, $108,500 Abraxas loan, $108,867in auto loans, $1,500,000 United Mizrahi Bank bank loan, and $1,078,395 in outstanding notes to institutional investors.  If our cash flow and capital resources are insufficient to fund our debt obligations, we may be forced to sell assets, seek additional equity or debt capital or restructure our debt.  In addition, any failure to make scheduled payments of interest and principal on our outstanding indebtedness would likely harm our ability to incur additional indebtedness on acceptable terms.  Our cash flow and capital resources may be insufficient to pay interest and principal on our debt in the future.  If that should occur, our capital raising or debt restructuring measures may be unsuccessful or inadequate to meet our scheduled debt service obligations, which could cause us to default on our obligations and further impair our liquidity.

 
6

 
 
Risks Related to this Offering
 
We may experience volatility in our stock price, which could negatively affect your investment, and you may not be able to resell your shares at or above the offering price.
 
The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including: quarterly variations in operating results; changes in financial estimates by securities analysts; changes in market valuations of other similar companies; announcements by us or our competitors of new products or of significant technical innovations, contracts, acquisitions, strategic partnerships or joint ventures; additions or departures of key personnel; any deviations in net sales or in losses from levels expected by securities analysts; and future sales of common stock.
 
In addition, the stock market has recently experienced extreme volatility that has often been unrelated to the performance of particular companies. These market fluctuations may cause our stock price to fall regardless of our financial performance.
 
Because our securities trade on the OTC Bulletin Board, your ability to sell your shares in the secondary market may be limited.
 
The shares of our common stock have been listed and principally quoted on the OTC Bulletin Board under the trading symbol “OISI” since May 28, 1998. As a result, it may be more difficult for an investor to dispose of our securities or to obtain accurate quotations on their market value. Furthermore, the prices for our securities may be lower than might otherwise be obtained.
 
Moreover, because our securities currently trade on the OTC Bulletin Board, they are subject to the rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which impose additional sales practice requirements on broker-dealers that sell securities governed by these rules to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual individual income exceeding $200,000 or $300,000 jointly with their spouses). For such transactions, the broker-dealer must determine whether persons that are not established customers or accredited investors qualify under the rule for purchasing such securities and must receive that person’s written consent to the transaction prior to sale. Consequently, the se rules may adversely affect the ability of purchasers to sell our securities and otherwise affect the trading market in our securities.
 
Because our shares are deemed “penny stocks,” you may have difficulty selling them in the secondary trading market.
 
The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price (as therein defined) less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. Additionally, if the equity security is not registered or authorized on a national securities exchange that makes certain reports available, the equity security may also constitute a “penny stock.” As our common stock falls within the definition of penny stock, these regulations require the delivery by the broker-dealer, prior to any transaction involving our common stock, of a risk disclosure schedule explaining the penny stock market and the risks associated with it. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock. The ability of broker-dealers to sell our common stock and the ability of shareholders to sell our common stock in the secondary market would be limited. As a result, the market liquidity for our common stock would be severely and adversely affected. We can provide no assurance that trading in our common stock will not be subject to these or other regulations in the future, which would negatively affect the market for our common stock.

 
7

 

We have additional securities available for issuance, including preferred stock, which if issued could adversely affect the rights of the holders of our common stock.
 
Our articles of incorporation authorize the issuance of 100,000,000 shares of common stock and 20,000,000 shares of preferred stock. The common stock and the preferred stock can generally be issued as determined by our Board of Directors without shareholder approval.
 
Any issuance of preferred stock could adversely affect the rights of the holders of common stock by, among other things, establishing preferential dividends, liquidation rights or voting powers. Accordingly, shareholders will be dependent upon the judgment of OIS’ management in connection with the future issuance and sale of shares of our common stock and preferred stock, in the event that buyers can be found therefor. Any future issuances of common stock or preferred stock would further dilute the percentage ownership of our securities held by the public shareholders. Furthermore, the issuance of preferred stock could be used to discourage or prevent efforts to acquire control of OIS through acquisition of shares of common stock.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
We make forward-looking statements in this prospectus, in other materials we file with the SEC or otherwise release to the public, and on our website. In addition, our senior management might make forward-looking statements orally to analysts, investors, the media and others. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings) and demand for our products and services, and other statements of our plans, beliefs, or expectations, including the statements contained under the heading, “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” regarding our future plans, strategies and expectations are forward-looking statements. In some cases these statements are identifiable through the use of wo rds such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions. You are cautioned not to place undue reliance on these forward-looking statements because these forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Thus, our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in: economic conditions generally and the medical instruments market specifically, legislat ive or regulatory changes that affect us, including changes in healthcare regulation, the availability of working capital, the introduction of competing products, and other risk factors described herein. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we filed with the SEC should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
 
USE OF PROCEEDS
 
We will not receive any of the proceeds from the sale of the shares of common stock offered under this prospectus. Rather, the selling security holders will receive those proceeds directly. We may receive proceeds in connection with the exercise of warrants whose underlying shares may in turn be sold by the selling security holder. Although the amount and timing of our receipt of any such proceeds are uncertain, such proceeds, if received, will be used for working capital and general corporate purposes.
 

 
8

 

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
Our shares of common stock, no par value, have been listed and principally quoted on the OTC Bulletin Board under the trading symbol “OISI” since May 28, 1998 and prior to that on the Nasdaq Small-Cap Market. The following table sets forth the high and low bid prices for our common stock as reported on the OTC Bulletin Board. These prices reflect inter-dealer prices, without retail markup, markdown or commissions, and may not represent actual transactions.

   
Year Ended
December 31, 2010
   
Year Ended
December 31, 2009
   
Year Ended
December 31, 2008
   
Low
   
High
   
Low
   
High
   
Low
   
High
First Quarter
  $ 0.75     $ 1.39     $ 0.15     $ 0.34     $ 0.32     $ 0.70
Second Quarter
  $ 0.75     $ 1.15     $ 0.24     $ 0.45     $ 0.30     $ 0.44
Third Quarter
 
0.55
   
1.03
    $ 0.25     $ 0.59     $ 0.27     $ 0.45
Fourth Quarter (through October 12, 2010)
  0.85     0.90     $ 0.45     $ 1.57     $ 0.11     $ 0.38

On October 12, 2010 , the closing price for our common stock, as reported by the OTC Bulletin Board, was $0.90 per share and there were 105 shareholders of record.
 
Dividend Policy
 
We have not paid any cash dividends since our inception and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We expect to retain our earnings, if any, to provide funds for the expansion of our business. Future dividend policy will be determined periodically by the Board of Directors based upon conditions then existing, including our earnings and financial condition, capital requirements and other relevant factors.
 
Securities Authorized for Issuance Under Equity Compensation Plans
 
The following table sets forth certain information, as of December 31, 2009, with respect to our equity compensation plans:

EQUITY COMPENSATION PLAN INFORMATION
Plan Category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
 
Weighted-average exercise price of outstanding options, warrants and rights
(b)
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in
column (a))
(c)
Equity compensation plans approved by security holders
 
2,057,590
(a)
 
$0.76
 
23,074
(b)
Equity compensation plans not approved by security holders
 
1,527,336
(c)
 
$0.39
 
11,163
(d)
Total
 
3,584,926
   
$0.60
 
34,237
 

(a)
Represents 577,831 options granted under our 2003 Stock Option Plan, 750,000 options granted under our 2005 Stock Option Plan, and 729,759 options granted under our 2009 Stock Option Plan.

 

 
9

 



(b)
Represents 20,241 shares available for grant under the 2009 Stock Option Plan and 2,833 shares available for grant under the 2003 Stock Option Plan to our employees, directors, and consultants. Upon the expiration, cancellation or termination of unexercised options, shares subject to options under the plan will again be available for the grant of options under the applicable plan.
(c)
Includes 1,223,836 shares subject to options granted under the 2000 Stock Option Plan (the “2000 Plan”), an option to purchase 123,500 shares of our common stock which was issued to Alon Baraket for acting as the placement agent in the sale and issuance of securities to AccelMed, and an option to purchase 180,000 shares of our common stock which was issued to Noam Allon for consulting services during 2009
(d)
Represents 11,163 shares available for future grant under the 2000 Plan to our employees and directors, consultants, and non-employees. Upon the expiration, cancellation or termination of unexercised options, shares subject to options under the 2000 Plan will again be available for the grant of options under the applicable plan.

 
 
Sales of the shares of common stock by the selling security holders in this offering will not result in any substantial change to the net tangible book value per share before and after the distribution of shares by the selling security holders. There will be no change in the net tangible book value per share attributable to cash payments made by purchasers of the shares being offered by the selling security holders. Prospective investors in the shares held by the selling security holders should be aware, however, that the price of shares being offered by the selling security holders may not bear any rational relationship to our net tangible book value per share.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
 
Overview
 
To date, we have designed, developed, manufactured and marketed ophthalmic digital imaging systems and informatics solutions, including Electronic Medical Records and Practice Management software, and have derived substantially all of our revenue from the sale of such products. The primary target market for our digital angiography systems and informatics solutions has been retinal specialists and general ophthalmologists. Through our subsidiary, Abraxas, we design, develop and market EMR and PM software to be sold to the following ambulatory-care specialties: OB/GYN, orthopedics and primary care.
 
There can be no assurance that we will be able to achieve or sustain significant positive cash flows, revenue or profitability in the future.
 
Recent Pronouncements
 
FASB Accounting Standards Update No. 2010-8, Technical Corrections to Various Topics.
 
In February 2010, the FASB issued Accounting Update No. 2010-8, Technical Corrections to Various Topics, to eliminate inconsistencies and to clarify guidance on various Codification Topics. Except for certain amendments to Topic 815 and the nullification of paragraph 852-740-45-2, Update No. 2010-08 will become effective for the first reporting period beginning after issuance. Management is currently evaluating the potential impact of Accounting Standards Update No. 2010-08 on our consolidated financial results.
 
FASB Accounting Standards Update No. 2010-06, Fair Value Measurement and Disclosures.
 
In January 2010, the FASB issued Accounting Update No. 2010-06, Fair Value Measurement and Disclosures, to improve disclosures about Fair Value Measurements. The amendments in this Update will require new disclosures related to the transfer in and out of Level 1 and 2, and require that a reporting company present Level 3 activity on a gross basis rather than one net number. In addition, the amendments in this Update clarify existing disclosures related to the level of disaggregation and disclosures about inputs and valuation techniques. Update No. 2010-06 will begin to become effective for reporting periods beginning after December 15, 2009. The adoption of Accounting Standards Update No. 2010-06 did not have a material impact on the consolidated financial statements.
 

 
10

 

 
FASB Accounting Standards Update No. 2010-04, Accounting for Various Topics, Technical Corrections to SEC Paragraphs.
 
In January 2010, the FASB issued Accounting Update No. 2010-4, Accounting for Various Topics, Technical Corrections to SEC Paragraphs, to update SEC staff announcements for codification references. The adoption of Accounting Standards Update No. 2010-04 will not have a material impact on the consolidated financial statements.
 
FASB Accounting Standards Update No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash.
 
In January 2010, the FASB issued Accounting Update No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash, to clarify the accounting for a distribution to shareholders that offers the ability to elect to receive the entire distribution in cash or shares. Accounting Standards Update No. 2010-06 will be effective for reporting periods beginning after December 15, 2009. The adoption of Accounting Standards Update No. 2010-01 did not have a material impact on the consolidated financial statements.
 
FASB Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, a Consensus of the FASB Emerging Issues Task Force.
 
In October 2009, the FASB issued Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, a Consensus of the FASB Emerging Issues Task Force, to amend guidance used to allocate and measure revenues by an enterprise that sells or leases tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole. The amendments in the Update require that hardware components of a tangible product containing software elements always be excluded from the software revenue guidance. The Update provides additional guidance on how to determine which software, if any, related to the tangible products also would be excluded from the scope of the software revenue guidance. Update No. 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. Management is currently evaluating the potential impact of Accounting Standards Update No. 2009-14 on our consolidated financial results.
 
FASB Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force.
 
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, a Consensus of the FASB Emerging Issues Task Force, to amend guidance which establishes a selling price hierarchy for determining the selling price of a deliverable in a multiple-deliverable revenue arrangement. The amendments in this Update also will replace the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenues is based on entity-specific assumptions rather than assumptions of marketplace participation.  In addition, the amendment revises certain disclosure requirements.  Update No. 2009-13 will become effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. Management is currently evaluating the potential impact of Accounting Standards Update No. 2009-13 on our consolidated financial results.
 
FASB Accounting Standards Update No. 2009-01, Generally Accepted Accounting Principles.
 
In October 2009, the FASB issued Accounting Standards Update No. 2009-01, Generally Accepted Accounting Principles, to amend the FASB Accounting Standards Codification for the issuance of the FASB Statement No. 168, the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB. Rules and interpretive releases of the Security and Exchange Commission (SEC) under authority of federal securit ies laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. The adoption of Update No. 2009-01 did not have a material impact on the consolidated financial statements.

 
11

 

FASB Accounting Standards Codification Topic 855, Subsequent Events.
 
On June 30, 2009, we adopted Topic 855, Subsequent Events, which is generally based on Financial Accounting Standard 165 which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, Topic 855 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions th at occurred after the balance sheet date. The adoption of Topic 855 did not have a material impact on the consolidated financial statements.
 
FASB Accounting Standards Codification Topic 810, Consolidation, Subtopic 10 Overall, Section 65, Transition Related to FASB Statement No. 160 Noncontrolling Interest in Consolidated Financial Statements – an amendment to ARB No.51.
 
Topic 810, Consolidation, is based on Statement of Financial Accounting Standard No. 160, Noncontrolling Interest in Consolidated Financial Statements – an amendment of ARB 51, which we adopted on January 1, 2009. Topic 810 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This Topic defines a noncontrolling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. Topic 810 requires, among other items, that a noncontrolling interest be included in the consolidated statement of financial position within equity separate from the parent’s equity; consolidated net income to be reported at am ounts inclusive of both the parent’s and noncontrolling interest’s shares and, separately, the amounts of consolidated net income attributable to the parent and noncontrolling interest all on the consolidated statement of operations; and if a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in net income based on such fair value. The adoption of Topic 810 has had a material impact on our consolidated financial statements as related to the Asset Purchase Agreement with MediVision which was completed on October 21, 2009.  (For additional details, see financial statements for the year ending December 31, 2009, Note 6. Related Party Transactions, MediVision Medical Imaging Ltd., MediVision Asset Purchase.)
 
FASB Accounting Standards Codification Topic 810, Consolidation.
 
Topic 810 Consolidation, is generally based on Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R), which was issued in June 2009, which among other things requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest en tity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. Topic 810, Consolidation, became effective on January 1, 2010. The adoption of Topic 810 did not have a material impact on the consolidated financial statements.
 
FASB Accounting Standards Codification Topic 350, Intangibles -- Goodwill and Other.
 
Topic 350, Intangibles – Goodwill and Other, is generally based on Financial Staff Position (“FSP”) 142-3, Determination of the Useful Life of Intangible Asset, which was issued by the FASB in April 2008, which among other things, amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Topic 350. The intent of the Topic is to improve the consistency between the useful life of a recognized intangible asset under Topic 350 and the period of expected cash flows used to measure the fair value of the asset, under Topic 805, Business Combinations, which is generally based on SFAS 141R, Business Combinations, and other GAAP principles.  The provisions of Topic 350 are effective for fiscal years beginning after December 15, 2008. Topic 350 is effective for our fiscal year beginning January 1, 2009.  The adoption of Topic 350 did not have a material impact on the consolidated financial statements.
 

 
12

 

FASB Accounting Standards Codification Topic 805, Business Combinations.
 
Topic 805, Business Combinations, is generally based on Financial Accounting Standards No. 141 (revised 2007), Business Combinations, which was issued by the FASB in December 2007, which among other things, establishes principles and requirements regarding the method in which the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired business, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial ef fects of the business combination and (iv) requires costs incurred to effect an acquisition to be recognized separately from the acquisition. Topic 805 is effective for all business combinations for which the acquisition date is on or after January 1, 2009. Earlier adoption is prohibited. This standard changes the accounting treatment for business combinations on a prospective basis.  The adoption of Topic 805 has had a material impact on the financial position and results of operations as disclosed below.
 
On March 20, 2008, we entered into a definitive merger agreement (the “Merger Agreement”) with MV Acquisitions Ltd., an Israeli company and a wholly-owned subsidiary (“Merger Sub”), and MediVision, pursuant to which the Merger Sub would have merged with and into MediVision, with MediVision as the surviving entity. On March 16, 2009, we entered into a Termination Agreement with MediVision pursuant to which the Merger Agreement was terminated.
 
We capitalized $519,820 and $527,327 in 2008 and 2007, respectively, for a total of $1,047,047 of costs related to the proposed merger with MediVision.  In accordance with FASB Topic 805, Business Combinations, these costs should be expensed. To comply with Topic 805 we have retroactively calculated our consolidated balance sheet as of December 31, 2008 and our consolidated statement of operations and consolidated cash flow statements for the year ended December 31, 2008. Our consolidated balance sheet as of December 31, 2008 and consolidated statement of operations and consolidated cash flow statement for the year ended December 31, 2008 report merger-related costs as expenses for comparative purposes. Beginning in 2009, we expensed, within general and administrative expenses in our consolidated statement of operations, any new merger-related costs. The pro forma impact of this adjustment to our 2008 consolidated financial statements as of and for the year ended December 31, 2008 is $519,720, respectively, as shown below:

Statement of Operations:
 
FY 2008
   
FY 2008
Revised
For Topic 805
 
Net revenues
 
$
12,491,117
   
$
12,491,117
 
Cost of sales
   
5,768,483
     
5,768,483
 
Gross profit
 
$
6,722,634
   
$
6,722,634
 
Total operating expenses
   
7,804,968
     
8,324,688
 
Net loss
 
$
(2,465,805
)
 
$
(2,985,524
)
Basic loss per share
 
$
(0.15
)
 
$
(0.18
)
Balance Sheet:
               
Total Assets
 
$
13,671,756
   
$
12,624,709
 
Total Liabilities
 
$
6,178,256
   
$
6,178,255
 
Total Stockholders’ Equity
 
$
7,493,500
   
$
6,446,454
 
Total Liabilities and Stockholders’ Equity
 
$
13,671,756
   
$
12,624,709
 

 

 
13

 

Critical Accounting Policies
 
Our consolidated financial statements are prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”).  The information contained in the financial statements is, to a significant extent, based on effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value obtained when earning income, recognizing an expense, recovering an asset or relieving a liability.
 
Management is also required to make estimates and assumptions.  These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.  In addition, GAAP itself may change from one previously acceptable method to another. Although the economics of our transactions would not change, the timing of the recognition of such events for accounting purposes may change.
 
We re-evaluate our estimates and assumptions used in our financials on an ongoing and quarterly basis. We adjust these estimates and assumptions as needed and as circumstances change. If circumstances change in the future, we will adjust our estimates and assumptions accordingly. At the present time, we cannot definitively determine whether our assumptions and estimates will change in the future. Based on history, however, it is likely that there will be changes in some of our estimates and assumptions.
 
Revenue Recognition
 
Our revenue recognition policies are in compliance with applicable accounting rules and regulations  including FASB Accounting Standards Codification Topic 985, Software, Topic 605 Revenue and Subtopic 25 Multiple-Element Arrangements. When accounting for revenue with multiple element arrangements, the multiple components of our revenue are considered s eparate units of accounting in that revenue recognition occurs at different points of time for (1) product shipment, (2) installation and training services, and (3) service contracts based on performance or over the contract term as we incur expenses related to the contract revenue.
 
Revenue for products is recognized when title passes to the customer, which is upon shipment, provided there are no conditions to acceptance, including specific acceptance rights. If we make an arrangement that includes specific acceptance rights, revenue is recognized when the specific acceptance rights are met. Upon review, we concluded that consideration received from our customer agreements are reliably measurable because the amount of the consideration is fixed and no specific refund rights are included in the arrangement. We defer 100% of the revenue from sales shipped during the period that we believe may be uncollectible.
 
Installation revenue is recognized when the installation is complete. Separate amounts are charged and assigned in the customer quote, sales order and invoice, for installation and training services. These amounts are determined based on fair value, which is calculated in accordance with industry and competitor pricing of similar services and adjustments according to market acceptance. There is no price reduction in the product price if the customer chooses not to have us complete the installation.
 
Extended product service contracts are offered to our customers and are generally entered into prior to the expiration of our one year product warranty. The revenue generated from these transactions is recognized over the contract period, normally one to four years.
 
We do not have a general policy for cancellation, termination, or refunds associated with the sale of its products and services.  All items are on one quote/purchase order with payment terms specified for the whole order.  Occasionally, we have customers who require specific acceptance tests and accordingly, we do not recognize such revenue until these specific tests are met.
 

 
14

 

Tax Provision

Deferred taxes are calculated using the liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
 
We calculate a tax provision quarterly and determine the amount of our deferred tax asset that will more-likely-than-not be used in the future.  In making this determination, we have to assess the amount of our unlimited and capped NOL amounts we will more likely than not be able to use, as well as the deferred tax asset amount related to the temporary differences of our balance sheet accounts.
 
FASB Accounting Standards Codification Topic No. 740, Taxes, provides the accounting for uncertainty in income taxes recognized in a company’s financial statements.  Topic No. 740 also prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. In addition, Topic No. 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We apply Topic No. 740 to all of our tax positions.
 
We do not currently allocate our taxes between us and our subsidiary, Abraxas, due to the immaterial impact of Abraxas on our tax provision.
 
Warranty Reserve
 
Our warranty reserve contains two components, a general product reserve recorded on a per product basis and specific reserves recorded as we become aware of system performance issues. The product reserve is calculated based on a fixed dollar amount per product shipped each quarter.  Specific reserves usually arise from the introduction of new products. When a new product is introduced, we reserve for specific problems arising from potential issues, if any. As issues are resolved, we reduce the specific reserve. These types of issues can cause our warranty reserve to fluctuate outside of sales fluctuations.
 
We estimate the cost of the various warranty services by taking into account the estimated cost of servicing routine warranty claims in the first year, including parts, labor and travel costs for service technicians. We analyze the gross profit margin of our service department, the price of our extended warranty contracts, factor in the hardware costs of the various systems, and use a percentage to calculate the cost per system to use for the first year manufacturer’s warranty.
 
During the six months ended June 30, 2010 and 2009 the general warranty reserve increased from $90,000 to $162,600 and from $67,000 to $83,425 due to the increase in product shipments versus the amount of replacements, repairs or upgrades performed.

Securities Purchase Agreement
 
On June 24, 2009, we entered into a Purchase Agreement with AccelMed, whereby we authorized the issuance and sale of up to an aggregate of 13,214,317 shares of our common stock and warrants to purchase up to an aggregate of 4,404,772 shares of our common stock in two installments. On the date of the Purchase Agreement, we completed the 1st installment, pursuant to which we issued to AccelMed 9,633,228 shares and a warrant to purchase up to 3,211,076 shares for an aggregate purchase price of $3,999,972.  This warrant has an exercise price of $1.00 per share and expires on June 24, 2012.
 
On June 24, 2009, we also issued to the placement agent, an option to purchase 123,500 shares of our common stock at an exercise price of $0.01 per share.  This option expires on June 24, 2012. We recorded the fair value of the options using the Black-Scholes-Merton option valuation model, as a reduction to our common stock and an increase in additional paid-in-capital in the amount of $47,045.
 

 
15

 

On May 26, 2010 we completed the 2nd Installment, under which we issued 3,581,089 shares of common stock and a warrant to purchase up to an aggregate of 1,193,696 shares of common stock, for an aggregate purchase price of $1,999,967. In connection with the 2nd installment, we issued to the placement agent, an option to purchase 36,464 shares of our common stock at an exercise price of $0.01 per share. This option expires on May 26, 2013. We recorded the fair value of the options using the Black-Scholes-Merton option valuation model, as a reduction to our common stock and an increase in additional paid-in-capital in the amount of $18,491.
 
MediVision Asset Purchase
 
On June 24, 2009, we entered into an Asset Purchase Agreement with MediVision to purchase substantially all the assets of MediVision, which was completed on October 21, 2009 (the “MediVision Asset Purchase”). Such assets included the European operations which consisted of MediVision’s business as conducted by CCS Pawlowski GmbH (“CCS”), its branch office in Belgium (the “Belgium Activities”), certain agreements under which MediVision contracted with third parties for distribution and other services (the “Purchased Agreements”), and rights to intellectual property which resulted from MediVision’s research and development (“R&D”) activities performed in Israel.
 
As payment for such assets, we agreed to assume a bank loan outstanding with Mizrahi Tefahot Bank Ltd. (the “United Mizrahi Bank”) in the amount of $1,500,000, to which we were previously a guarantor (For more details of the guaranty, see “Note 6. Related Party Transactions, United Mizrahi Bank Loan” below.), liabilities associated with the acquired assets on and after October 21, 2009, the closing date, and certain taxes, and extinguishment of all intercompany indebtedness owed to us with a principal amount of $4,178,622.
 
In addition, in early 2009, we hired all of MediVision’s research and development staff and moved them to our offices in the United States and Israel.
 
During 2009, we had recorded intercompany accounts and notes receivable due from MediVision of $450,000 and $3,168,622, respectively, prepaid product advances to MediVision of $560,000, which were in anticipation of the completion of the Electro-optical Unit, and $273,808 of exclusivity rights paid to MediVision to sell the Electro-optical Unit in the U.S. All such amounts were extinguished upon completion of the MediVision Asset Purchase. At June 30, 2009, management determined the intercompany indebtedness owed to us by MediVision was impaired and recorded an allowance for doubtful accounts for the outstanding balance equal to $4,436,187. In connection with the MediVision Asset Purchase, management wrote off the balance of intercompany indebtedness owed to us by MediVision, thus, eliminating the allowance for doubtful accounts.  ; Following the completion of the MediVision Asset Purchase, management extinguished an additional $16,243 of intercompany notes receivable due from MediVision.
 
United Mizrahi Bank Loan and Warrant
 
On October 23, 2009, we entered into a Secured Debenture (the “Secured Debenture”) with United Mizrahi Bank.  Under the Secured Debenture we agreed to assume MediVision’s loan under the Debenture in the amount of $1,500,000 (the “Loan Amount”).  We also agreed to secure the Loan Amount by granting United Mizrahi Bank a security interest in all or substantially all of our assets.   The New Loan accrues interest at a rate equal to LIBOR plus 4.75%, which is calculated as 5.59% as of October 12, 2010. Upon assumption of this loan, our guarantee of this same loan on behalf of MediVision will terminate. (For additional details of the loan, see Financial Statements for the Year Ended December 31, 200 9, Notes to Consolidated Financial Statements, Note 6. Related Party Transactions, United Mizrahi Bank Loan.) We also issued to United Mizrahi Bank a warrant to purchase 350,000 shares of our common stock at an exercise price of $1.00 which will expire June 24, 2012. (For additional details of the warrant, see Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statements, Note 6. Related Party Transactions, Warrant to United Mizrahi Bank.)
 

 
16

 

Convertible Debt and Warrants
 
On October 29, 2007, we issued convertible notes (the “Notes”) which are convertible into shares of our common stock and warrants (the “Warrants”) to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. (together with The Tail Wind Fund Ltd., the “Holders”) to purchase an aggregate of 616,671 shares of our common stock at an exercise price of $1.87 per share.  These warrants expire on December 10, 2012.
 
On June 24, 2009, we entered into an Extension Agreement (the “Extension Agreement”) by and between us and the Holders.  Pursuant to the Extension Agreement, with respect to the Notes, the Holders agreed to extend the principal payments due thereon for 18 months, such that the next principal payment with respect to the Notes will be due December 31, 2010, and extend the maturity date of the Notes to October 31, 2011.  As consideration for these extensions and waivers, we issued warrants (the “New Warrants”) to the Holders to purchase an aggregate of 500,000 shares of our common stock.  These New Warrants have an exercise price of $1 per share and expire on June 24, 2012. Pursuant to certain anti-dilution provisions in the Notes and Warrants, which were triggered as a result of the sale of securities under the Purchase Agreement with AccelMed, the conversion and exercise prices changed from $1.64 to $1.06 per share for the Notes and $1.87 to $1.21 per share for the Warrants.  Based on these changes, the Holders received an additional 371,157 and 333,686 shares of common stock under the Notes and Warrants, respectively. During the 1st quarter of 2010 the Holders converted an aggregate of $250,000 of the Convertible Notes principle balance into 219,780 shares of our common stock. (For additional details, see Consolidated Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statements, Note. 5. Notes Payable.)
 
On October 23, 2009, in connection with the assumption of the United Mizrahi loan, we issued to United Mizrahi Bank a warrant (the “Warrant”) to purchase 350,000 shares of our common stock at an exercise price of $1.00 which will expire upon the earlier of October 23, 2012 or twelve months following the completion of (1) a primary public offering of our common stock (a “Public Offering”) or (2) (a) the sale of all or substantially all of our assets or (b) the merger or consolidation of the Company with or into another entity, pursuant to which 50% of the Company’s outstanding common stock is held by person(s) who prior to the transaction held, in aggregate, less than 5% (together, a “Liquidity Event,” and together with a Public Offe ring, an “Exit Event”); provided however, if the underwriter in a Public Offering or the purchasing person(s) in a Liquidity Event require that all our outstanding warrants and options, including the Warrant be exercised prior to or part of the Public Offering or Liquidity Event, as applicable, then the Warrant will terminate, subject to certain notice requirements, upon completion of such transaction.
 
The exercise price of the Warrant is $1.00, subject to the happening of certain events, including, but not limited to, the payment of a stock dividend or a stock split.  The Warrant also includes certain anti-dilution provisions if we issue or sell any equity securities or securities convertible into equity, options or rights to purchase equity securities at a per share selling price less than the exercise price, then the exercise price will be adjusted pursuant to a weighted-average formula. (For additional details, see Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statements, Note 6. Related Party Transactions, Warrant to United Mizrahi Bank).
 

 
17

 


Software Capitalization
 
In 2008, we capitalized our EMR and PM software that we acquired from AcerMed through the bankruptcy court.  This software was purchased with the intention that it would be sold, leased or marketed upon modification by our research and development team to our customers. The amount that we capitalized for this software was $570,077.  During the first three months of 2009, we began to sell this software, and amortize this asset using the straight line method of amortization over the economic life of the asset, which we concluded to be three years.  Our EMR and PM software was amortized during the three and six months ended June 30, 2010 in the amount of $47,006 and $95,012, respectively. The carrying value of this asset at June 30, 2010 and December 31, 2009 was $285,041 and $380,053, respectively.
 
We also capitalized the development costs incurred to prepare this software for sale. Development costs were capitalized once technological feasibility was established. We believe that the software was technologically feasible when we began to capitalize the costs because we had worked with a model/prototype that had been in the market before our acquisition. The amount of development that we capitalized in connection with this software is $1,150,831.  During the first three months of 2009, we began to sell this software, and amortize this asset using the straight line method of amortization over the economic life of the asset, which we concluded to be three years.  The amount of this asset that was amortized during the three and six months ended June 30, 2010 was $95,904 and $191,807, respectively. The carrying va lue of this asset at June 30, 2010 and December 31, 2009 was $575,413 and $767,220, respectively.
 
In 2008, we also capitalized $504,711 of costs associated with the development of a web-based software once technological feasibility was established. During the first three months of 2009, we began to sell this software and amortize this asset using the straight line method of amortization over the economic life of the asset, which we concluded to be three years.  The amount of this asset that was amortized during the three and six months ended June 30, 2010 was $42,059 and $84,118, respectively. The carrying value of this asset at June 30, 2010 and December 31, 2009 was $252,357 and $336,475, respectively.
 
Principals of Consolidation
 
The consolidated financial statements include the accounts of OIS, Abraxas, the 63% investment in CCS, OIS Europe, and OIS Global. All significant intercompany balances and transactions have been eliminated in consolidation.
 
Abraxas Medical Solutions, Inc.
 
Abraxas primarily markets comprehensive and advanced Electronic Medical Records (EMR) and Practice Management (PM) software solutions to a wide range of medical practices, from sole practitioners to multi-site, multi-specialty group practices nationwide. These software applications are used to automate the clinical, administrative, and financial operations of a medical office.  This means that paper charting can be virtually eliminated and clinical charting would be done, for example, using a wireless computer pen tablet at the point of care.
 
OIS Global
 
OIS Global primarily performs research and development for certain projects.  Its employees include several former research and development employees of MediVision, thereby, these employees are continuing certain research and development projects previously overseen by MediVision.
 
Segment Reporting
 
Our business consists of two operating segments: OIS and Abraxas, our wholly-owned subsidiary.  Our management reviews Abraxas’ results of operations separately from that of OIS. Our operating results for Abraxas exclude income taxes. The provision for income taxes is calculated on a consolidated basis, and accordingly, is not presented by segment. It is excluded from the measure of segment profitability as reviewed by our management. CCS does not meet the materiality requirements for segment reporting and accordingly, CCS’ financial information is reported as Other in the following table.
 
We evaluate our reporting segments in accordance with FASB Accounting Standards Codification Topic 280, Segment Reporting (“Topic 280”). Our Chief Financial Officer (“CFO”) has been determined to be the Chief Operating Decision Maker as defined by Topic 280. The CFO allocates resources to Abraxas based on its business prospects, competitive factors, net sales and operating results.
 
All significant intercompany balances and transactions have been eliminated in consolidation.

 
18

 

The following presents our financial information by segment for the three and six months ended June 30, 2010 and 2009:
 
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
Statement of Income:
 
2010
   
2009
   
2010
   
2009
 
Net sales:
                       
       OIS
  $ 3,680,200     $ 2,418,331     $ 6,895,925     $ 4,699,800  
       Abraxas
    827,996       480,285       1,594,561       608,347  
       Other
    251,932       -       402,957       -  
Total
  $ 4,760,128     $ 2,898,616     $ 8,893,443     $ 5,308,147  
Gross profit:
                               
       OIS
  $ 2,398,516     $ 1,358,684     $ 4,311,130     $ 2,637,399  
       Abraxas
    340,563       126,722       611,205       (12,926 )
       Other
    107,101       -       190,407       -  
Total
  $ 2,846,180     $ 1,485,406     $ 5,112,742     $ 2,624,473  
Operating Loss:
                               
       OIS
  $ 62,123     $ (4,709,443 )   $ (100,037 )   $ (5,055,769 )
       Abraxas
    (443,952 )     (398,860 )     (901,294 )     (1,114,420 )
       Other
    4,052       -       (15,555 )     -  
Total
  $ (377,777 )   $ (5,108,303 )   $ (1,016,886 )   $ (6,170,189 )
                                 
Net loss (consolidated):
  $ (490,488 )   $ (4,004,544 )   $ (1,347,643 )   $ (5,112,493 )
                                 
 
 

 

 
 
19

 

Other
 
We expense all costs as incurred; including costs of services estimated to be performed under extended warranty contracts. Estimates are used in determining the expected useful lives of depreciable assets.
 
Results of Operations
 
Comparison of Three  and Six Months Ended June 30, 2010 to the Three and Six Months Ended June 30, 2009
 
Sales
 
       Our sales for the three months ended June 30, 2010 were $4,760,128, representing a 64% increase from sales of $2,898,616 for the three months ended June 30, 2009.  The increase in sales is due to an increase in product sales of $1,932,663 offset by a decrease in service sales of $71,151 during the three months ended June 30, 2010 compared to the same period in 2009.  Our sales for the six months ended June 30, 2010 were $8,893,443, representing a 68% increase from sales of $5,308,147 for the six months ended June 30, 2009. The increase in sales is due to an increase in product sales of $3,607,685 during the six months ended June 30, 2010. The increase in product sales is primarily attributable to an increase in EMR/PM sales and marketing efforts introducing the EyeScan internationally and in the Optometry market.
 
Product sales accounted for approximately 79% and 63% of our sales for the three months ended June 30, 2010 and 2009, respectively. Service sales accounted for approximately 21% and 37% of our sales for the three months ended June 30, 2010 and 2009, respectively. Product sales accounted for approximately 77% and 61% of our sales for the six months ended June 30, 2010 and 2009, respectively. Service sales accounted for approximately 23% and 37% of our sales for the six months ended June 30, 2010 and 2009, respectively.

Gross Margins
 
Gross margins were approximately 60% and 51% during the three months ended June 30, 2010 and 2009, respectively. Gross margins were approximately 57% and 49% during the six months ended June 30, 2010 and 2009, respectively. Gross margins increased due to the increase in product revenue covering the fixed costs and an increase in software sales which have a higher margin.
 
Sales and Marketing Expenses
 
      Sales and marketing expenses accounted for approximately 37% and 30% of total sales during the three months ended June 30, 2010 and 2009, respectively.  Sales and marketing expenses increased to $1,776,435 versus $868,080 during the three months ended June 30, 2010 and 2009, respectively, representing an increase of $908,355 or 105%. This increase was due to an increase in marketing efforts introducing the EyeScan internationally and in the optometry market of approximately $176,000, as well as the addition of sales representatives supporting the EyeScan launch internationally and in the optometry market of approximately $484,000. Abraxas added two sales representatives which increased their expenses by approximately $92,000. The remaining increase in sales and marketing is attributable to the acquisition of OIS Europe and CCS on October 21, 2009 which added approximately $143,000 of sales and marketing expenses.
 
       Sales and marketing expenses accounted for approximately 37% and 33% of total sales during the six months ended June 30, 2010 and 2009, respectively .  Sales and marketing expenses increased to $3,321,029 versus $1,772,236 during the six months ended June 30, 2010 and 2009, respectively, representing an increase of $1,548,793 or 87%. This increase was due to an increase in marketing efforts introducing the EyeScan internationally and in the Optometry market of approximately $308,000, as well as the addition of sales representatives supporting the EyeScan launch internationally and in the Optometry market of approximately $769,000.  Abraxas added three sales representatives which increased their expenses by approximately $178 ,000. The remaining increase in sales and marketing is attributable to the acquisition of OIS Europe and CCS on October 21, 2009 which added approximately $273,000 of sales and marketing expenses.
 
General and Administrative Expenses
 
General and administrative expenses were $585,023 and $659,884 during the three months ended June 30, 2010 and 2009, respectively, representing a decrease of $74,861 or 11%. The decrease in general and administrative expenses is primarily due to a decrease in bad debt expense. These expenses accounted for approximately 12% and 23% of total net sales during the three months ended June 30, 2010 and 2009, respectively.
 
        General and administrative expenses were $1,101,902 and $1,170,907 during the six months ended June 30, 2010 and 2009, respectively, representing a decrease of $69,005 or 6%. The decrease in general and administrative expenses is primarily due to a decrease in bad debt expense.  These expenses accounted for approximately 12% and 22% of total net sales during the six months ended June 30, 2010 and 2009, respectively.
 
 
 
 
 
 

 
 
20

 

 
Impairment Related to the Debt of MediVision
 
On June 30, 2009, we had accounts receivable and notes receivable from MediVision of $450,000 and $3,152,379, respectively.  We also had a balance of $560,000 in prepaid assets for funds advanced to MediVision in anticipation of the completion of the Electro-optical Unit. In addition, we had paid MediVision $273,808 for exclusivity rights to sell the Electro-optical Unit in the U.S.  Based upon revised estimates and the shifting of our focus from the Electro-optical Unit to other products through the end of 2010, management has decided to include the aggregate balance of the accounts and notes receivable, prepaid assets and the exclusivity rights relating to MediVision as an allowance for doubtful accounts offsetting each respective account and thus, recording an impa irment expense for the same amount.  Impairment expense for the three and six months ended June 30, 2009 is $4,436,187.

Research and Development Expenses
 
Research and development expenses were $862,499 and $629,558 during the three months ended June 30, 2010 and 2009, respectively, representing an increase of $232,941 or 37%.  These expenses accounted for approximately 18% and 22% of sales during the three months ended June 30, 2010 and 2009, respectively.  This increase was due to an increase in software testing and quality control related expenses of approximately $94,000 and Abraxas’ addition of four more employees which increased expenses by approximately $104,000.
 
Research and development expenses were $1,706,697 and $1,415,332 during the six months ended June 30, 2010 and 2009, respectively, representing a increase of $291,365 or 21%.  These expenses accounted for approximately 19% and 27% of sales during the six months ended June 30, 2010 and 2009, respectively.  This increase in expense is due to an increase in software testing and quality control related expenses of approximately $116,000 and Abraxas’ addition of four more employees which increased expenses by approximately $148,000.
 
Our research and development expenses are generated primarily from our continued research and development efforts on new digital image capture products and our EMR and PM software.
 
Interest Income, Interest  and Other Expenses, Net

        Interest income, interest and other expenses were $91,302 and $95,741 during the three months ended June 30, 2010 and 2009, respectively, representing a decrease of $4,439 or 5%.

Interest income, interest and other expenses were $322,224 and $139,651 during the six months ended June 30, 2010 and 2009, respectively, representing an increase of $182,573 or 130%. The increase in interest expense is primarily attributable to an increase related to the effective interest expense of the embedded conversion option in our convertible notes, which was calculated using the Black-Scholes-Merton option valuation.

Other Income-Settlement

        On May 3, 2009, we entered into a Confidential Settlement and Mutual Release Agreement (the “Settlement Agreement”) by and between us, Steven Verdooner, OPKO Health, Inc. and The Frost Group, LLC (collectively “Defendants”).  Mr. Verdooner was formerly our president.  Pursuant to the Settlement Agreement described further under “Legal Proceedings” below, we received a cash settlement of $1,200,000 on May 13, 2009.
 
Income Taxes
 
Income tax expense was $21,409 and $500 during the three months ended June 30, 2010 and 2009, respectively. Income tax expense was $8,533 and $2,653 during the six months ended June 30, 2010 and 2009, respectively.  We calculate our tax provision quarterly and assess how much deferred tax asset is more likely than not to be used in the future.  At this time, due to our current losses and the current state of the economy, we have established a 100% valuation allowance against our deferred tax asset.
 
Net loss

        We recorded net a loss of $488,137 or $0.02 basic net loss per share and a net loss of $4,004,544 or $0.23 basic net loss per share, for three months ended June 30, 2010 and 2009, respectively. We recorded net loss of $1,334,060 or $0.05 basic net loss per share and a net loss of $5,112,493 or $0.30 basic net loss per share, for the six months ended June 30, 2010 and 2009, respectively.
 
        The net loss for the three months ended June 20, 2010 is mainly attributable to an increase in sales and marketing expenses of $908,355 and an increase in research and development of $232,941. Net loss for the six months ended June 30, 2010 is mainly attributable to the increase in sales and marketing expenses of $1,548,793, an increase in research and development expenses of $291,365, and an increase in interest income, interest and other expenses, net of $182,573.
 

 
 
 
21

 
Comparison of Year Ended December 31, 2009 to Year Ended December 31, 2008
 
Revenues
 
Our revenues for the year ended December 31, 2009 were $13,569,300 representing an increase of $1,078,183 or 9% as compared to revenues of $12,491,117 for the year ended December 31, 2008. The increase in revenues for 2009 resulted from an increase in total product sales of $1,055,767 and service sales of $22,416.  The increase in product sales is due to EMR/PM product revenue of $1,638,926, product revenue from our new subsidiaries, CCS and OIS Europe of $128,155, Symphony revenue of $501,800, offset by a decrease in WinStation revenue of $1,213,114.  The increase in service sales of $22,416 is due to an increase in service revenue from Abraxas of $84,074, service revenue for the fourth quarter of our new subsidiaries, CCS and OIS Europe of $22,323, offset by a decrease in service revenue from our WinStation and S ymphony product line of $83,981.
 
Digital angiography systems and EMR and PM products accounted for approximately 73% and 71% of our total revenues during 2009 and 2008, respectively. Service revenue for the years ended 2009 and 2008 accounted for approximately 27% and 29% of our total revenues for the years ended 2009 and 2008, respectively.
 
Gross Margins
 
Gross margins remained flat at 54% during fiscal 2009 and 2008, respectively. We anticipate that our gross margins will increase if our product sales grow to cover our fixed personnel costs.
 
Sales and Marketing Expenses
 
Sales and marketing expenses accounted for 30% and 32% of revenues during fiscal 2009 and 2008, respectively. Sales and marketing expenses were $4,124,480 during fiscal 2009, representing an increase of $89,664 or 2% compared to sales and marketing expenses of $4,034,816 in fiscal 2008. The increase in sales and marketing expense was primarily the result of expansion of the sales and marketing department during the year.
 
General and Administrative Expenses
 
General and administrative expenses as a percentage of revenues remained flat at 17% during fiscal 2009 and 2008, respectively. Expenses were $2,255,389 during fiscal 2009, representing an increase of $185,177 or 9% compared to expenses of $2,070,212 during fiscal 2008. The increase is primarily due to an increase of bad debt expense related to customers of approximately $239,000, an increase of general and administrative expenses related to the acquisition of the CCS and OIS Europe operations of approximately $62,000, offset by a decrease in legal expenses of approximately $493,000.
 
Impairment related to the debt of MediVision of $4,436,187 during fiscal 2009 was comprised of accounts receivable and notes receivable from MediVision of $450,000 and $3,152,379, respectively, $560,000 in prepaid assets for funds advanced to MediVision in anticipation of the completion of the Electro-optical Unit and $273,808 that we paid to MediVision for exclusivity rights to sell the Electro-optical Unit in the U.S.  Based upon revised estimates and the timing of the shifting of business focus from the Electro-optical Unit to other products through the end of 2010, management decided to impair the aggregate balance of intercompany indebtedness from MediVision.
 
Research and Development Expenses
 
Research and development expenses accounted for 21% of revenues during fiscal 2009 and 18% during fiscal 2008. Expenses were $2,853,492 during 2009, representing an increase of $633,832 or 29% compared to expenses of $2,219,660 during 2008. The increase in research and development is due to the capitalization of $1,150,831 of research and development expenses performed by Abraxas during fiscal 2008 offset by the decrease in research and development performed by MediVision of $439,168 and Abraxas of $77,831 during fiscal 2009.

 
22

 


Other Income (Expense), net
 
Other income (expense) was $860,918 during 2009 compared to $(84,922) during 2008. The increase of $945,840 in other income was primarily due to a legal settlement between OIS and a former employee of $1,200,000 offset by an increase in interest expense of $70,474 from the convertible notes outstanding, combined with a decrease in interest income of $171,436 resulting from reduction of interest earned on notes receivable which were impaired during 2009.
 
Income Taxes
 
The income tax expense for the year ended December 31, 2009 consisted of the following:

   
Federal
 
State
 
Total
 
2009
                   
Current
 
$
   
$
3,787
 
$
3,787
 
Deferred
   
(1,974,000
)
 
(280,000
)
 
(2,254,000
)
Change in valuation allowance
   
1,974,000
   
280,000
   
2,254,000
 
Total income tax expense
 
$
-
 
$
3,787
 
$
3,787
 

In 2009, we determined that it is not more-likely-than-not that we will be able to use any of our deferred tax asset in the future. We analyzed our operating results from 2008, 2009, and projected operating results for 2010, combined with the downward turn in the economy, and determined that it is not more-likely-than-not that we will be able to use our deferred tax asset in the future.
 
The Company’s effective tax rate for the years ended December 31, 2009 and 2008 was 0% and (112%), see Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statements, Note 9. Income Taxes, for the reconciliation of the statutory rate to the effective tax rate.
 
Net Loss
 
We reported a net loss of $5,476,885 or $0.25 basic loss per share during 2009 compared to net loss of $2,985,524 or $0.18 basic loss per share during 2008.
 
Comparison of Year Ended December 31, 2008 to Year Ended December 31, 2007
 
Revenue
 
Our revenue for the year ended December 31, 2008 were $12,491,117 representing a decrease of $1,997,927 or 14% as compared to revenue of $14,489,044 for the year ended December 31, 2007. The decreased revenue for 2008 resulted from decreased product sales of $2,644,447, including installation, offset by increased service revenue of $646,520. The decrease in product sales is primarily due to the decrease of our main Winstation systems and installation of approximately $1,927,000. Digital angiography systems and EMR and PM products accounted for approximately 71% and 79% of our total revenue during 2008 and 2007, respectively. The decrease in our product sales is primarily due to personnel changes in our sales and marketing departments and, more recently, changes in the global economy. Service revenue for the years ended 2008 and 2007 a ccounted for approximately 29% and 21% of our total revenue for the years ended 2008 and 2007, respectively. The increased service revenue is primarily due to the increase in our extended service contracts due to an increase in our customer base and more customers understanding the benefits of purchasing extended warranty contracts. Our remaining service revenue which has remained constant consists of non-warranty repairs and parts, and technical support phone billings for customers not under warranty.
 

 
23

 
 
Gross Margins
 
Gross margins decreased to 54% from 57% in fiscal 2008 versus 2007, respectively, primarily due to the decrease in sales of our EMR and PM products which have related fixed direct labor costs. We anticipate that our gross margins will increase if our product sales grow to cover the fixed personnel costs.
 
Sales and Marketing Expenses
 
Sales and marketing expenses accounted for 29% and 24% of revenue during fiscal 2008 and 2007, respectively. Sales and marketing expenses were $4,034,816 during fiscal 2008, representing an increase of $539,890 or 15% compared to sales and marketing expenses of $3,494,926 in fiscal 2007. The increase in sales and marketing expenses were primarily the result of filling vacant sales positions during the year in OIS of approximately $178,000, the addition of Abraxas sales and marketing expenses of $438,000, offset by restructuring of the marketing department at OIS of ($66,000).
 
General and Administrative Expenses
 
General and administrative expenses accounted for 11% and 12% of revenue in fiscal 2008 and 2007, respectively. Expenses were $1,550,492 during fiscal 2008, representing a decrease of $134,259 or 8% compared to expenses of $1,684,751 during fiscal 2007. The decrease is primarily due to an increase in the general and administrative allocation of OIS to other departments of approximately $154,000, a decrease in OIS bonus expense related to writing off of executive bonuses that were accrued in 2007 but not approved for payment in 2008 of $143,000, a decrease in investor relations and business development expenses of approximately $101,000, offset by an increase in legal expenses of approximately $132,000 and the addition of Abraxas’ general and administrative expenses of $166,000.
 
Research and Development Expenses
 
Research and development expenses accounted for 18% of revenue during fiscal 2008 and 11% during fiscal 2007. Expenses were $2,219,660 during 2008, representing an increase of $588,440 or 36% compared to expenses of $1,631,220 during 2007. This increase was due to the increase in our research and development efforts on new digital image capture products. In the future, we expect our research and development expenditures to increase with the addition of Abraxas’ research and development expenses to be offset by a reduction in the research and development expenses subcontracted from MediVision and other consultants. In 2008 and 2007, outside consultants and MediVision conducted most of our research and development.
 
Other Income (Expense), net
 
Other income was ($84,922) for the twelve months ended December 31, 2008 compared to $141,104 for the twelve months ended December 31, 2007. The increase of $226,026 in other expense was primarily due to an increase of interest expense of $92,628 from the convertible notes outstanding, combined with a decrease in interest income of $98,638 resulting from a combination of a decrease of our cash balance and a decrease in interest rates. (For details of the convertible notes, see Financial Statements for the Year Ended December 31, 2008, Notes to Consolidated Financial Statements, Note 5. Note Payable).
 
Income Taxes
 
The income tax expense for the year ended December 31, 2008 consisted of the following:

 
24

 


   
Federal
   
State
   
Total
 
2008
                 
Current
  $ (43,000 )   $ -     $ (43,000 )
Deferred
    (503,000 )     (81,000 )     (584,000 )
Change in valuation allowance
    1,845,000       81,000       1,926,000  
Total income tax benefit
  $ 1,299,000     $ -     $ 1,299,000  

In 2008, we determined that we will more-likely-than-not be unable to use any of our deferred tax asset in the future. We analyzed our operating results from 2007, 2008 and projected operating results for 2009, combined with the downward turn in the economy in 2008 and results of our largest annual tradeshow in the fourth quarter of 2008 and determined that it is not more-likely-than-not that we will be able to use our deferred tax asset in the future.  In 2007, we determined that we will use $2,334,000 of capped net operating losses in the future and projected taxable income in 2008. In 2007, we did not have enough information to determine whether we would use the remaining net operating losses of $539,855. We had no net operating loss carryforward for California state income tax purposes at December 31, 2007.
 
At December 31, 2008 and 2007, management reviewed recent operating results and projected future operating results, as well as the current conditions in the global economy and medical industry. On each of these dates, management determined whether it was more-likely-than-not that a portion of the deferred tax assets attributable to net operating losses would be realized. For a description of our analysis in determining our deferred tax asset, see “Critical Accounting Policies, Tax Provision” above.
 
Due to changes in ownership which occurred in prior years, Section 382 of the Internal Revenue Code of 1986, as amended, provides for significant limitations on the utilization of net operating loss carryforwards and tax credits. As a result of these limitations, a portion of these loss and credit carryovers may expire without being utilized.
 
Net Income (loss)
 
We reported a net loss of ($2,465,805) or ($0.15) basic loss per share for the twelve months ended December 31, 2008 compared to net income of $1,552,616 or $0.09 basic earnings per share for the twelve months ended December 31, 2007. Earnings per share is calculated in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share (“SFAS 128”). (See Financial Statements for the Year Ended December 31, 2008, Notes to Consolidated Financial Statements, Note 1. Summary of Significant Accounting Policies, Earnings per Share.) The results of operations for 2008 reflect the softening demand for our digital imaging equipment in 2008.
 
Export Sales
 
Revenue from sales to customers located outside of the United States accounted for approximately 7% and 5% of our net sales for 2008 and 2007, respectively. Sales to MediVision, included in these totals, accounted for approximately 64% or $597,000 and 78% or $608,000 of our export sales for 2008 and 2007, respectively.
 
Balance Sheet
 
As of June 30, 2010
 
Our assets increased by $1,380,514 as of June 30, 2010 as compared to December 31, 2009.  This increase was primarily due to an increase in cash of $766,885, an increase in accounts receivable of $481,341, an increase in inventories of $354,458, and an increase in prepaid expenses of $252,539, offset by the amortization of our EMR and PM software of $95,012, amortization of capitalized software development related to our EMR and PM software of $191,807 and the amortization of our web-based software of $84,118.
 
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Our liabilities increased by $418,902 as of June 30, 2010 as compared to December 31, 2009 primarily due to a increase in accounts payable of $510,256, an increase of accrued liabilities of $383,966, offset by a decrease an decrease in deferred revenue of $192,162, and a decrease in notes payable of $151,090 and customer deposits of $90,221.
 
Our stockholders’ equity increased by $975,186 as of June 30, 2010 as compared to December 31, 2009 primarily due to a net loss for the six months of $1,334,060, offset by an increase of $1,999,967 stock issued in connection with the 2nd AccelMed installment and in increase in additional paid-in-capital of $152,011 related to our convertible notes and common stock issued upon conversion of $250,000 of the notes.
 
As of December 31, 2009
 
Our assets increased by $412,668 as of December 31, 2009 as compared to the December 31, 2008. This increase was primarily due to a increase in cash and equivalents of $3,181,614 as a result of the sale and issuance of our securities to AccelMed, an increase in accounts receivable of $1,012,894 as a result of an increase in sales, an increase in assets associated with businesses acquired of $1,500,000, offset by a decrease in notes and accounts receivable from related parties of $2,878,234 and $500,365, a decrease of licensing agreements and prepaid products associated with related parties of $273,808 and $560,000, a decrease in inventory of $215,408 due to higher sales than expected at the end of the year, amortization of prepaid financing fees of $66,585 and the amortization of capitalized  software development and researc h and development of $741,872.
 
Our liabilities increased by $1,418,359 mainly due to the $1,500,000 loan assumed in connection with the MediVision Asset Purchase which was completed during 2009.
 
Our stockholders’ equity decreased by $1,005,692 primarily due to the net loss from fiscal 2009 of ($5,476,885), offset by the net proceeds of the AccelMed stock purchase of $3,552,599, the increase in additional paid-in capital of $419,644 related to the warrants from the stock purchase and debt financing, an increase of $464,489 of noncontrolling interest related to the MediVision Asset Purchase.
 
Liquidity and Capital Resources
 
As of June 30, 2010
 
Cash used in operating activities was $1,144,406 during the six months ended June 30, 2010 as compared to cash provided by of $77,529 during the six months ended June 30, 2009.  The cash used in operations during the first six months of 2010 was principally from our net loss of $1,347,634, an increase in net accounts receivable of $489,712, an increase in inventory of $374,336, an increase in prepaid and other assets of $252,539, offset by depreciation and amortization of $147,555, amortization of software and capitalized R&D of $370,937, the change in the discount related to notes payable of $142,405, and the increase in other liabilities of $605,740.

        Cash used in investing activities was $124,151 during the six months ended June 30, 2010 as compared to cash used of $41,151 during the six months ended June 30, 2009.  The cash used of $124,151 was due to the investment in capital equipment such as computers and software used internally.  We anticipate continued capital expenditures in connection with our ongoing efforts to upgrade our existing management information and corporate communication systems.  We also anticipate that related expenditures, if any, will be financed from our cash flows from operations or other financing arrangements available to us, if any.
 
We generated cash in financing activities of $2,111,586 during the six months ended June 30, 2010 as compared to cash generated of $3,245,538 during the six months ended June 30, 2009.  The cash generated in financing activities during the six months ended June 30, 2010 was primarily from proceeds from an equity investment by AccelMed of $1,989,007, net of financing fees, a loan to Abraxas of $109,759, offset by principal payments on note and lease obligations of $13,590.

On June 30, 2010, our cash and cash equivalents were $6,173,124.

 
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On June 24, 2009, we consummated the 1st Installment pursuant to the Purchase Agreement with AccelMed, whereby we received $3,999,972 for the issuance of 9,633,228 shares of our common stock and a warrant to purchase 3,211,076 shares of our common stock  On May 26, 2010, we completed the 2nd and final installment to the Purchase Agreement with AccelMed, whereby we issued 3,581,089 shares of common stock at $0.55848 per share at and a warrant to purchase up to 1,193,696 shares of our common stock for an aggregate purchase price of $1,999,967, before financing fees.
 
Management anticipates that additional sources of capital beyond those currently available to us may be required to continue funding for research and development of new products and to continue our growth and marketing of Abraxas products.
 
We will continue to evaluate alternative sources of capital to meet our growth requirements, including other asset or debt financing, issuing equity securities and entering into other financing arrangements. There can be no assurance, however, that any of the contemplated financing arrangements will be available and, if available, can be obtained on terms favorable to us.
 
As of December 31, 2009
 
The Company maintains a $150,000 line of credit agreement with Wells Fargo Bank. The line is secured by a pledged deposit with the bank totaling $158,213 at December 31, 2009. Advances on the line bear interest at prime (3.25% at December 31, 2009) with interest due monthly. As of December 31, 2009 we borrowed $150,000 against the line of credit. The line matures on May 10, 2011.
 
Our operating activities used cash of $60,243 during 2009 as compared to $739,822 during 2008. The cash used by operations in 2009 was primarily due to the net loss of ($5,485,396), offset by the non-cash write-off of MediVision notes receivables of $3,152,042, related party receivable of $500,365, prepaid products of $560,000, the amortization of capitalize software of $168,236, the amortization of software licenses of $573,635, and  the change in customer deposits of $463,782.
 
Net cash used in investing activities was $1,368,474 during 2009 versus $4,016,871 during 2008. Our primary investing activities in 2009 consisted of costs related to the acquisition of substantially all the assets of MediVision, net of cash acquired, of $1,708,523 and capital asset acquisitions of $132,951, offset by the acquisition of the noncontrolling interests related to the MediVision acquisition of $473,000.
 
Cash provided by financing activities was $4,608,090 during 2009 as compared to cash used in financing activities of $648,966 during 2008. The cash provided by financing activities during 2009 was primarily from proceeds of $1,500,000 from new borrowings, $3,999,972 from the proceeds of sale of stock, offset by $732,984 of principal payments on notes receivable, and stock issuance costs of $158,898.
 
On December 31, 2009, our cash and cash equivalents were $5,406,239. Management anticipates that additional sources of capital beyond those currently available to it may be required to continue funding of research and development for new products and selling and marketing related expenses for existing products.
 
Seasonality
 
Our most effective marketing tool is the demonstration and display of our products at the annual meeting of the American Academy of Ophthalmology held during the Fall of each year. A significant amount of our sales orders are generated during or shortly after this meeting. Accordingly, we expend a considerable amount of time and resources during the fourth quarter of our fiscal year preparing for this event.
 

 
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Trends
 
Under the recently approved stimulus package, The American Recovery and Reinvestment Act of 2009, physicians who implement a certified EMR software program and become meaningful users between 2010 and 2012 will each be eligible for $44,000 in incentive payments, and physicians who become meaningful users between 2012 and 2014 will be eligible for lower payments.  Physicians who have not become meaningful users by 2014 will not qualify for any payments. In addition, beginning in 2016, Medicare reimbursement will begin to decrease for clinics that do not meet the above criteria. We anticipate that this legislation will have positive effects on our revenues as physicians adopt EMR software programs at higher rates than they do currently. We expect to see this positive trend starting in mid-2010 and beyond.  OIS and Abraxas are both certified with a 2008 certification by the Commission for Healthcare Information Technology (CCHIT) in ambulatory EMR  software
 
Off Balance Sheet Arrangements
 
None.
 

 
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Ophthalmic Imaging Systems (the “Company,” “OIS,” “we,” “us,” or “our”) was incorporated under the laws of the State of California on July 14, 1986. We are headquartered in Sacramento, California and engaged in the business of designing, developing, manufacturing and marketing digital imaging systems and informatics solutions. Since our inception, we have developed products that primarily addressed the needs of the ophthalmic angiography markets, both fluorescein and indocyanine green. The current flagship products in our angiography line are our WinStation digital imaging systems and EyeScan systems. These systems are targeted primarily at retinal specialists and general ophthalmologists for use in the diagnosis and treatment of retinal diseases and other ocular pathologies.   OIS also provides PACS (“Picture Archiving and Communication Systems”) and Electronic Medical Records (“EMR”) and Practice Management (“PM”) software to such eye-care providers. In addition, though our wholly-owned subsidiary Abraxas Medical Solutions Inc., a Delaware corporation (“Abraxas”) we provide EMR and PM to the following ambulatory-care specialties: obstetrics/gynecology (“OB/GYN”), orthopedics and primary care.
 
Our objective is to become a leading provider of a diverse range of complimentary ophthalmic products and services for the ocular healthcare industry. We are currently focusing our development efforts on products for the ocular healthcare market, as well as features and enhancements to our existing products. We are also applying our technology in the ophthalmic imaging field toward the development of new ocular imaging devices and exploration of telemedicine/managed care applications targeted at the general ophthalmology and optometry markets.  We believe that as the U.S. healthcare system moves toward managed care, the needs of managed care providers are changing the nature of demand for medical imaging equipment and services. New opportunities in telemedicine (the electronic delivery and provision of health care and consul tative services to patients through integrated health information systems and telecommunications technologies), combined with lower cost imaging devices and systems, are emerging to assist physicians and managed care organizations in delivering high quality patient care while reducing costs.
 
During 2004, we entered the Ophthalmic PACS software market. PACS enables medical staff to access new and archived images remotely, thus, improving the method in which to diagnose patients. The ability to instantaneously share information between locations allows specialists to manage more patients in separate locations quickly and efficiently. The PACS system can be completely integrated with our customers’ existing infrastructure, including image acquisition, image analysis, short and long-term storage, archiving, disaster recovery, viewing and monitoring. The current flagship product in our PACS product line is our SymphonyTM software.
 
In January 2008, we acquired the rights to EMR and PM Software as developed by AcerMed, Inc. (“AcerMed”).  Our EMR and PM Software were designed to automate the clinical, administrative, and financial operations of a medical office. This means that paper charting can be virtually eliminated and clinical charting would be done using, for example, a wireless computer pen tablet at the point of care.
 
On October 21, 2009, we purchased substantially all the assets of MediVision, Medical Imaging Limited, formerly our parent Company (the “MediVision Asset Purchase”).  (For additional details of the MediVision Asset Purchase, see Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statement Note 6,  Related Party Transactions, MediVision Asset Purchase).  Such assets included certain European operations as conducted by CCS Pawlowski GmbH, a branch office in Belgium, agreements under which MediVision contracted with third parties for distribution and other services, and rights to intellectual property.  This acquisition will provide OIS with access to new customers and regional control over operations in the European market.  In addition , we hired most of MediVision’s R&D employees in early 2009 and moved them to our offices in the United States and Israel.
 
In November 2009, OIS EyeScan received FDA 510(k) clearance.  OIS EyeScan is a portable imaging device that enables practices to capture images of both the anterior and posterior segment of the eye.  OIS EyeScan diversifies our product portfolio by adding a low cost product with more functionality than our existing image capture solutions.

 
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Products

OIS Products
 
WinStationTM Systems
 
Our WinStation systems and products, categorized by resolution, are primarily used by retina specialists and general ophthalmologists to capture color images of the retina and to perform a diagnostic procedure known as fluorescein angiography. This procedure is used to diagnose and monitor pathology and provide important information in making treatment decisions. Fluorescein angiography is performed by injecting a fluorescent dye into the bloodstream. As the dye circulates through the blood vessels of the eye, the WinStation system, connected to a medical image capture device called a fundus camera, takes detailed images of the patient’s retina. These digital images provide a “road map” for treatment.
 
Over the past 40 years, fluorescein angiography has been performed using photographic film, which requires special processing and printing. Currently fundus cameras offer an option for integration with a digital imaging system. Our digital WinStation systems allow for immediate diagnosis and treatment of the patient. Images are automatically transferred to a database and permanently stored and archived. We also offer a variety of networking and printer options.
 
Our WinStation systems are also used by ophthalmologists to perform indocyanine green (“ICG”) angiography. ICG angiography is a diagnostic test procedure used for patients with Age-related Macular Degeneration, a leading cause of blindness afflicting over 8 million people in the United States. ICG angiography, used for approximately 5% of patient angiography, is a dye procedure that can only be performed using a digital imaging system such as our WinStation Systems.
 
Digital Slit Lamp Imager (DSLI) and WinStation for Slit Lamps
 
DSLI and WinStation for Slit Lamps are used by a majority of eye care practitioners, including most ophthalmologists and optometrists, with an emphasis on imaging the front of the eye. Slit lamps are imaging devices used in virtually all ophthalmic and optometric practices. The DSLI adapts to most slit lamp models and is capable of real-time video capture, database management and archiving.
 
OIS EyeScan
 
The OIS EyeScan is a portable imaging device that enables practices to capture images of both the anterior and posterior segment of the eye.  The OIS EyeScan captures live video and 5.3 megapixel images from the following imaging modules: Color Retina, Fluorescein Angiography, Optic Nerve Head Stereo Imaging, Red Reflex Imaging Module, Corneal Fluorescence, Tear Film Analysis.
 
Symphony and Symphony Web
 
Symphony and Symphony Web are our Ophthalmic PACS products. The OIS Symphony Image Management System automatically imports images and diagnostic reports from the diagnostic devices within the practice into a single system.  OIS Symphony System allows patient images and diagnostic reports captured from different devices to be viewed side-by-side on one screen with reviewing tools that are proprietary to OIS.
 
OIS Symphony Web enables OIS to deliver all of the OIS Symphony functionality to a web-based client.
 
OIS EMR and OIS PM
 
With OIS’ ophthalmic EMR solution, practices can make the transition to a paperless office using software that manages all aspects of the practice.  OIS EMR and OIS PM were created using a single software platform and database. OIS EMR/PM solution enables users to move back and forth between various applications with a single click and for information to be natively present in each application, eliminating duplicate entry or lost data.
 

 
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Abraxas Products
 
Abraxas’ proprietary software uses the latest technology to automate the workflow of a medical practice consisting of clinical, financial and administrative tasks, all using a single database. Abraxas’ software modules include:
 
Abraxas EMR
 
EMR can be populated with Clinical Pathways that are specific to a particular medical specialty. Following these Clinical Pathways, documenting a patient encounter can be as easy as “point and click” on a wireless touch-tablet computer. Alternatively, voice recognition, handwriting, handwriting recognition or typing can be used for charting. Clinicians can have access to the patient’s prior chart notes, test results, clinical information, medical images and other information. They can write electronic prescriptions or electronically enter orders for radiology, lab work and other procedures. Certain lab results will come back to the system electronically and populate patients’ data. This eliminates the hassle of finding, pulling, carrying, filing and often times losing traditional paper charts.
 
Abraxas PM
 
Various codes for differing types of office visits are recommended based on the documentation and charges generated at the time of charting, therefore, data entry for billing purposes can be eliminated. PM allows for preprocessing of claims and editing for American National Standards Institute (ANSI) compliance prior to submission to minimize payer rejections. This results in quicker turnover of accounts receivable and, thus, a more efficient collections process which, in turn, may improve cash flow. Staff members can review detailed management and financial reports and access on-screen accounts receivable reports with filtering based on a wide range of criteria. These filters allow for identification of problem accounts.
 
Abraxas Scheduling
 
Patient and resource scheduling is also available and built around the needs of busy practices. This software allows users to view on-screen the schedules of one or multiple physicians at any time, reserve time frames for specific appointment reasons and color code them for on-screen identification, and keep track of patients’ scheduling history.
 
Markets
 
Having reviewed various third party sources, including reports by the National Physician’s Census and data provided by the American Osteopathic Association, we believe there are approximately 18,000 ophthalmologists in the United States and approximately 28,000 ophthalmologists practicing medicine in our target countries outside the United States. This group has been traditionally divided into two major groups: anterior segment (front of the eye) and posterior segment (back of the eye). Within these groups there are several sub-specialties including medical retina, retina and vitreous, glaucoma, neurology, plastics, pediatric, cataract, cornea and refractive surgery. There are also approximately 35,000 practicing optometrists in the United States.
 
WinStation and Symphony
 
The WinStation market consists of current fundus camera owners and potential purchasers of fundus cameras suitable for interfacing with our digital imaging system products. We believe there are now over 9,000 fundus cameras in clinical use in the United States and an additional 12,000 in the international market. It is estimated that new fundus camera sales fluctuate between approximately 800 and 1,200 units per year, worldwide, at an average per unit selling price of approximately $24,000 for a non-integrated unit. Of total cameras worldwide, including new and previously owned, a significant number are suitable to be interfaced with our digital imaging systems.
 
Currently, we know of 5 manufacturers of fundus cameras. These manufacturers produce a total of 24 models, 8 current and 16 legacy models for each of which we have designed optical and electronic interfaces.
 

 
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The Symphony and Symphony Web products are marketed to the same target market as WinStation customers.
 
OIS EyeScan
 
The OIS EyeScan system is targeted primarily at eye care professionals that want to capture images digitally on anterior (front) and posterior (back) of the eye. As described above, we believe that there are approximately 18,000 eye care specialist in the United States and approximately 28,000 eye care specialist practicing medicine in our target countries outside the United States. In addition, there are also approximately 35,000 practicing optometrists in the United States. We currently know of 3 manufacturers of imaging systems which are similar to the EyeScan.
 
EMR and PM Software
 
The primary target market for OIS EMR and PM software is ophthalmologists with various specialties, as described above, numbering approximately 18,000 in the United States.
 
In order to increase our research and development and marketing effectiveness, Abraxas focuses primarily on the following types of office based physicians: obstetrics and gynecology, and orthopedic. Having reviewed various third-party sources, including reports by the National Physician’s Census, we believe there are approximately 35,000 office-based obstetrics and gynecology physicians, and approximately 19,000 office-based orthopedic physicians in the United States. Abraxas’ secondary market is primary care of which there are approximately 235,000 office-based primary care physicians in the United States as reported by the National Physician’s Census.
 
EMR software is used to automate the clinical workflow of medical offices and PM software is used to automate the financial and administrative tasks of medical offices. Medical practices in the United States began automating their practice management decades ago. By the late 1990’s, PM software had become widely accepted. The market for EMR, on the other hand, has started to increase as a result of various financial incentives and governmental forces.
 
Currently, the EMR industry has no dominant leader. It includes both large publicly traded companies and small privately held companies.
 
OIS Sales, Marketing and Distribution
 
We utilize a direct and indirect sales force to distribute our products throughout the United States, Europe, and various other countries. As of December 31, 2009, our U.S. sales and marketing organization consisted of two distribution channels. The first is an ophthalmology channel that reports to the VP of Sales for North America and is comprised of Sales Managers, Technical Support Specialists and Product Specialists, among others, who are located throughout the United States.  These employees provide marketing, sales, maintenance, installation and training services.  The second channel is dedicated to Optometry sales and consists of various Sales Managers, among others.  Each of the two channels is supported by inside sales representatives that are outsourced from well-known providers of sales outsour cing, whose function it is to drive broader penetration into both markets.   In Europe we have several sales representatives and product specialists.  These employees provide marketing, sales, maintenance, installation and training services.
 
Until October 21, 2009, upon completion of the MediVision Asset Purchase, we were parties to several agreements with MediVision, pursuant to which MediVision distributed our WinStation and Symphony Products in Europe, Africa, Israel and India. Products were sold to MediVision at a volume driven discount which was uniformly applicable to all of our distributors, including MediVision. Below is the volume discount table that was available to our distributors for 2009.
 

 
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Annual amounts purchased
Discount
$    0           - $  199,999
0%
$   200,000 - $  299,999
10%
$   300,000 - $  399,999
20%
$   400,000 - $  499,999
30%
$   500,000 and above
40%

In 2009, until the completion of the MediVision Asset Purchase, and for the year ended December 31, 2008, MediVision purchased products of approximately $225,000 and $597,000, respectively. Sales derived from product shipments to MediVision are recorded at transfer pricing which is based on similar volume discounts that are available to other resellers or distributors of our products.
 
CCS Pawlowski GmbH
 
CCS Pawlowski GmbH, a German corporation (“CCS”), was a subsidiary of MediVision which owned 63% of CCS’ ownership interests.  We acquired this ownership interest in the MediVision Asset Purchase.  (For additional details, see Financial Statements for the Year Ended December 31, 2009, Note. 6. Related Party Transactions,, MediVision Asset Purchase.)
 
During the years ending December 31, 2009 and 2008, CCS was the exclusive distributor of certain of our products in Germany and Austria. Products were sold to CCS at a volume driven discount which was uniformly applicable to all of our distributors, including CCS. Below is the volume discount table that was available to our distributors for 2009. CCS will continue to be our exclusive distributor of certain products in Germany and Austria.

Annual amounts purchased
Discount
$   0            -  $  199,999
0%
$   200,000 - $  299,999
10%
$   300,000 - $  399,999
20%
$   400,000 - $  499,999
30%
$   500,000 and above
40%

During 2009, prior to the MediVision Asset Purchase, we sold products to CCS of approximately $113,000 compared to products sold to CCS during the full year 2008 of $226,000. At December 31, 2008, we had $50,365 of amounts due from CCS.  In 2009, after completion of the MediVision Asset Purchase all inter-company amounts with CCS were eliminated upon consolidation.
 
Abraxas Sales and Marketing
 
Abraxas utilizes a direct sales force in marketing and selling its products throughout the United States. At December 31, 2009, Abraxas’ sales and marketing organization consisted of one sales manager, five territory sales representatives, two marketing personnel, and eight product specialists. These personnel provide marketing, sales, maintenance, installation and training services.
 
OIS Europe Sales and Marketing
 
OIS Europe utilizes a direct sales force in marketing and selling its products throughout Europe. At December 31, 2009, OIS Europe’s sales and marketing organization consists of one sales representative and one product specialist. These personnel provide marketing sales, maintenance, installation and training services. In addition to our direct sales force in Europe, we have distribution agreements with distributors throughout Europe to sell and market our products.
 

 
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CCS Sales and Marketing
 
CCS utilizes a direct sales force in marketing and selling its products throughout Europe. At December 31, 2009, CCS’ and marketing organization consists of 2 sales representative and 2 product specialists. These personnel provide marketing sales, maintenance, installation and training services.
 
OIS Manufacturing and Production
 
We are primarily a systems integrator with proprietary software, optical interfaces and electronic fundus camera interfaces. The manufacturing of certain components are subcontracted to outside vendors and assembled by OIS. We use outside vendors to minimize production time and reduce capital requirements. We store and assemble the manufactured components in our 13,552 square foot facility located in Sacramento, California.
 
We have been audited by the Food and Drug Administration (the “FDA”) as recently as May 2007 and there were no findings made. We also have Form 510(k)’s, a pre-marketing notification filed with the FDA which provides certain safety and effectiveness information, on file for our digital angiography products.
 
Abraxas’ Operations
 
Abraxas is a software developer that operates in its 4,883 square foot facility located in Irvine, California.
 
OIS Components, Raw Materials and Suppliers
 
As a systems integrator, a significant number of the major hardware components in our products are procured from sole source vendors. Whenever possible, however, we seek multiple vendors from which to procure our components. Moreover, we work closely with our principal component suppliers, such as Dell Computer, MegaVision, Canon and our other vendors to maintain dependable working relationships and to continually integrate into the manufacturing of our products, whenever feasible, the most current, proven, pertinent technologies. But, as with any manufacturing concern dependent on subcontractors and component suppliers, significant delays in receiving products or unexpected vendor price increases could adversely affect our business.
 
OIS Warranties
 
We generally provide a 12-month limited warranty for parts, labor and shipping charges in connection with the sale of our hardware products. Peripheral products such as monitors, printers and computers also carry the original manufacturer’s warranty.
 
In the North American market, in order to ensure quality control and the proper functioning of our products on-site at a doctor’s office, we generally install the system and train the doctor and the doctor’s staff for a fee. Customers are not required to purchase such services in connection with the purchase of our products. We also offer service plans for sale to our customers as a supplement to the original manufacturer’s warranties.
 
OIS Competition
 
The healthcare industry is characterized by extensive research and development efforts and rapid technological change. Competition for products that can diagnose and evaluate eye disease is intense and expected to increase.
 
With respect to our WinStation products, we are aware of two primary competitors in the United States, which produce and deliver digital fundus imaging systems in volume, Topcon and Zeiss. In addition, there are a few other small competitors. Both Topcon and Zeiss, however, manufacture fundus cameras and produce angiography products that interface mostly with their own fundus cameras. In contrast, our products interface with different models of fundus cameras from a wide variety of manufacturers. Three other companies are known to have systems primarily in the international market, and the U.S. market to a limited extent, each with a small market share.
 

 
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We are aware of five primary competitors for the DSLI, namely Veatch, MVC, Kowa, Helioasis and Lombart. Additionally, there are several other companies, which manufacture similar systems, but these systems currently have minimal market presence.
 
We are aware of three primary competitors for the EyeScan imaging capturing system, namely Zeiss, Topcon and Kowa.
 
We are aware of two primary competitors for the Ophthalmic PACS that develop similar solutions.
 
OIS does not consider many of the companies currently offering some type of EMR or PM products as competitors, as they sell to hospitals and to certain medical specialties that are not in OIS’ current target market. OIS is aware of some competitors for its EMR and PM products in ophthalmology, primarily NextGen, which provide solutions for the multi-specialty medical market, and a few smaller competitors, primarily HCIT, Eye Doc and Compulink, which provide the EMR and or PM solutions predominantly to the ocular healthcare market.
 
Although we continue to work to develop new and improved products, many companies are engaged in research and development of new devices and alternative methods to diagnose and evaluate eye disease. Introduction of such devices and alternative methods could hinder our ability to compete effectively and could have a material adverse effect on our business, financial condition and results of operations. Many of our competitors and potential competitors have substantially greater financial, manufacturing, marketing, distribution and technical resources than us.
 
Abraxas Competition
 
Abraxas does not consider many of the companies currently offering some type of EMR or PM products as competitors, as they sell to hospitals, large clinics, surgery centers and other facilities, and to certain medical specialties that are not in Abraxas’ current target market. Abraxas is aware of some competitors for its EMR and PM products, primarily Allscripts/Misys Healthcare Systems, Sage Software, and NextGen, which provide solutions for the multi-specialty medical market. Others, mainly Digi-Chart and Greenway provide the EMR and PM solutions predominantly to the obstetrics and gynecology market, while other companies specialize in the orthopedic market or the primary care market.
 
The acquisition of EMR, PM and Scheduling has allowed us to broaden our product offerings to the primary care, obstetrics and gynecology, and orthopedic. However there is no guarantee that our sales efforts will be successful. Additional research and development efforts, long sales cycles, new sales training requirements and potential resistance to the initial high cost of the EMR, PM or Scheduling software may hinder our success in selling these products.
 
OIS Europe Competition
 
We are aware of 3 primary competitors for market share in Europe, namely Zeiss, Topcon and, Canon. Additionally, there are several other companies, which manufacture similar systems, but these systems currently have minimal market presence.
 
CCS Sales and Competition
 
We are aware of 5 primary competitors for market share in Germany, namely Zeiss, Topcon, Scholz, Canon, Imedos. Additionally, there are several other companies, which manufacture similar systems, but these systems currently have minimal market presence.
 

 
35

 
 
OIS Research and Development
 
During 2009, OIS focused our recent research and development efforts on new digital image capture products. Our net research and development expenditures in the years ended December 31, 2009 and 2008, excluding our subsidiaries, were approximately $1,956,000 and $2,219,000, respectively. In 2008, we capitalized $504,711 of the costs associated with the development of web-based software.
 
Prior to July 2009, MediVision performed our research and development services whereby MediVision billed us, on a monthly basis, at cost plus 12%. These research and development services included direct labor, consultants’ fees, travel expenses and the applicable portion of general and administrative expenses.  During the years ended December 31, 2009 and 2008, we paid approximately $294,000 and $1,888,000, respectively, to MediVision for research and development services.
 
In 2009, we hired all of MediVision’s research and development staff and moved them to our offices in the United States and Israel, thereby streamlining our research and development efforts. Prior to this, MediVision and other outsourced consultants conducted most of our research and development.  (See Item 1. Business, OIS Sales, Marketing and Distribution.).
 
Abraxas Research and Development
 
Abraxas’ research and development team is located in Irvine, California. Abraxas continues to focus its research and development efforts on the adaptation of its software to the target market as described above. Our net research and development expenditures in the years ending December 31, 2009 and 2008 were approximately $1,073,000 and $0 respectively. In 2008, we capitalized $1,721,000 of the costs associated with the development of our EMR software. During the first three months of 2009, we began to sell this software and amortize these costs.
 
Abraxas also capitalized the EMR, PM and Scheduling software it acquired from AcerMed.
 
Patents, Trademarks and Other Intellectual Property
 
On June 15, 1993, we were issued United States Letters Patent No. 5,220,360 for “Apparatus and Method for Topographical Analysis of the Retina.” This patent relates to the Glaucoma-ScopeR apparatus, and methods used by the apparatus for topographically mapping the retina and comparing the mapping to previous mappings.
 
We currently have patent applications outstanding with the U.S. Patent and Trademark Office and for the European patent authorities under PCT treaty for “A Device, Method and System for Automatic Montage of Segmented Retinal Images” and a “Method for Stabilizing a Sequence Angiographic Images” and for an “Integrated retinal imager and method.”
 
We have registered trademarks for “AutoMontage,” “OIS Symphony,” “Ophthalmology Office” and “IRI.”
 
We have copyrights for “WinStation Version 5,” “WinStation Version 6” and “WinStation XP, Version 10.”
 
In 2007, we entered into a licensing agreement pursuant to which we were granted the right to commercialize background technology and a family of patents for an ocular imaging device, integrate it into our existing and/or future products and retain exclusive rights of use, marketing and sale thereof worldwide.
 
Further, although we believe that our products do not and will not infringe on patents or violate proprietary rights of others, it is possible that our existing rights may not be valid or that infringement of existing or future patents, trademarks or proprietary rights may occur or be claimed to occur by third parties.
 

 
36

 


 
In the event that any of our products infringe patents, trademarks or proprietary rights of others, we may be required to modify the design of such products, change the names under which the products or services are provided or obtain licenses. There can be no assurance that we will be able to do so in a timely manner, upon acceptable terms and conditions, or at all. The failure to do any of the foregoing could have a material adverse effect on our business. There can be no assurance that our patents or trademarks, if granted, would be upheld if challenged or that competitors might not develop similar or superior processes or products outside the protection of any patents issued to us. In addition, there can be no assurance that we will have the financial or other resources necessary to enforce or defend a patent or trademark infringe ment or proprietary rights violation action. Moreover, if our products infringe patents, trademarks or proprietary rights of others, we could, under certain circumstances, become liable for damages, which also could have a material adverse effect on our business.
 
We also rely on trade secrets, know-how, continuing technological innovation and other unpatented proprietary technology to maintain our competitive position. Certain of the proprietary software, optical interfaces and synchronization modules of our digital imaging systems are largely proprietary and constitute trade secrets, but the basic computer hardware and video components are purchased from third parties. No patent applications have been filed with respect thereto. If challenged, we anticipate aggressively defending our unpatented proprietary technology, although there is no assurance that others will not independently develop substantially equivalent proprietary information or techniques, or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our rights to our unpatented t rade secrets and other proprietary technology.
 
We seek to protect our unpatented proprietary technology, in part, through proprietary confidentiality and nondisclosure agreements with employees, consultants and other parties. Our confidentiality agreements with our employees and consultants generally contain standard industry provisions requiring such individuals to assign to us, without additional consideration, any inventions conceived or reduced to practice by them while employed or retained by OIS, subject to customary exceptions. There can be no assurance, however, that proprietary information agreements with employees, consultants and others will not be breached, that we will have adequate remedies for any breach or that our trade secrets will not otherwise become known to or independently developed by competitors.
 
Government Regulation
 
The marketing and sale of our products are subject to certain domestic and foreign governmental regulations and approvals. Pursuant to Section 510(k) of the Federal Food, Drug and Cosmetic Act (“FDCA”), we are required to file, and have submitted, a pre-marketing notification with the FDA which provides certain safety and effectiveness information concerning our diagnostic imaging systems. The FDA has approved our pre-marketing notification submittals, thereby granting us permission to market our products, subject to the general controls and provisions of the FDCA. The classification of our products require, among other things, annual registration, listing of devices, good manufacturing practices, labeling and prohibition against misbranding and adulteration. Further, because we are engaged in international sales, our prod ucts must satisfy certain manufacturing requirements and may subject us to various filing and other regulatory requirements imposed by foreign governments as a condition to the sale of such products.
 
We have registered our manufacturing facility with both the FDA and certain California authorities as a medical device manufacturer and operate such facility under FDA and California requirements concerning Quality System Requirements (“QSR”). As a medical device manufacturer, we are required to continuously maintain our QSR compliance status and to demonstrate such compliance during periodic FDA and California inspections. If the facilities do not meet applicable QSR regulatory requirements, we may be required to implement changes necessary to comply with such regulations.
 
Although the FDA has made findings which permit us to sell our products in the marketplace, such findings do not constitute FDA approval of these devices and we cannot predict the effect that future legislation or regulatory developments may have on our operations. Additional regulations, reconsideration of approvals granted under current regulations, or a change in the manner in which existing statutes and regulations are interpreted or applied may have a material adverse impact on our business, financial condition and results of operations. Moreover, new products and services developed by us, if any, may also be subject to the same or other various federal and state regulations, in addition to those of the FDA.
 

 
37

 


An FDA inspection of our Sacramento, California facility was conducted in May 2007. There were no findings during the inspection.
 
A California Department of Health inspection of our Sacramento, California facility was conducted in August 2009.  There were 3 violations found during the inspection.  A corrective action plan was implemented to correct those issues and no further action was taken by the Department of Health.
 
Under the recently approved stimulus package, The American Recovery and Reinvestment Act of 2009, physicians who implement a certified EMR software program and become meaningful users between 2010 and 2012 will each be eligible for $44,000 in incentive payments and physicians who become meaningful users between 2012 and 2014 will be eligible for lower payments.  Physicians who have not become meaningful users by 2014 will not qualify for any payments. In addition, beginning in 2016, Medicare reimbursement will begin to decrease for clinics that do not meet the above criteria. We anticipate this legislation will have positive effects on our revenues as physicians adopt EMR software programs at higher rates than they do currently. We expect to see this positive trend begin in mid-2010 and beyond.
 
Insurance
 
We maintain general commercial casualty and property insurance coverage for our business operations, as well as directors and officers insurance and product liability insurance. During 2009, we did not receive any product liability claims and are unaware of any threatened or pending claims. To the extent that product liability claims are made against us in the future, such claims may have a material adverse impact on our business.
 
Employees
 
As of October 12, 2010, we have 117 employees, 3 of whom are part-time. 69 of our employees are employed by OIS and 29 of our employees are employed by Abraxas. We also engage the services of consultants from time to time to assist us on specific projects in the areas of research and development, software development, regulatory affairs and product services, as well as general corporate administration. Certain of these consultants periodically sub-contract engineers as independent consultants for specific projects.
 
We have no collective bargaining agreements covering any of our employees.  In addition, we have never experienced any material labor disruption and we are unaware of any current efforts or plans to organize our employees. We consider our relationship with our employees to be good.
 
Properties
 
We lease our facility space in Sacramento, California under a noncancelable lease which will expire in June 2012. This suite consists of 13,552 square feet of office, manufacturing and warehouse space. We pay minimum monthly lease payments, with respect to this property, of $11,926.
 
Abraxas leases facility space in Irvine, California under a noncancelable lease which will expire in June 2011. This facility consists of 6,232 square feet of office space. We pay approximately $10,000 per month for this office space.
 
Legal Proceedings
 
On May 3, 2009, we entered into a Confidential Settlement and Mutual Release Agreement (the “Settlement Agreement”) by and between us, Steven Verdooner, OPKO Health, Inc. and The Frost Group, LLC (collectively “Defendants”). Mr. Verdooner was formerly our president.
 
Pursuant to the Settlement Agreement, we agreed to dismiss, with prejudice, the lawsuit between us and the Defendants, whereby we alleged claims of breach of fiduciary duty, breach of implied contract, intentional interference with contractual relations, intentional interference with prospective economic advantage, violation of section 502 of the Penal Code of California, aiding and abetting breach of fiduciary duty, and aiding and abetting interference with contractual relations. We also agreed to release the Defendants from any claims that could have been brought in the foregoing lawsuit, whether known or unknown.  The Defendants paid us the full amount of the settlement of $1,200,000 on May 13, 2009.
 

 
38

 

 
Directors and Executive Officers
 
Directors and Executive Officers
 
Each director is elected for a one year term until the next annual meeting of shareholders and their successor is elected and qualified.
 
The following is a list of the names and ages of our directors and executive officers:

Name
Age
Position
Gil Allon
48
Director, and Chief Executive Officer
Ariel Shenhar
44
Director, Chief Financial Officer, and Secretary
Noam Allon
50
Chief Technology Officer
Uri Ram
61
Chairman of the Board
Jonathan Phillips
37
Director
Merle Symes
59
Director
Yigal Berman
61
Director
Uri Geiger
42
Director
Menachem Inbar
61
Director

Gil Allon has served as a member of our Board of Directors since August 2000, as our Chief Executive Officer since September 2000.  Mr. Allon is also a member of the Compensation, Option and Nomination Committees of our Board of Directors. Mr. Allon served as the Vice President and Chief Operating Officer of MediVision from June 1993 until August 2000. Mr. Allon also served as a member of the Board of Directors of MediVision since MediVision’s inception in June 1993 through December 2004. Mr. Allon received his B.A. and M.Sc. in Computer Science, both with distinction, from the Technion Israel Institute of Technology in Haifa, Israel in May 1987 and December 1989, respectively, and his M.B.A. with distinction in Business Management from the University of Haifa in September 1999. The Company believes that Mr. Allon has the qualifications and skills to serve as a Director based upon his technological and business expertise; his more than 16 years experience in the industry; and his more than 20 year experience in executive and managerial positions with the Company and previous positions.
 
Ariel Shenhar has served as a member of our Board of Directors since August 2000, as our Vice President and Chief Financial Officer since July 2002 and as our Secretary since August 2002. Mr. Shenhar also served as a member of the Board of Directors of MediVision from August 1994 through December 2004 and as its Vice President and Chief Financial Officer from January 1997 until May 2005. Mr. Shenhar served as a member of the Board of Directors of Fidelity Gold Real Estate Markets Ltd., an Israeli public company engaged in real estate, from 1994 to 1998, as an accountant at Nissan Caspi & Co. Certified Public Accountants in Jerusalem, Israel in 1996, and at Witkowski & Co. Certified Public Accountants in Tel Aviv, Israel from 1994 to 1995. Mr. Shenhar received his B.A. in Economics and Accounting in June 1992 and his M.B.A. in Finance, with distinction, in June 1999 both from the Hebrew University in Jerusalem, Israel, and has been a Certified Public Accountant since January 1997. The Company believes that Mr. Shenhar has the qualifications and skills to serve as a Director based upon his accounting and finance expertise; his more than 15 years experience in the industry; and his experience in executive and managerial positions.
 
Noam Allon has served as a member of our Board of Directors from August 2000 until December 31, 2004 and as our Chief Technology Officer since October 21, 2009. Mr. Allon has served as a director and as President and Chief Executive Officer of MediVision since MediVision’s inception in June 1993.  Mr. Allon also serves as the CEO of OIS Global, OIS’s Israeli subsidiary, as the General Manager of the company’s European branch in Belgium, as well as the Co-CEO of our German subsidiary, CCS Pawlowski, GmbH.  Mr. Allon received his B. Sc. in Computer Science with distinction, from the Technion Israel Institute of Technology in Haifa, Israel in May 1986.
 

 
39

 


Uri Ram has served as an independent director and Chairman of our Board since March 2009. Mr. Ram is the Chairman of the Audit Committee and a member of the Compensation, Option and Nominations Committees of our Board. Currently, he serves as the Sr. Vice President and Chief Financial Officer of Gefen Inc. and is the CEO/Owner of Juram Ltd. and Irams Inc., which are management consulting companies that also invest in new startups. Since 1990, Mr. Ram has served as the President of Del-Ta Engineering & Equipment Ltd., a holding company with $30 million in sales. From 1991 to 2003, Mr. Ram served as the Senior VP of Inter-Gamma Investment Ltd. Inter-Gamma Investment Ltd. is a major shareholder of MediVision Medical Imaging Ltd., a significant shareholder. Mr. Ram has a Master of Arts degree from Israel National Defense College, and a Bachelor of Economics and Political sciences from Bar Ilan University and participated in an EMBA program at the Tel Aviv University. Mr. Ram is a retired Brigadier General of the Israeli Air Force. The Company believes that Mr. Ram has the qualifications and skills to serve as a Director based upon his business expertise and his experience in executive and managerial positions.
 
Jonathan R. Phillips has served as an independent director on our Board of Directors since August 2007. Mr. Phillips is currently a member of the Nomination, Audit and Compensation Committees of our Board of Directors. Since 2005, Mr. Phillips has been a Managing Director and Founder of Healthcare Growth Partners, a company that specializes in strategic and financial advisory services to healthcare technology companies. Also, he is currently Chairman of the Board of Directors of Streamline Health Solutions, a NASDAQ-listed company, and serves on its strategy, nomination and governance and compensation committees. Prior to founding Healthcare Growth Partners, Mr. Phillips served for five years, from 2000 to 2005, as a healthcare investment banker at William Blair & Company after working at Deloitte Consulting for over five years sp ecializing in projects for healthcare and non-healthcare clients. He received an undergraduate degree from DePauw University and a Masters of Business Administration from Northwestern University. The Company believes that Mr. Phillips has the qualifications and skills to serve as a Director based upon his significant business experience, including a diversified background of managing and directing medical related companies.
 
Merle Symes served as an independent director on our Board of Directors from July 2005 to August 2007. Mr. Symes was also appointed to the Audit and Special Committees of our Board of Directors. Mr. Symes is the President and Founder of The Provenance Group, LLC, a firm specializing in corporate strategy and innovation, entrepreneurial ventures, and technology transfer, which he founded in 2002. From 2007 to 2009, Mr. Symes was President and CEO of Ulrich Medical USA.  From 1997 to 2002, Mr. Symes was Vice President External Technology and Director of Corporate Development in the Surgical Division at Bausch & Lomb, Inc. Mr. Symes received his B.S. in Chemical Engineering in 1973 from South Dakota School of Mines and Technology and his M.B.A., in Finance, in 1979 fro m the Wharton School of the University of Pennsylvania.  Merle was recommended as a nominee from several Board members due to his experience and vast contributions to our Board in the past. The Company believes that Mr. Symes has the qualifications and skills to serve as a Director based upon his accounting and finance expertise; his more than 13 years experience in the industry; and his more than 13 years of experience in executive and managerial positions in executive and management positions.
 
Yigal Berman served as a member of our Board of Directors from January 2005 to March 2009. Mr. Berman also served as Chairman of the Board of Directors from January 2005 to March 2009, as well as Chairman of each of the Audit, Compensation, Option and Nomination Committees of our Board of Directors.  Mr. Berman resigned from the board of directors on March 13, 2009. Mr. Berman has also served as a member of the Board of Directors of MediVision from July 1996 through December 2004.  He rejoined the Board of directors of MediVision as chairman in September 2009. In addition, since 1991, Mr. Berman has served as Vice President of Finance and Secretary of Intergamma Investment Company Ltd and is serving today as director in all of their subsidiaries.  Since 1 989, Mr. Berman has served as a member of the Board of Directors of Delta Trading, the majority shareholder of MediVision. Mr. Berman received his B.A. in Economics and his M.B.A. in Business Management from the Tel Aviv University in Israel in April 1974 and December 1976, respectively.  Yigal was recommended as a nominee from several Board members due to his experience and vast contributions to our Board in the past. The Company believes that Mr. Berman has the qualifications and skills to serve as a Director based upon his accounting and finance expertise; his years of experience on our Board of directors in the past; and his more than 19 years of experience in executive and managerial positions in executive and management positions.
 
 

 
40

 

Dr. Uri Geiger has served as a director on our Board of Directors since June 2009. In 2008, Dr. Geiger founded AccelMed, a medical device investment company, which owns 36.4% of our common stock issued and outstanding. Since January 2009, Dr. Geiger has served as Chairman of A.M. AccelMed (1999) Ltd., AccelMed’s general partner. He is also a director with Medical Compression Systems Ltd. (TASE: MDCL) and the Chairman of Exalenz Bioscience Ltd. (TASE: EXEN) as well as a director on the Board of Directors of Edge Medical Ltd., Tau Hedge Funds Management BV, Non-Linear Technologies, and Peer Medical Ltd. From May 2006 to January 2009, Dr. Geiger served as the CEO of Exalenz Bioscience ltd, a developer of diagnostic medical equipment. Dr. Geiger received his doctorate from Columbia University’s Center for Law & Economics.  The Company believes that Dr Geiger’s education and business expertise, including a diversified background of management and directing medical device companies, gave him the qualifications and skills to serve as a Director.
 
Menachem Inbar has served as a director on our Board of Directors since August 2009. Mr. Inbar is the Chairman of the Audit Committee. Mr. Inbar has spent most of his career as a senior executive with the banking industry in Israel and abroad. Since January 2009, he has served as the Head of Family Office of Arkin Holdings, a financial and equity investment firm. From 2000 to 2009, he was the Managing Partner of Shifmen Inbar Ltd., a boutique investment firm. He is currently a director on the boards of Bezeq Ltd., an Israeli telecommunications company, PAGI Bank, a commercial bank and subsidiary of Benleumi Banking Group, and Carmel Group, a real estate company. Mr. Inbar holds a Bachelor of Arts in Social Science and a Master of Arts in Law, both from the Bar Ilan University in Israel. The Company believes that Mr Inba r’s financial and business expertise, including a diversified background of management and directing companies, gave him the qualifications and skills to serve as a Director.
 
Pursuant to the Voting Agreement, described below, AccelMed appointed Uri Geiger and Menachem Inbar to serve on our Board of Directors.  In addition, the parties to the Voting Agreement agreed that at the first annual meeting of our shareholders following the execution of the Voting Agreement, AccelMed will designate Ariel Shenhar, and the MediVision/Principal MV Shareholders Group (as defined therein) will designate Gil Allon to serve as directors until the next annual meeting, subject to their continued service as our Chief Financial Officer and Chief Executive Officer, respectively.  We anticipate that such annual meeting will be held during the year 2010 (For additional details of the voting agreement, see Certain Relationships and Related Transactions, AccelMed, Voting Agreement below.)
 
Independent Directors
 
The rules of the SEC require that we, because we are not listed on any national securities exchange, choose a definition of director “independence” for purposes of determining which directors are independent. We have chosen to follow the definition of independence as determined by the Marketplace Rules of The Nasdaq National Market (“NASDAQ”). Pursuant to NASDAQ’s definition, Uri Ram, Jonathan Phillips, Merle Symes and Yigal Berman are independent directors.
 
Gil Allon, who is not an independent director, is currently a member of the nominations and compensation committees of our board of directors.
 


 
41

 

 
The following table shows the total compensation that we paid to Gil Allon, our chief executive officer, Ariel Shenhar, our chief financial officer, and Noam Allon, our chief technology officer for the last two fiscal years.  Mr. N. Allon assumed duties as an executive officer on October 21, 2009, when he transitioned from a MediVision representative to an OIS executive officer, with the completion of the MediVision Asset Purchase. (For additional details of the MediVision Asset Purchase, see Consolidated Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statements, Note 6. Related party transactions, MediVision Asset Purchase). No other executive officer received more than $100,000 in total compensation dur ing the last two fiscal years. Therefore, for purposes of this disclosure, Messrs. G. Allon, A. Shenhar and N. Allon are our only “named executive officers” for the last two fiscal years.
 

 
42

 

SUMMARY COMPENSATION TABLE

Name and Principal
Position
(a)
Fiscal
Year (b)
Salary
($)
(c)
Bonus
($)
(d)
Stock Awards
($)
(e)
Option
Awards
($)
(f)
Non-Equity Incentive
Plan
Compensation
($)
(g)
Nonqualified
Deferred
Compensation
Earnings
($)
(h)
All other
Compensation ($)
(i)
Total
($)
(j)
Gil Allon
2009
$174,400(1)
-
-
$13,539(2)
-
-
$7,928
(3)
$195,867
(Chief Executive Officer)
2008
$218,000
-
-
-
-
-
$10,909
(3)
$229,909
Ariel Shenhar
2009
$169,600(4)
25,000
-
$16,878(5)
-
-
$7,928
(6)
$219,406
(Vice President and Chief
Financial Officer)
2008
$209,462
-
-
-
-
-
$10,909
(6)
$220,371
Noam Allon
Chief Technology Officer
2009
$30,316(7)
50,000
-
$8,272(8)
       
$88,588

(1)
Gil Allon’s 2009 salary represents his annual salary of $218,000 less $43,600, or 20% of his annual salary, which was received in the form of  an option to purchase 272,500 shares of common stock on January 6, 2009.
 
(2)
Option awards represent the grate date fair value of stock options granted to Gil Allon our CEO on January 6, 2009 and November 18, 2009.
 
On January 6, 2009, we granted Gil Allon, our CEO, an option to purchase 272,500 shares of our common stock. The options, vested in 12 equal monthly installments beginning on January 31, 2009, are exercisable at $0.16 per share and expire on January 6, 2019. These options were granted in lieu of $43,600 or 20% of Gil Allon’s annual salary.
 
On November 18, 2009, we granted Gil Allon, our CEO, an option to purchase 242,141 shares of common stock. The options vest in 4 equal semi-annual installments beginning on May 18, 2010, are exercisable at $0.65 per share and expire on November 18, 2019. (See Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statements, Note 8. Share-Based Compensation for the assumptions used to calculate the grant date fair value of the stock option award.  See also Outstanding Equity Awards at Fiscal Year-End Table below.)
 
(3)
Represents automobile expenses we paid for on behalf of Mr. Allon.
 
(4)
Ariel Shenhar’s 2009 salary represents his annual salary of $212,000 less $42,400, or 20% of his annual salary, which was received in the form of an option to purchase 265,000 shares of common stock granted on January 6, 2009.
 
(5)
Option awards represent the fair value of stock options granted to Ariel Shenhar on January 6, 2009 and November 18, 2009.
 
On January 6, 2009, we granted Ariel Shenhar, our CFO, an option to purchase 265,000 shares of  our common stock. The options, vested in 12 equal monthly installments beginning on January 31, 2009, are exercisable at $0.16 per share and expire on January 6, 2019. These options were granted in lieu of $42,600 or 20% of Ariel Shenhar’s annual salary.
 
On November 18, 2009, we granted Ariel Shenhar, our CFO, an option to purchase 318,285 shares of common stock for compensation The options were valued at the grant date fair value, vest in 4 equal semi-annual installments beginning on May 18, 2010, are exercisable at $0.65 per share and expire on November 18, 2019. (Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statements, Note 8. Share-Based Compensation for the assumptions used to calculate the grant date fair value of the stock option award.  See also Outstanding Equity Awards at Fiscal Year-End Table below.)
 
(6)
Represents automobile expenses we paid on behalf of Mr. Shenhar.
 
(7)
Noam Allon’s 2009 salary represents his fee from the time he assumed duties as an executive officer on October 21, 2009 when he transitioned from a MediVision representative to an OIS executive officer, with the completion of the MediVision Asset Purchase. (For additional details of the MediVision Asset Purchase, see Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statements, Note 6. Related party transactions, MediVision Asset Purchase).
 
(8)
On December 23, 2009, we granted Noam Allon, Chief Technology Officer, an option to purchase 180,000 shares of common stock. The options were valued at the grant date fair value of the options, vested in 4 equal semi-annual installments beginning on June 23, 2010, are exercisable at $0.84 per share and expire on December 23, 2019. These options were granted in lieu of $29,642, or 20% of his annual fee.  (See Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statements, Note 8. Share-Based Compensation for the assumptions used to calculate the grant date fair value of the stock option award.  See also Outstanding Equity Awards at Fiscal Year-End Table below.)

 

 
43

 

Employment Agreements
 
We entered into an employment agreement with Mr. G. Allon for his services as Chief Executive Officer on December 1, 2001. The agreement provides for an indefinite term. Mr. G. Allon is also eligible to participate in our health and welfare insurance plans and is provided an automobile for business use. Either party may terminate the employment agreement upon six months advance notice. The agreement, as amended, sets Mr. G. Allon’s annual salary at $218,000.  In January 2009, Mr. G. Allon agreed to waive his bonus plan for 2008 and 2009 which allowed him to earn a maximum bonus of $65,000 per year and to reduce his salary by 20% for 2009. He received options in lieu of the reduction in salary.
 
We also entered into an employment agreement with Mr. Shenhar for his services as Chief Financial Officer, commencing on July 22, 2002. Mr. Shenhar is also eligible to participate in our health and welfare insurance plans and is provided an automobile for business use. Either party may terminate the agreement upon six months advance notice. The agreement, as amended, sets Mr. Shenhar’s annual salary at $212,000. In January 2009, Mr. Shenhar agreed to waive his bonus plan for 2008 and 2009 which allowed him to earn a maximum bonus of $55,000 per year and to reduce his salary by 20% for 2009. He received options in lieu of the reduction in salary.
 
On October 21, 2009, in connection with the consummation of the MediVision Asset Purchase. Mr. N. Allon assumed duties as an executive officer. In January 2004 we entered into a services agreement with MediStrategy Ltd. (“MS”), an Israeli company owned by Mr. N. Allon, for his services as our Chief Technology Officer. This agreement between OIS and MS was terminated effective January 1, 2010.  On December 23, 2009, Mr. N. Allon received stock options in lieu of the reduction of his fees. In addition, Mr. N. Allon received a $50,000 bonus plan for 2009, based on achieving specific milestones. As of January 1, 2010, OIS Global signed an agreement with MS for Noam Allon’s consulting service. Under the terms of the agreement, MS is to be compensated $13,272 monthly for Noam Allon’s  services eff ective October 1, 2009 through December 31, 2009 and approximately $18,000 monthly effective January 1, 2010 through December 31, 2010.

 
44

 

OUTSTANDING EQUITY AWARDS AT JUNE 30, 2010
Option Awards
 
Stock Award
Name
(a)
Number of Securities Underlying Unexercised Options (#)  Exercisable  (b)
Number of Securities Underlying Unexercised Options (#) Unexercisable (c)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(d)
Option Exercise Price
($)
(e)
Option Expiration Date
(f)
 
Number of Shares or Units of Stock  That Have Not Vested (#)
(g)
Market Value of Shares or Units of Stock That Have Not Vested
($)
(h)
Equity Incentive Plan Awards: Number  of Unearned Shares, Units or Other Rights That Have Not Vested
($)
(i)
Equity  Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
(j)
Gil Allon
40,000
 
-
 
-
$0.406
10/23/2012
 
-
-
-
-
(Chief Executive
320,000
 
-
 
-
$0.406
4/9/2013
 
-
-
-
-
Officer)
90,000
 
-
 
-
$0.681
10/22/2014
 
-
-
-
-
86,667
 
43,333
 
-
$ 0.82
12/19/2015
 
-
-
-
-
86,667
 
43,333
(1)
-
$ 1.05
12/19/2015
 
-
-
-
-
20,000
 
-
 
-
$ 1.83
6/14/2016
 
-
-
-
-
272,500
(2)
-
 
-
$ 0.16
1/6/2019
 
-
-
-
-
-
 
242,141
(3)
-
$ 0.65
11/18/2019
 
-
-
-
-
                       
Ariel Shenhar
200,000
 
-
 
-
$0.406
4/9/2013
 
-
-
-
-
(Vice President and Chief Financial Officer)
75,000
 
-
 
-
$0.681
10/22/2014
         
76,667
 
38,333
(4)
-
$ 0.82
12/19/2015
 
-
-
-
-
76,667
 
38,333
(4)
-
$ 1.05
12/19/2015
 
-
-
-
-
265,000
 
-
 
-
$0.16
1/6/2019
 
-
-
-
-
-
 
318,285
 
-
$0.65
11/18/2019
 
-
-
-
-
                         
Noam Allon
150,000
 
-
 
-
$0.406
9/6/2011
 
-
-
-
-
(Chief Technology
30,000
 
-
 
-
$0.406
4/9/2013
 
-
-
-
-
Officer)
40,000
 
-
 
-
$0.681
10/24/2014
 
-
-
-
-
 
-
 
180,000
(7)
-
$0.84
12/23/2019
 
-
-
-
-

(1)
These options have not vested.  They vest equally over three years every six months (1/6 every 6 months) beginning on June 19, 2008.
(2)
These options were issued to Mr. Allon in lieu of $43,600, which comprised 20% of his annual salary for fiscal 2009.  The options are valued at $2,686, the grant date fair value.
(3)
These options have not vested.  They will vest equally over two years every 6 months ( ј every 6 months ) beginning in May 18, 2010.
(4)
These options have not vested.  They vest equally over three years every six months (1/6 every 6 months) beginning on June 19, 2008.
(5)
These options were issued to Mr. Shenhar in lieu of $42,400, which comprised 20% of his annual salary for fiscal 2009.  The options are valued at $2,612, the grant date fair value.
(6)
These options have not vested.  They vest equally over two years every 6 months ( ј every 6 months ) beginning in May 18, 2010.
(7)
On December 23, 2009, we granted Noam Allon, Chief Technology Officer, options to purchase 180,000 shares of common stock in lieu of $29,642, which comprised of 20% of his 2009 annual fee. The options vest in 4 equal semi-annual installments beginning on June 23, 2010, are exercisable at $0.84 per share and expire on December 23, 2019.


 
45

 

Compensation of Directors
 
Director Compensation
 
Name
(a)
 
Fees Earned
or Paid in
Cash
($)
(b)
   
Stock
Awards
($)
(c)
   
Option Awards
($)
(d)
   
Non-equity
Incentive Plan Compensation ($)
(e)
   
Non-Qualified Deferred Compensation Earnings
($)
(f)
   
All Other Compensation ($)
(g)
   
Total
($)
(j)
 
William Greer
 
$
16,250
(1)
   
-
     
-
           
-
     
-
     
-
   
$
16,250
 
                                                                       
Jonathan Phillips
 
$
16,250
(1)
   
-
     
-
           
-
     
-
     
-
   
$
16,250
 
                                                                       
Uri Ram
 
$
20,120
(2)
         
$
425
(2)
                         
$
20,545
 
                                                                         
Uri Geiger
 
$
13,493
(3)
                                                 
$
13,493
 
                                                                         
Menachem Inbar
 
$
10,000
(4)
   
-
     
-
             
-
     
-
     
-
   
$
10,000
 

(1)
Mr. Greer and Mr. Phillips each received $16,250 for their services as a Director.
(2)
Mr. Ram received $19,750 for his services as a Director and $370 for the reimbursement of out of pocket expenses.  Mr. Ram also received 30,000 options with an exercise price of $0.55, vesting equally over three years every 6 months (1/6 every 6 months) beginning in April 29, 2010. (See Financial Statements for the Year Ended December 31, 2009, Notes to Consolidated Financial Statements, Note 8, Share-Based Compensation for the assumptions used to calculate the grant date fair value of this stock option award.)
(3)
Dr Geiger joined the board in June 2009. During 2009, he earned $10,000 for his services as a Director and $3,493 for the reimbursement of out of pocket expenses.
(4)
Mr. Inbar joined the board in August 2009. During 2009, he earned $10,000 for his services as a Director.
 
In August 2010 Mr. Greer and Dr. Maurincomme did not stand for re-election to our board of directors.
 
Director Compensation Arrangements
 
Pursuant to a letter agreement dated March 13, 2009 between Mr. Ram and OIS, OIS agreed, in connection with his service as a director: (i) to pay Mr. Ram, in four equal quarterly installments, an annual retainer in the aggregate amount of $15,000 for attendance at up to three Board or Committee meetings per quarter and (ii) to pay Mr. Ram a fee of $100 per hour, not to exceed $500 per day, for attendance at meetings in excess of five Board meetings per quarter. OIS also agreed to the following in connection with his service as Chairman of the Board: (i) to pay Mr. Ram, in four equal quarterly installments, an annual retainer in the aggregate amount of $24,000 for attendance at up to five Board or Committee meetings per quarter and (ii) to pay Mr. Ram a fee of $100 per hour, not to exceed $500 per day, for attendance at meetings in exc ess of five Board meetings per quarter.
 
Pursuant to a letter agreement dated August 31, 2007, between Mr. Greer and OIS, and as amended on October 30, 2009, OIS agreed to the following in connection with his service as a director: (i) to pay Mr. Greer, in four equal quarterly installments, an annual retainer in the aggregate amount of $20,000 for attendance at up to three Board or Committee meetings per quarter, (ii) to pay Mr. Greer a fee of $100 per hour, not to exceed $500 per day, for attendance at meetings in excess of three Board meetings per quarter.
 
Pursuant to a letter agreement executed on August 31, 2007 between Mr. Phillips and OIS, and as amended on October 30, 2009, OIS agreed to the following in connection with his service as a director: (i) to pay Mr. Phillips, in four equal quarterly installments, an annual retainer in the aggregate amount of $20,000 for attendance at up to three Board or Committee meetings per quarter, (ii) to pay Mr. Phillips a fee of $100 per hour, not to exceed $500 per day, for attendance at meetings in excess of three Board meetings per quarter.
 
Pursuant to the Voting Agreement, AccelMed appointed Uri Geiger and Menachem Inbar to serve on our Board of Directors. Pursuant to this agreement, we have agreed to pay $20,000 per year to Uri Geiger and Menachem Inbar. For more information on this agreement see Item 10, Directors, Executive Officers and Corporate Governance section, See also Financial Statements for the year ending December 31, 2009, Notes to Consolidated Financial Statements, Note 6 Related Party Transactions, U.M. AccelMed, Limited Partnership.
 
No standard arrangement regarding compensation of the directors has been adopted by the Board and, except as noted above, we have not paid any director compensation.
 

 
46

 

 
The following table sets forth as of October 12, 2010, certain information regarding the ownership of our voting securities by each shareholder known to our management to be (i) the beneficial owner of more than 5% of the our outstanding common stock, (ii) our directors during the last fiscal year and nominees for director, and (iii) all executive officers and directors as a group. Unless otherwise noted, we believe that the beneficial owners of the common stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares. Unless otherwise noted, the address of each beneficial owner named below is our corporate address.
 
 
Name and Address of Beneficial Owner
 
Amount and Nature of Beneficial
Ownership (1)
 
Percent of Class
Management and the Board
         
           
Gil Allon
 
1,079,702
(2)
 
3.4%
           
Ariel Shenhar
 
841,238
(3)
 
2.7%
           
Noam Allon
 
265,000
(4)
 
*
           
William Greer
 
50,000
(5)
 
*
           
Jonathan R. Phillips
 
65,000
(6)
 
*
           
Uri Ram
 
15,000
(7)
 
*
           
Eric Maurincomme
 
--
   
--
           
Directors and Officers as a group
(total of 5 persons)
 
2,315,940
(8)
 
7.1%
           
5% Shareholders
         
           
MediVision Medical Imaging Ltd.(9)
P.O. Box 45, Industrial Park
Yokneam Elit
20692 Israel
 
9,112,446
(10)
 
30.1%
U.M. AccelMed, Limited Partnership (11)
6 Hachoshlim St.
Herzliya Pituach, 46120 Israel
 
16,549,679
(12)
 
49.4%
The Tail Wind Advisory & Management Ltd. (13)
77 Long Acre
London, WC2E 9LB
United Kingdom
 
2,334,429
 
(14)
 
7.2%
_________________
*  Less than 1% ownership
 

 
47

 

 
(1)
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Under those rules and for purposes of the table above (a) if a person has decision making power over either the voting or the disposition of any shares, that person is generally deemed to be a beneficial owner of those shares; (b) if two or more persons have decision making power over either the voting or the disposition of any shares, they will be deemed to share beneficial ownership of those shares, in which case the same shares will be included in share ownership totals for each of those persons; and (c) if a person held options to purchase shares that were exercisable on, or became exercisable within 60 days of October 12, 2010, that person will be deemed to be the beneficial owner of those shares and those shares (but not sh ares that are subject to options held by any other stockholder) will be deemed to be outstanding for purposes of computing the percentage of the outstanding shares that are beneficially owned by that person.
(2)
Represents options to purchase 959,702 shares of common stock, indirect beneficial ownership by spouse of stock options to purchase 60,000 shares and 60,000 shares of common stock.
(3)
Represents options to purchase 811,238 shares of common stock and 30,000 shares of common stock.
(4)
Represents shares subject to stock options.
(5)
Represents shares subject to stock options.
(6)
Represents options to purchase 50,000 shares of common stock and 15,000 shares of common stock.
(7)
Represents shares subject to stock options.
(8)
Represents options to purchase 2,210,940 shares of common stock and 105,000 shares of common stock.
(9)
 
The members of the Board of Directors of MediVision hold sole voting and dispositive power over the shares of Common Stock beneficially owned by MediVision. The members of MediVision’s Board of Directors are Noam Allon, Yigal Berman, Doron Maor, Mira Nesher and Amnon Roffe.  MediVision’s Board may act upon approval of a majority of the board present and voting on an action, assuming a quorum is met.  Each of Noam Allon, Yigal Berman, Doron Maor, Mira Nesher and Amnon Roffe expressly disclaims any equitable or beneficial ownership of the shares of Common Stock beneficially owned by MediVision.
(10)
Represents shares of common stock.
(11)
Moshe Arkin shares voting and dispositive power over the shares of Common Stock held by AccelMed with M. Arkin (1999) Ltd., A.M. AccelMed Management (2009), Ltd. and U.M. AccelMed.  Mr. Arkin is the sole director and beneficial owner of 99.9% of the outstanding shares of M. Arkin (1999) Ltd., which beneficially owns 80% of A.M. AccelMed Management (2009), Ltd., which is the general partner of AccelMed.  Each of Mr. Arkin, M. Arkin (1999) Ltd. and A.M. AccelMed Management (2009), Ltd. expressly disclaim equitable and beneficial ownership of the shares of Common Stock held by AccelMed.
(12)
Represents 13,338,603 shares of our common stock and warrants to purchase 3,211,076 of our common stock at $1.00 per share, respectively.
(13)
 
David Crook is the CEO and controlling shareholder of Tail Wind Advisory & Management Ltd., a UK corporation authorized and regulated by the Financial Services Authority of Great Britain, which is the investment manager for Tail Wind. Mr. Crook may be deemed to share voting and dispositive power with Tail Wind over the shares of Common Stock held by Tail Wind. Each of Mr. Crook and Tail Wind Advisory & Management Ltd. expressly disclaim equitable and beneficial ownership of the shares of Common Stock held by Tail Wind.
(14) Represents 131,868 shares of common stock, 963,165 of shares issuable upon conversion of Convertible Notes due February 28, 2011, and warrants to purchase 1,239,396 of our common stock. 

 

 
48

 

 
Related Party Transactions
 
AccelMed
 
Purchase Agreement
 
AccelMed is our largest shareholder with 13,338,603 shares of our common stock or 44%.  AccelMed acquired 13,214,317 of these shares on June 24, 2009 and May 26, 2010, pursuant to a Purchase Agreement described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus. The remaining 124,286 shares were purchased from MediVision on January 6, 2010 at a purchase price of $0.70 per share.
 
Pursuant to the terms of the Purchase Agreement, we also agreed to prepare and file with the SEC registration statements covering the resale of the 1st Installment Shares and the 1st Installment Warrant Shares within 60 days of the 1st Installment Closing Date and the 2nd Installment Shares and the 2nd Installment Warrant Shares within 60 days of the 2nd Installment Clo sing Date. The 1st Installment Shares, the 1st Installment Warrant Shares, the 2nd Installment Shares and the 2nd Installment Warrant Shares are collectively referred to as the “Registrable Securities.” Our obligation to keep the registration statement effective will terminate upon the earlier of (i) the date on which all Registrable Securities have been sold, and (ii) the date on which all Registrable Securities become eligible for resale by AccelMed without any volume or other restrictions under Rule 144.
 
The Purchase Agreement also provides for the inclusion in the earlier of either the proxy statement for (i) our 2010 Annual Meeting of Shareholders or (ii) a special meeting of our shareholders held prior to the 2010 Annual Meeting of Shareholders, a proposal to amend its Articles of Incorporation in order to increase the amount of our authorized common stock from 35 million to 100 million.  The Purchase Agreement also sets forth a provision that requires us to increase the size of our Board of Directors to nine. Director and officer insurance will be provided for each director elected or appointed in accordance with the foregoing nomination procedures in an amount not less than $10 million. In addition, we will pay AccelMed $20,000 per year for each director elected or appointed that was nominated by AccelMed pursuant to th e Voting Agreement (as defined below) who is not our employee.
 
The Purchase Agreement also grants AccelMed (i) veto rights, so long as AccelMed owns more than 20% of our common stock on a fully diluted basis, over certain of our material business decisions, (ii) a pro rata participation right in any of our future equity offerings, so long as AccelMed owns 15% of the 1st Installment Shares, and (iii) a most favorite nation right, pursuant to which AccelMed will receive rights on parity with any other issuance which provides for rights more favorable than those received by AccelMed (e.g., voting, registration, liquidation preference, etc.), so long as AccelMed owns 20% of our common stock on a fully diluted basis.
 
Warrants
 
The 1st Installment Warrant entitles AccelMed to purchase 3,211,076 shares of our common stock at an exercise price of $1.00 per share. The 1st Installment Warrant expires on June 24, 2012. The exercise price will be adjusted and the number of shares of our common stock to be issued upon exercise of the 1st Installment Warrant will be adjusted upon the occurrence of the payment of a stock dividend or a stock split. In addition, the 1st Installment Warrant includes certain anti-dilution provisions which are triggered if we is sue or sell any of our common stock, securities convertible into our common stock, any right to purchase shares of or reprice any of our common stock at an effective per share selling price less than $1.00 per share. Upon the occurrence of an anti-dilution event specified in the immediately preceding sentence, the exercise price of the 1st Installment Warrant will be adjusted pursuant to a weighted-average formula.
 
The 2nd Installment Warrant entitles AccelMed to purchase 1,193,696 shares of our common stock at an exercise price of $1.00 per share. The exercise price will be adjusted and the number of shares of our common stock to be issued upon exercise of the 2nd Installment Warrant will be adjusted upon the occurrence of the payment of a stock dividend or a stock split. In addition, the 2nd Installment Warrant includes certain anti-dilution provisions which are triggered if we issue or sell any of our common stock, securities convertible into our common stock, any right to purchase shares of or reprice our com mon stock at an effective per share selling price less than $1.00 per share. Upon the occurrence of an anti-dilution event specified in the immediately preceding sentence, the exercise price of the 2nd Installment Warrant will be adjusted pursuant to a weighted-average formula.
 

 
49

 

The 2nd Installment Warrant may be exercised beginning on the earliest of the following: (i) the date that we consummate a merger with and into another corporation or the date we consummate a sale, transfer or other disposition of all or substantially all our assets, (ii) the date that the average closing price per share of our common stock on the OTC Bulletin Board (or wherever our common stock is listed or quoted for trading on the date in question) for 10 consecutive trading days exceeds $2.00, (iii) the date our Board of Directors offers a transaction pursuant to which we raise at least $1.5 million in capital raising transaction with persons who are shareholders of MediVision, on the date thereof, and (iv) March 27, 2012, and expires on June 24, 2012.< /font>
 
Voting Agreement
 
Pursuant to the terms of the Purchase Agreement, on June 24, 2009, we entered into an Agreement (the “Voting Agreement”) by and among (i) AccelMed, (ii) MediVision, (iii) Agfa Gevaert N.V. (“Agfa”), (iv) Delta Trading and Services (1986) Ltd. (“Delta”), and (v) Gil Allon, Noam Allon, Ariel Shenhar and Yuval Shenhar (collectively, the “Allon/Shenhar Group” and together with Agfa and Delta, the “Principal MV Shareholders”). MediVision and the Principal MV Shareholders are referred to as the “MediVision/Principal Shareholders Group.” Under the Voting Agreement, following the 1st Installment Closing Date, as long as each of AccelMed and the MediVision/Principal MV Shareholders Group holds b etween 25% and 50% of the outstanding shares of our common stock, we agreed to use our best efforts and will take all actions (including, if necessary, amend its bylaws) to cause to be nominated for election to our Board of Directors, and each of AccelMed and the members of the MediVision/Principal MV Shareholders Group, agreed to vote its shares of our common stock owned, whether directly or indirectly, and whether now owned or thereafter acquired, in favor of, the following nominees: (1) two “Independent Directors” as defined under the listing standards of The Nasdaq Capital Market, the identity of one will be designated and named by AccelMed and the identity of the other by the MediVision/Principal MV Shareholders Group; (2) three persons designated and named by AccelMed; (3) three persons designated and named by MediVision; and (4) one person designated and named jointly by AccelMed and MediVision who shall be a reputable individual from our industry.
 
Pursuant to the terms of the Voting Agreement, following the 1st Installment Closing Date, as long as either AccelMed or the MediVision/Principal MV Shareholders Group holds less than 25% or more than 50% of the outstanding shares of our common stock, we agreed to use our best efforts and will take all actions (including, if necessary, amend its bylaws) to cause to be nominated for election to our Board of Directors, and each of AccelMed and the members of the MediVision/Principal MV Shareholders Group, agreed to vote our shares of common stock, in favor of, the following nominees: (1) two “Independent Directors” as defined under the listing standards of The Nasdaq Capital Market, the identity of one will be designated and named by AccelMed and the identity of the other by either MediVision/Principal MV Shareholders Group; (2) six persons designated and named by AccelMed and the MediVision/Principal MV Shareholders Group, with each of AccelMed and the MediVision/Principal MV Shareholders Group entitled to name the number of persons for election to our Board of Directors in proportion to their shareholdings in us (i.e., calculated based on the percentages of holdings of each out of their combined aggregate holdings, multiplied by six, and rounded to the nearest whole number); (3) one person designated and named jointly by AccelMed and MediVision who shall be a reputable individual from our industry.
 
In connection with the foregoing, at the first annual meeting of our shareholders following the execution of the Voting Agreement, AccelMed shall designate Ariel Shenhar and the MediVision/Principal MV Shareholders Group shall designate Gil Allon to serve as directors until the next annual meeting, subject to their continued service as our Chief Financial Officer and Chief Executive Officer, respectively. In addition, AccelMed has appointed Uri Geiger and Menachem Inbar (the “New Directors”) to serve on our Board of Directors.
 
The Voting Agreement will terminate when AccelMed ceases to own 10% of our common stock on a fully-diluted basis or the MediVision/Principal MV Shareholder Group ceases to own, in the aggregate, 10% of our common stock on a fully-diluted basis.
 
Prior to the consummation of the 1st Installment, MediVision was our parent company with ownership of 56% of our issued and outstanding common stock.  After the consummation of the 1st Installment, MediVision owns 35% of our issued and outstanding common stock.
 

 
50

 

Gil Allon (our Chief Executive Officer), together with Noam Allon, President and Chief Executive Officer of MediVision and Gil Allon’s brother own 20.31% of MediVision’s ordinary shares. Ariel Shenhar (our Chief Financial Officer), together with Yuval Shenhar, his brother, own 1.06% of MediVision’s ordinary shares. Agfa and Delta own 15.59% and 42.08% of MediVision’s ordinary shares, respectively.
 
Indemnification Agreements
 
Pursuant to the terms of the Purchase Agreement, on June 24, 2009, we extended Indemnification Agreements to all of our board members on that date and to date, we entered into agreements with Uri Geiger, Menachem Inbar, Uri Ram, Gil Allon, and Ariel Shenhar.  Under the Indemnification Agreements, we agreed to hold harmless and indemnify each of Messrs. Geiger, Inbar, Ram, Allon, Shenhar, Phillips and Greer to the fullest extent authorized under the California General Corporations Code and our Articles of Incorporation, as amended, subject to certain limitations as specified therein.
 
MediVision
 
As of October 12, 2010, MediVision owned 9,112,446 shares of our common stock, or 30.1%.  5,793,452 of these shares are currently held in escrow pursuant to the Escrow Agreement referenced below.
 
Asset Purchase Agreement
 
On October 21, 2009, we completed the purchase of substantially all of the assets of MediVision pursuant to an Asset Purchase Agreement dated June 24, 2009 with MediVision.  The Asset Purchase Agreement is described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.
 
Escrow Agreement
 
Pursuant to the terms of the Asset Purchase Agreement, on June 24, 2009, we entered into an Escrow Agreement with MediVision and Stephen L. Davis, Esq.  Under the terms of the Escrow Agreement, MediVision has 5,793,452 shares of our common stock held in escrow.  (For additional details of the Escrow Agreement, see Financial Statements for the year ended December 31, 2009, Notes to Consolidated Financial Statements, Note 6. Related Party Transactions, Escrow Agreement.)
 
Intercompany Transactions
 
Up until the completion of the purchase of substantially all of the assets of MediVision, we and MediVision were parties to several agreements together, pursuant to which MediVision performed the distribution services on our behalf.  (For additional details of these services and the agreements therefor, see Financial Statements for the year ended December 31, 2009, Notes to Consolidated Financial Statements, Note 6. Related Party Transactions, Intercompany Transactions, MediVision Medical Imaging Ltd.)
 
Guarantee

In 2005, we entered into a Secured Debenture (the “Debenture”) in favor of United Mizrahi Bank, in an amount of up to $2,000,000 (plus interest, commissions and all expenses), thereby guaranteeing a loan made to MediVision.  On October 23, 2009, upon our assumption of this loan as the primary borrower, we were released as guarantor of this loan to United Mizrahi Bank.  (For additional details of these services and the agreements therefor, see Financial Statements for the year ended December 31, 2009, Notes to Consolidated Financial Statements, Note 6. Related Party Transactions, United Mizrahi Bank Loan)
 

 
51

 

Loans and Advances
 
In connection with the MediVision Asset Purchase, management has written off the balance of intercompany indebtedness  (For additional details of these agreements, see Financial Statements for the year ended December 31, 2009, Notes to Consolidated Financial Statements, Note 6. Related Party Transactions, MediVision Loans and Advances)
 
Merger
 
On March 20, 2008, we entered into a definitive merger agreement (the “Merger Agreement”) with MV Acquisitions Ltd., an Israeli company and a wholly-owned subsidiary (“Merger Sub”), and MediVision, pursuant to which Merger Sub will merge with and into MediVision (the “Merger”), with MediVision as the surviving entity. We have capitalized the direct costs associated with the Merger. As of December 31, 2008, these costs have accumulated to $1,047,047. On March 16, 2009, we entered into a Termination Agreement with MediVision pursuant to which the Merger Agreement was terminated.
 
Relationships
 
Gil Allon (our Chief Executive Officer), together with Noam Allon, President and Chief Executive Officer of MediVision, Gil Allon’s brother and a former director of OIS own 20.31% of MediVision’s ordinary shares. Ariel Shenhar (our Chief Financial Officer), together with Yuval Shenhar, his brother, own 1.06% of MediVision’s ordinary shares.
 
The Tail Wind Fund Ltd.
 
As of October 12, 2010, Tail Wind beneficially owned 2,334,429 shares of our common stock, or 7.2%.
 
In 2007 and 2009, we issued to Tail Wind Fund Ltd. $2,350,000 in principal amount of our 6.5% Convertible Notes Due October 31, 2011 (the “Notes”) and warrants to purchase shares of our common stock. As of October 12, 2010, Tail Wind Fund Ltd had a the remaining principal balance on the notes of $1,025,000 which is convertible into 963,165 shares of our common stock at an adjusted conversion price of $1.06 per share, (ii) warrants to purchase an aggregate of 950,357 shares of our common stock at an adjusted exercise price of $1.21 per share and expire on October 29, 2012, and (iii) warrants to purchase aggregate of 1,239,396 shares of our common stock at an exercise price of $1.00 per share and expire on June 24, 2012.  Our next principal payment on the Notes will be due February 28, 2011.
 
In March 2010, the the Tailwind Fund Ltd converted $150,000 of the principal balance into 131,868 shares of our common stock.
 
MediStrategy, Ltd.
 
We have an ongoing service agreement with MediStrategy Ltd. (“MS”), an Israeli company owned by Noam Allon, a former director who served on our Board until December 2004 and brother of Gil Allon, our CEO. (For additional details of this agreements, see Financial Statements for the year ended December 31, 2009, Notes to Consolidated Financial Statements, Note 6. Related Party Transactions, MediStrategy, Ltd.)
 
CCS Pawlowski
 
CCS Pawlowski GmbH (“CCS”), was a German subsidiary of MediVision which owned 63% of CCS’ ownership interests.  We acquired this ownership interest in the MediVision Asset Purchase (for additional details of the MediVision Asset Purchase see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus). CCS is our exclusive distributor of certain of our products in Germany and Austria. During 2009, prior to the MediVision Asset Purchase, we sold products to CCS of approximately $113,000. After completion of the MediVision Asset Purchase all inter-company amounts were eliminated upon consolidation.
 
Directors
 
Uri Ram, Jonathan Phillips, Merle Symes and Yigal Berman are independent directors as defined by the Nasdaq Marketplace Rules. Gil Allon, who is not an independent director, is a member of the Compensation, Option and Nomination Committees of our Board of Directors.
 

 
52

 

 
AccelMed may sell, from time to time under this prospectus, up to an aggregate of 2,368,142 shares of our common stock pursuant to a private placement transaction completed on June 24, 2009.  AccelMed has not held nor had any material relationship with us within the past three years prior to the private placement on June 24, 2009.
 
Tail Wind and Solomon may sell, from time to time under this prospectus, pursuant to the Extension Agreement, 78,778 and 13,409, respectively shares of our common stock which may be acquired upon exercise of a warrant with an exercise price of $1.00 and expire on June 24, 2012.
 
The following table sets forth, to our knowledge, certain information about the selling security holders as of October 12, 2010. Beneficial ownership is determined in accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission, and generally includes voting or investment power with respect to securities. In computing the number of shares beneficially owned by the holder and the percentage ownership of the holder, shares of common stock issuable upon conversion of the note and upon exercise of the warrant held by the holder that are currently convertible or are exercisable or convertible or exercisable within 60 days after the date of the table are deemed outstanding.
 
As of October 12, 2010, a total of 30,300,928 shares of our common stock were outstanding. The following table sets forth information as of that date regarding the beneficial ownership of our common stock both before and immediately after the offering. Actual ownership of the shares is subject to conversion of the convertible notes and exercise of the warrants.
 
The shares of common stock being offered under this prospectus may be offered for sale from time to time during the period the registration statement of which this prospectus is a part remains effective, by or for the account of the selling security holders described below. The selling securities holders did not have an existing short position on our common stock.
 

   
Shares Beneficially Owned
Prior to Offering
         
Shares Beneficially Owned
After the Offering (1)
 
Name of Beneficial Owner
 
Number
   
% of Class
   
Shares Being Offered
   
Number
   
% of Class
 
U.M. AccelMed, Limited Partnership (2)
    16,549,679 (3)     49,4 %     2,368,142 (4)     14,181,537 (5)     42.3 %
The Tail Wind Fund Ltd. (6)
    2,334,429 (7)     7.2 % (8)     78,778 (9)     2,255,651 (10)     7.0 %(8)
Solomon Strategic Holdings, Inc. (11)
    391,840 (12)     1.3 %(8)     13,409 (13)     378,431 (14)     1.2 %(8)

(1) Assumes all shares being offered by the selling security holders are sold.
 
(2) Moshe Arkin shares voting and dispositive power over the shares of Common Stock held by AccelMed with M. Arkin (1999) Ltd., A.M. AccelMed Management (2009), Ltd. and U.M. AccelMed.  Mr. Arkin is the sole director and beneficial owner of 99.9% of the outstanding shares of M. Arkin (1999) Ltd., which beneficially owns 80% of A.M. AccelMed Management (2009), Ltd., which is the general partner of AccelMed.  Each of Mr. Arkin, M. Arkin (1999) Ltd. and A.M. AccelMed Management (2009), Ltd. expressly disclaim equitable and beneficial ownership of the shares of Common Stock held by AccelMed.

(3) Represents 13,338,603 shares of our common stock and warrants to purchase 3,211,076 of our common stock.
 

 
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(4) Represents shares of common stock being offered.
 
(5) The shares of common stock beneficially owned after the offering consist of 10,970,461 shares of our common stock and 3,211,076 shares of our common stock issuable upon exercise of warrants.
 
(6) David Crook is the CEO and controlling shareholder of Tail Wind Advisory & Management Ltd., a UK corporation authorized and regulated by the Financial Services Authority of Great Britain, which is the investment manager for Tail Wind.  Mr. Crook may be deemed to share voting and dispositive power with Tail Wind over the shares of Common Stock held by Tail Wind.  Each of Mr. Crook and of Tail Wind Advisory & Management Ltd. expressly disclaim equitable and beneficial ownership of the shares of Common Stock held by Tail Wind.
 
(7)  Represents 131,868 shares of common stock, 963,165 of shares issuable upon conversion of Convertible Notes due February 28, 2011, and warrants to purchase 1,239,396 of our common stock.
 
(8) The selling security holder is contractually prohibited from beneficially owning any number greater than 9.99% of our issued and outstanding shares of common stock.
 
(9)  Shares of common stock to being offered consist of 78,778 shares of our common stock issuable upon conversion of a warrant.
 
(10) The shares of common stock beneficially owned after the offering consists of 131,868 shares of common stock, 963,165 shares of our common stock issuable upon conversion of notes and 1,160,618 shares of our common stock issuable upon exercise of warrants.
 
(11) Andrew P. Mackellar has been authorized by the Board of Directors of Solomon to make voting and disposition decisions with respect to the shares on behalf of Solomon. By reason of such delegated authority, Mr. Mackellar may be deemed to share voting and dispositive power with Solomon over the shares of common stock owned by Solomon.  Mr. Mackellar expressly disclaims any equitable or beneficial ownership of the shares being registered hereunder and held by Solomon.  Mr. Mackellar does not have any legal right to maintain such delegated authority.
 
(12) The shares of common stock beneficially owned prior to the offering consists of 86,912 shares of common stock, 93,967 shares of our common stock issuable upon conversion of notes and 210,961 shares of our common stock issuable upon exercise of warrants.
 
(13) Shares of common stock being offered consist of 13,409 shares of our common stock issuable upon conversion of a warrant.
 
(14) The shares of common stock beneficially owned after the offering consists of 86,912 shares of common stock, 93,967 shares of our common stock issuable upon conversion of notes and 197,552 shares of our common stock issuable upon exercise of warrants.
 
Relationships with the Selling Security Holders
 
The following is a description of each selling security holders relationship to us and how each selling security holder acquired the shares to be sold in this in this offering. None of the selling security holders have held a position as an officer or other material relationship with us, except as indicated below.

Purchase Agreement with AccelMed
On June 24, 2009, pursuant to a purchase agreement, we completed a private placement transaction in which we issued and sold to AccelMed, 9,633,228 shares of our common stock at $0.41522 per share and a warrant to purchase up to 3,211,076 shares of our common stock (the “1st Installment Warrant”), for an aggregate purchase price of $3,999,909 million before expenses.  The 1st Installment Warrant is exercisable at $1.00 per share and expires on June 24, 2012. On May 26, 2010, we completed the 2nd and final installment, whereby we issued and sold to AccelMed 3,581,089 shares of comm on stock at $0.55848 per share at and a warrant to purchase up to 1,193,696 shares of our common stock (the “2nd Installment Warrant”) for an aggregate purchase price of $1,999,967, before expenses. The 2nd Installment Warrant may be exercised beginning on the earliest of the following: (i) the date that we consummate a merger with and into another corporation or the date we consummate a sale, transfer or other disposition of all or substantially all of our assets, (ii) the date that the average closing price per share of our common stock on the OTC Bulletin Board (or wherever the common stock is listed or quoted for trading on the date in question) for 10 consecutive trading days exceeds $2.00, (iii) the date our Board of Directors offers a transaction pursuant to which we raise at least $1.5 million in a capital raising transaction with persons who are shareholders of MediVision Medical Imaging Ltd. (a large sharehol der of the Company), and (iv) March 23, 2012.  The 2nd Installment Warrant expires on June 23, 2012

 
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AccelMed and its affiliates did not own any shares of our common stock prior to June 24, 2009, the date we completed the 1st Installment.  Thus, (i) no shares are registered for resale by AccelMed or affiliates of AccelMed in prior registration statements, (ii) no shares are registered for resale by AccelMed or affiliates of AccelMed that continue to be held by AccelMed or affiliates of AccelMed and (iii) no shares have been sold in registered resale transactions by AccelMed or affiliates of AccelMed.
 
Shares of common stock outstanding prior to June 24, 2009 held by persons other than AccelMed, AccelMed’s affiliates, and our affiliates was 7,380,988. Shares of common stock registered for resale on behalf of AccelMed or its affiliates in the current transaction is 2,460,329.
 
Currently, AccelMed has designated and named three persons to our board of directors (For additional details, see “Certain Relationships and Related Transactions, Related Party Transactions, AccelMed, Voting Agreement” below.)
 
Extension Agreement the Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc.
On June 24, 2009, we also entered into an Extension Agreement, pursuant to which, among other things, we issued warrants to Tail Wind and Solomon to purchase an aggregate of 500,000 shares of our common stock (the “Extension Warrants”).  The Extension Warrants have an exercise price of $1.00 per share and expire on June 24, 2012.
 
Prior to the extension agreement, on October 29, 2007, we entered into a purchase agreement with Tail Wind and Solomon (together, the “Holders”) pursuant to which we issued to the Holders an aggregate of (i) $2,750,000 in principal amount of our 6.5% Convertible Notes Due April 30, 2010 and (ii) warrants to purchase an aggregate of 616,671 shares of our common stock at an exercise price of $1.87 per share.  Currently, there is (i) an aggregate of $1,025,000 in remaining principle amount of the Notes, which is convertible into 963,165 shares of our common stock at an adjusted conversion price of $1.06 and (ii) warrants to purchase an aggregate of 950,357 shares of our common stock at an adjusted exercise price of $1.21, in addition to the warrants issued pursuant to the Extension Agreement as described in the para graph immediately above.
 
Proceeds From the Private Placement (1st Installment)
 
The net proceeds we received from 1st installment of the AccelMed Private Placement were $3,827,820.  We received gross proceeds of $3,999,972, less $105,107, as noted below, paid to Accelmed as a reimbursement for expenses incurred, $47,045 in options paid to the placement agent, and  $20,000 for our legal and accounting fees.
 
Payments Made in Connection with the Private Placement
 
The following table sets forth the dollar amount of each payment to be made (including the value of any payments to be made in common stock) in connection with the sale of the securities that we have made or may be required to make to AccelMed, any affiliate of AccelMed or any person with whom AccelMed has a contractual relationship.
 

 
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Payee
Description
Payments
Made
Maximum
Possible
Payments
under the
Purchase
Agreement
Maximum
Possible
Payments
under the
Warrants
Maximum
Possible
Payments
under the
Indemnification
Agreements (1)
Maximum
Possible
Payments
under the
Voting
Agreement (2)
AccelMed
Reimbursement of expenses incurred in connection with the AccelMed Private Placement (3)
$105,107 (3)
-
-
-
-
             
AccelMed
Principal payments to United Mizrahi Bank in excess of
EBITDA (4)
-
Unable to estimate (4)
-
-
-
             
AccelMed
Indemnification
-
Unable to estimate (5)
-
Unable to estimate (6)
Unable to estimate (7)
             
AccelMed
Management Fee (8)
-
$100,000 per year + VAT (8)
-
-
-
             
AccelMed
Buy-In Obligation (9)
-
-
Unable to estimate (9)
-
-

(1) Pursuant to the Purchase Agreement, each director appointed by AccelMed to our board of directors will enter into an Indemnification Agreement with us.

(2) The Voting Agreement refers to the agreement dated June 24, 2009, by and among AccelMed, MediVision Medical Imaging Ltd. (“MediVision”), Agfa Gevaert N.V., Delta Trading and Services (1986) Ltd., and Gil Allon, Noam Allon, Ariel Shenhar and Yuval Shenhar.

(3) We paid AccelMed $105,107 as reimbursement for expenses incurred by it in connection with the AccelMed Private Placement, including financial and legal due diligence and negotiation and other professional services.

(4) As of the date hereof, we have outstanding indebtedness owed to Mizrahi Tefahot Bank Ltd. (“United Mizrahi Bank”) in the amount of $1,500,000.  If during the year ended December 31, 2010, the aggregate amount of the principal payments that we make to Mizrahi Tefahot Bank exceeds our Earnings Before Interest, Taxes and Amortization (“EBITDA”) for the year ended December 31, 2010, then within three business days after we file our audited financial statements for the year ended December 31, 2010 with the Commission, we must issue to Accelmed, shares of our common stock in an amount equal to the aggregate amount of the principal payments made to United Mizrahi Bank during the year ended December 31, 2010 minus EBITDA divided by 0.41522.  Such shares will be issued wit hout receipt of any additional consideration from Accelmed.  At this time, we are unable to determine if any such payment will be required and if required, the amount of such payment.

(5) If AccelMed or any of its affiliates incur any expenses or losses in any action or proceeding based on (1) any untrue statement or alleged untrue statement contained in the registration statement (including amendments and supplements thereto) registering the Securities issued under the Purchase Agreement, (2) omission or alleged omission of a material fact required to be stated therein or necessary to make the statements in such registration statement not misleading, (3) a breach of any of our representations, warranties or covenants in the Purchase Agreement, or (4) any liability, restriction or obligation imposed on us or any of our subsidiaries or any material adverse effect suffered by us or any of our subsidiaries as a result of or in connection with our purchase of substantially all of MediVision’s assets, we will reimburse AccelMed or its affiliates, as applicable, for legal and other expenses reasonably incu rred in connection with defending or resolving such matters.  We are unable to estimate at this time if any such payments will be payable, or, if payable, the amount of such payments.

 
56

 
 
(6) Pursuant to the terms of Indemnification Agreements, any director nominated by AccelMed who becomes involved in a proceeding by reason of the fact of such director’s status as a director, officer, employee of our company, we agreed to advance to or reimburse such director, funds for any and all reasonable expenses incurred in connection therewith.  We are unable to estimate at this time if any such payments will be payable, or, if payable, the amount of such payments.

(7) In the event that any suit or action is instituted to enforce any provision in the Voting Agreement, the prevailing party in such dispute will 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 the Purchase 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.  We are unable to estimate at this time if any such payments will be payable, or, if payable, the amount of such payments.

(8) We must pay AccelMed an annual management fee of $20,000 plus VAT (to the extent applicable) per each director nominated by it who is not one of our employees.  AccelMed may nominate up to four directors and one director jointly with MediVision.

(9) If we fail to deliver a certificate of our common stock representing the common stock underlying the 1st Installment Warrant, which has been exercised in full or part, within three trading days from the date requested and if on or after such day the holder, of the Warrant purchases (in an open market transaction or otherwise) shares of our common stock to deliver in satisfaction of a sale by the holder, shares the holder anticipated receiving from us in connection with the warrant exercise, (such total purchase price, the “Buy-In Price”), then we shall, either (i) pay to the holder cash in an amount equal to the holder’s total purchase price (including brokerage commissions, if any) or (ii) promptly honor our obligation to deliver to the holder the shares of our common st ock underlying the warrant exercise and pay cash to the holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of common stock to be delivered pursuant to the warrant exercise, times (B) the closing bid price on the date of exercise.
 
 
The selling security holders and any of their donees, pledgees, assignees and other successors-in-interest may, from time to time, sell any or all of their shares of our common stock being offered under this prospectus on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales, which may include block transactions, may be at fixed or negotiated prices. The selling security holders may use any one or more of the following methods when selling shares: ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; purchases by a broker-dealer as principal and resales by the broker-dealer for its own account; an exchange distribution in accordance with the rules of the applicable exchange; privately negotiated transactions; broker-dealers may agree with the selling security holders to sell a specified number of shares at a stipulated price per share; a combination of any of these methods of sale; or any other method permitted by applicable law.
 
The sale price to the public may be: the market price prevailing at the time of sale; a price related to the prevailing market price; at negotiated prices; or a price the selling security holders determines from time to time.
 

 
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The shares may also be sold under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus. The selling security holders have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time.
 
The selling security holders may pledge their shares to their brokers under the margin provisions of customer agreements. If the selling security holders default on a margin loan, the broker may, from time-to-time, offer and sell the pledged shares. Broker-dealers engaged by the selling security holders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling security holders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
 
The selling security holders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with these sales. In that event, any commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
 
The selling security holders, alternatively, may sell all or any part of the shares offered in this prospectus through an underwriter. To our knowledge, no selling security holder has entered into any agreement with a prospective underwriter, and we cannot assure you as to whether any such agreement will be entered into. If the selling security holders inform us that they entered into such an agreement or agreements, the relevant details will be set forth in a supplement or revisions to this prospectus.
 
The selling security holders and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act and the rules and regulations under that act, including Regulation M. These provisions may restrict activities of, and limit the timing of purchases and sales of any of the shares by, the selling security holder or any other such person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.
 
Ophthalmic Imaging Systems is required to pay all fees and expenses incident to the registration of the shares and has agreed to indemnify the selling security holders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
 
 
Our authorized capital stock consists of 100,000,000 shares of common stock, no par value per share, and 20,000,000 shares of preferred stock, no par value per share. As of October 12, 2010, we had 30,300,928 shares of our common stock outstanding and no shares of preferred stock outstanding. The following is a summary description of our capital stock.
 
Common Stock
 
The holders of outstanding shares of our common stock are entitled to receive dividends out of assets legally available at times and in amounts as the board of directors may from time to time determine, subordinate to any preferences that may be granted to the holders of preferred stock. Holders of common stock are entitled to one vote per share on all matters on which the holders of common stock are entitled to vote.
 
The common stock is not entitled to preemptive rights and may not be redeemed or converted. Upon our liquidation, dissolution or winding up, the assets legally available for distribution to our stockholders are divided among the holders of the common stock in proportion to the number of shares of common stock held by each of them, after payment of all of our debts and liabilities and fulfillment of the rights of any outstanding class or series of preferred stock that has priority to distributed assets. The rights of holders of common stock are subordinate to those of holders of any series of preferred stock.
 

 
58

 

All of the issued and outstanding shares of common stock are duly authorized, validly issued, fully paid, and non-assessable. To the extent that additional shares of our common stock are issued, the relative interests of existing stockholders may be diluted.
 
Preferred Stock
 
Preferred stock may be issued from time to time in one or more series, and our board of directors, without action by the holders of common stock, may fix or alter the voting rights, redemption provisions, dividend rights, dividend rates, claims to our assets superior to those of holders of our common stock, conversion rights and any other rights, preferences, privileges and restrictions of any wholly unissued series of preferred stock. The board of directors, without shareholder approval, can issue shares of preferred stock with rights that could adversely affect the rights of the holders of common stock. The issuance of shares of preferred stock could adversely affect the voting power of the holders of common stock and could have the effect of making it more difficult for a third party to acquire, or could discourage or delay a third party from acquiring, a majority of our outstanding common stock.
 
Preferred stock can be used as an anti-takeover measure. The board of directors has exclusive discretion to issue preferred shares with rights that may trump those of our common stock. The board of directors could use an issuance of preferred stock with dilutive or voting preferences to delay, defer or prevent common stock shareholders from initiating a change in control of our company or reduce the rights of common shareholders to the net assets upon dissolution. Preferred stock issuances may also discourage takeover attempts that may offer premiums to holders of our common stock.
 
Warrants Issued on June 24, 2009
 
On June 24, 2009, we issued to AccelMed a warrant to purchase 3,211,076 shares of our common stock.  This warrant is exercisable at $1.00 per share and expires on June 24, 2012.  The exercise price will be adjusted and the number of shares of our common stock to be issued upon exercise of the 1st Installment Warrant will be adjusted upon the occurrence of the payment of a stock dividend or a stock split. In addition, the 1st Installment Warrant includes certain anti-dilution provisions which are triggered if we issue or sell any of our common stock, securities convertible into our common stock, any right to purchase shares of or reprice any of our common stock at an effective per share selling price less than $1.00 per share. Upon the occurrence of an anti-dilution event specified in the immediately preceding sentence, the exercise price of the 1st Installment Warrant will be adjusted pursuant to a weighted-average formula.
 
On June 24, 2009, we issued to Tail Wind and Solomon warrants to purchase an aggregate of 500,000 shares of our common stock.  These warrants have an exercise price of $1.00 per share and expire on June 24, 2012. The exercise price of the warrants will be adjusted and the number of shares of our common stock to be issued upon exercise of the warrants will be adjusted upon the occurrence of, among other things, the payment of stock dividend or a stock split. In addition, the warrants include certain anti-dilution provisions if we issue or sell any of our common stock or convertible securities, or any warrants or other rights to subscribe for or to purchase or any options for the purchase of our common stock or directly or indirectly effectively reduces the conversion, exercise or exchange price for any convertible securities that are currently outstanding, at or to an effective per share selling price which is less than the greater of (i) the closing price on the trading day next preceding such issue or sale or, in the case of issuances to holders of our common stock, the date fixed for the determination of stockholders entitled to receive such warrants, rights, or options, or (ii) the then applicable exercise price. Upon the occurrence of an anti-dilution event specified in the immediately preceding sentence the exercise price of the warrants will be adjusted pursuant to a weighted-average formula.  We may not effect any exercise of the warrants and each holder of these warrants is not permitted to exercise the warrants into shares of our common stock if such exercise would give such holder a beneficial ownership of more than 9.99% of the outstanding shares of our common stock. This 9.99% limitation may be waived by each holder upon not less than 61 days prior notice to us.
 

 
59

 

 
None of the principal accountant’s reports on the financial statements for either of the past two years contains an adverse opinion or disclaimer of opinion, and none was modified as to uncertainty, audit scope or accounting principles. There were no disagreements with Perry-Smith LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.
 
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and persons controlling Ophthalmic Imaging Systems pursuant to the foregoing provisions, Ophthalmic Imaging Systems has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
 
 
The transfer agent and registrar for our common stock is Computershare Trust Company, Inc., 350 Indiana Street, Suite 800, Golden, Colorado 80401. Their telephone number is (303) 262-0600.
 
 
The consolidated financial statements appearing in this Prospectus and Registration Statement have been audited by Perry-Smith, LLP, an independent registered public accounting firm, as stated in their report appearing elsewhere herein, and are included in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
 
The validity of the shares of common stock offered under this prospectus was passed upon by Troutman Sanders LLP, The Chrysler Building, 405 Lexington Avenue, New York, New York 10174.
 

 
60

 

 
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock to be sold in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits, schedules and amendments to the registration statement. For further information about us and our common stock, you should refer to the registration statement and the exhibits and schedules to the registration statement. The statements contained in this prospectus regarding the contents of any agreement or any other document, in each instance, are not necessarily complete and we refer you to the copy of the agreement or document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference. You can request copies of the registration statement by writing to the Securities and Exchange Commission and paying a fee for the copying cost. You may read and copy the registration statement of which this prospectus is part at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements and other information about issuers that file electronically with the SEC. The address of that website is http://www.sec.gov.
 
We are subject to the information reporting requirements of the Exchange Act. Under the Exchange Act, we file periodic reports, proxy statements and other information with the SEC. This registration statement and future filings will be available for inspection and copying at the SEC’s Public Reference Room and the website of the SEC referred to above. These documents are also publicly available, free of charge, on our website, http://www.oisi.com.
 
This prospectus includes statistical data that were obtained from industry publications. These industry publications generally indicate that the authors of these publications have obtained information from sources believed to be reliable but do not guarantee the accuracy and completeness of their information. While we believe these industry publications to be reliable, we have not independently verified their data.
 

 
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OPHTHALMIC IMAGING SYSTEMS
 
 
INDEX TO FINANCIAL STATEMENTS
 
 
 
Ophthalmic Imaging Systems:
Page
   
   
June 30, 2010
 
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009
F-1
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2010 and 2009
F-2
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months ended June 30, 2010 and 2009
F-3
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2010 and 2009
F-4
Notes to Unaudited Condensed Consolidated Financial Statements
F-5
   
December 31, 2009
 
Report of Independent Registered Public Accounting Firm
F-10
Consolidated Balance Sheets as of December 31, 2009 and 2008
F-11
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008
F-13
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2009 and 2008
F-14
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2009 and 2008
F-15
Consolidated Statements of Cash Flow for the Years Ended December 31, 2009 and 2008
F-16
Notes to Consolidated Financial Statements
F-17
   
MediVision Medical Imaging, Ltd.:
 
   
September 30, 2009
 
Unaudited Consolidated Balance Sheets as of September 30, 2009 and 2008, and December 31, 2008
F-44
Unaudited Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2009 and 2008, and for the Year Ended December 31, 2008
F-46
Unaudited Consolidated Statement of Changes in Equity for the Nine Month period ending September 30, 2009, and 2008
F-47
Unaudited Consolidated Statements of Cash Flows for the Three and Nine Months ended September 30, 2009 and 2008, and for the Year Ended December 31, 2008
F-49
Notes to Unaudited Consolidated Financial Statements
F-51
   
December 31, 2008
 
Report of Independent Registered Public Accounting Firm
F-59
Consolidated Balance Sheet as of December 31, 2008
F-60
Consolidated Statement of Operations for the Year Ended December 31, 2008
F-61
Consolidated Statement of Changes in Equity for the Year Ended December 31, 2008
F-62
Consolidated Statement of Cash Flows for the Year Ended December 31, 2008
F-63
Notes to Consolidated Financial Statements
F-64
   
Pro Forma Financial Statements:
 
   
September 30, 2009  
Unaudited Pro Forma Combined Balance Sheet as of September 30, 2009
F-103
Unaudited Pro Forma Combined Statement of Operations for the Nine Months ended September 30, 2009
F-104
Notes to Unaudited Pro Forma Combined Financial Statements
F-106
   
December 31, 2008  
Unaudited Pro Forma Combined Statement of Operations for the Year Ended December 31, 2008  F-105
Notes to Unaudited Combined Pro Forma Financial Statements F-106
 

 
62

 

OPHTHALMIC IMAGING SYSTEMS
 
2,460,329
 
Shares
 
Common Stock
 

 
PROSPECTUS
 
You should rely only on the information contained in this document or that we have referred you to. We have not authorized anyone to provide you with information that is different. This prospectus is not an offer to sell common stock and is not soliciting an offer to buy common stock in any state where the offer or sale is not permitted.
 
_________, 2010
 
 
 

 
 


Ophthalmic Imaging Systems
(Unaudited)
 
 
 
             
Assets
 
June 30, 2010
   
December 31, 2009
 
Current assets:
           
Cash and cash equivalents
  $ 6,173,124     $ 5,406,239  
Accounts receivable, net
    3,192,328       2,710,987  
Inventories, net
    1,345,782       991,325  
Prepaid expenses and other current assets
    431,990       179,451  
Total current assets
    11,143,224       9,288,002  
                 
Restricted cash
    158,221       158,213  
Furniture and equipment, net of accumulated depreciation of $1,159,042 and $1,076,084 respectively
     456,449       481,394  
Capitalized imaging software, net of accumulated amortization of $252,354 and $168,236, respectively
    252,357       336,475  
Capitalized software development, net of accumulated amortization of $575,418 and $383,612, respectively
    575,413       767,220  
AcerMed asset purchase, net of accumulated amortization of $285,036 and $190,024, respectively
    285,041       380,053  
Goodwill
    807,000       807,000  
Customer relationship intangible assets and other intangible assets, net of accumulated amortization
                  of $44,041 and $11,636, respectively
    647,959       680,364  
Prepaid financing
    -       22,195  
Licensing rights intangible asset, net of accumulated amortization  of $16,519 and $0, respectively
     82,593       99,112  
Other assets
    9,634       17,349  
Total assets
  $ 14,417,891     $ 13,037,377  
                 
Liabilities and Stockholders' Equity
               
Current liabilities:
               
Accounts payable
  $ 1,377,928     $ 867,672  
Accounts payable – related party
    -       41,847  
Accrued liabilities
    1,499,868       1,115,902  
Deferred extended warranty revenue-current portion
    1,425,479       1,632,491  
Customer deposits
    471,024       561,245  
Notes payable- current portion
    1,168,800       34,048  
Total current liabilities
    5,943,099       4,253,205  
                 
Deferred extended warranty revenue, less current portion
    262,081       247,231  
Line of credit
    150,000       150,000  
Notes payable, less current portion
    1,660,337       2,946,179  
Total liabilities
    8,015,517       7,596,615  
                 
Commitments and contingencies
               
                 
Equity
               
Ophthalmic Imaging Systems’ stockholders' equity:
               
 
               
Common stock, no par value, 100,000,000 shares authorized;
30,300,928 and 26,500,059 issued and outstanding at June 30, 2010 and December 31, 2009, respectively
    21,717,047       20,089,592  
               Additional paid-in-capital
    1,203,300       420,610  
               Accumulated deficit
    (16,870,231 )     (15,536,170 )
               Cumulative translation adjustment
    (98,657 )     2,241  
               Total Ophthalmic Imaging Systems’ stockholders’ equity
    5,951,459       4,976,273  
               Noncontrolling interest
    450,915       464,489  
                                   Total equity
    6,402,374       5,440,762  
                                   Total liabilities and stockholders' equity
  $ 14,417,891     $ 13,037,377  
 


 
 
F-1

 


 
Ophthalmic Imaging Systems
(Unaudited)
 
 
 
   
Three months ended June 30,
   
Six months ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Sales - products
  $ 3,750,391     $ 1,695,603     $ 6,869,516     $ 3,020,626  
     Cost of sales - products
    1,221,225       779,565       2,357,134       1,469,895  
     Cost of sales – amortization
    185,468       185,468       370,936       370,936  
                                 
     Gross profit - products
    2,343,698       730,570       4,141,446       1,179,795  
                                 
Sales – products to related
     parties
    -     $ 122,125       -       241,205  
     Cost of sales – products to
     related parties
    -       77,087       -       142,569  
     Gross profit – products to
     related parties
    -       45,038       -       98,636  
                                 
Sales - service
    1,009,737       1,080,888       2,023,927       2,046,316  
     Cost of sales - service
    507,255       371,090       1,052,631       700,274  
 
      Gross profit - service
    502,482       709,798       971,296       1,346,042  
                                 
Total net sales
    4,760,128       2,898,616       8,893,443       5,308,147  
Cost of sales
    1,913,948       1,413,210       3,780,701       2,683,674  
Gross profit
    2,846,180       1,485,406       5,112,742       2,624,473  
Operating expenses:
                               
Sales and marketing
    1,776,435       868,080       3,321,029       1,772,236  
General and administrative
    585,023       659,884       1,101,902       1,170,907  
Impairment related to the debt of MediVision
    -       4,436,187       -       4,436,187  
Research and development
    862,499       596,442       1,706,697       1,121,318  
Research and development – related parties
    -       33,116       -       294,014  
Total operating expenses
    3,223,957       6,593,709       6,129,628       8,794,662  
Loss from operations
    (377,777 )     (5,108,303 )     (1,016,886 )     (6,170,189 )
Other income – settlement
    -       1,200,000       -       1,200,000  
Interest and other expense, net
    (91,302 )     (95,741 )     (322,224 )     (139,651 )
Loss from continuing operations before taxes
    (469,079 )     (4,004,044 )     (1,339,110 )     (5,109,840 )
Income taxes
    (21,409 )     (500 )     (8,533 )     (2,653 )
                                 
Net loss
    (490,488 )     (4,004,544 )     (1,347,643 )     (5,112,493 )
Less: noncontrolling interest’s share
    2,351       -       13,575       -  
Net loss attributable to Ophthalmic Imaging Systems
  $ (488,137 )   $ (4,004,544 )   $ (1,334,068 )   $ (5,112,493 )
Shares used in the calculation of basic and diluted net loss per share
    28,097,181       17,501,989       27,307,900       17,184,410  
                                 
Basic and diluted net loss per share (1)
  $ (0.02 )   $ (0.23 )   $ (0.05 )   $ (0.30 )
 
 
(1) The amount of anti-dilutive shares for the three months ended June 30, 2010 and 2009 were 1,965,459 and 503,318, respectively.  The amount of anti-dilutive shares for the six months ended June 30, 2010 and 2009 were 1,815,585 and 392,421, respectively.
 
   
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 


 
 
F-2

 


 
Ophthalmic Imaging Systems
(Unaudited)
 
 

   
(Unaudited)

Three months ended June 30,
   
(Unaudited)

Six months ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net loss attributable to Ophthalmic Imaging  Systems         $ (488,137 )   $ (4,004,544 )   $ (1,334,060 )   $ (5,112,493 )
Other comprehensive loss
                               
       Foreign currency translation
    (78,868 )     -       (98,657 )     -  
Comprehensive net loss
  $ (567,005 )   $ (4,004,544 )   $ (1,432,717 )   $ (5,112,493 )
 
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 

 
 
F-3

 
 
 
 
Condensed Consolidated Statements of Cash Flows
 
(Unaudited)
 
 
   
Six months ended June 30,
 
   
2010
   
2009
 
Operating activities:
           
Net loss
  $ (1,347,643 )   $ (5,112,493 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
               
Depreciation and amortization
    147,555       105,933  
Loss on disposal of equipment
    1,541       16,369  
Stock based compensation expense
    19,127       16,711  
Amortization of AcerMed software license
    95,012       95,012  
Amortization of  imaging software
    84,118       84,118  
Amortization of R&D
    191,807       191,806  
Amortization of licensing rights intangible asset
    16,519       -  
Amortization of prepaid financing related to note payable
    22,195       33,292  
Discount related to note payable
    142,405       57,835  
Amortization of customer relationship intangibles
    32,405       -  
Impairment of debt from MediVision
    -       3,152,042  
Net (increase) decrease in accounts receivable, net
    (506,476     674,645  
Provision for bad debt
    16,764       54,271  
Net (increase) decrease in inventories
    (374,336 )     560,000  
Net (increase) decrease in prepaid and other assets
    (252,539 )     405,491  
Net decrease in other assets
    3,247       60,742  
Net (decrease) increase in accounts payable – related parties
    (41,847 )     13,144  
Net increase (decrease) in other liabilities other than short-term borrowings
    605,740       (331,389 )
Net cash (used in) provided by operating activities
    (1,144,406 )     77,529  
Investing activities:
               
Acquisition of furniture and equipment
    (124,151 )     (41,151 )
                 
Financing activities:
               
Principal payments on notes and leases payable
    (13,590 )     (714,434 )
Lease payable
    26,410       -  
Notes payable - Abraxas
    109,759       -  
Payments for financing fees
    (10,960 )     (40,000 )
Proceeds from equity investment
    1,999,967       3,999,972  
Net cash provided by financing activities
    2,111,586       3,245,538  
                 
Effect of exchange rate changes on cash and cash equivalents
    (76,144 )     -  
                 
Net increase in cash and equivalents
    766,885       3,281,916  
Cash and equivalents, beginning of the period
    5,406,239       2,224,625  
Cash and equivalents, end of  the period
  $ 6,173,124     $ 5,506,541  
   
Non-cash financing for the six months ended June 30, 2010:
 
- $250,000 of our convertible notes payable was converted into shares of our common stock.
 
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
F-4

 
 
 
 
Three and Six Month Periods ended June 30, 2010 and 2009
 
(Unaudited)
 
Note 1.  
Basis of Presentation
 
 
The accompanying unaudited condensed consolidated balance sheet as of June 30, 2010 , condensed consolidated statements of operations for the three and six months ended June 30, 2010 and 2009, and the comprehensive loss, and cash flows for the six months ended June 30, 2010 and 2009 have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements. It is suggested that these condensed financial statements be read in conjunction with the audited financial statements and notes thereto included in the Annual Report of Ophthalmic Ima ging Systems’ (the “Company”) for the year ended December 31, 2009 on Form 10-K. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our financial position and results of operations for the periods presented. The results of operations for the period ended June 30, 2010 are not necessarily indicative of the operating results expected for the full year.  Certain reclassifications have been made to prior period amounts to conform to classifications adopted in the current period.

Note 2.
Inventories
 
Inventories, which consist primarily of purchased system parts, subassemblies and assembled systems, are stated at the lower of cost (determined using the first-in, first-out method) or market.
 
Inventories consist of the following:


   
As of
June 30, 2010
   
As of
December 31, 2009
 
 Raw materials
  $ 355,641     $ 240,953  
 Work-in-process
    475,311       392,440  
 Finished goods
    514,830       357,932  
   
 
   
 
 
    $ 1,345,782     $ 991,325  
                 


Note 3.
Loss Per Share
 
 
Basic loss per share which excludes dilution, is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other agreements to issue common stock, such as stock options, warrants or convertible debt, result in the issuance of common stock, which shares in the earnings of the Company. The treasury stock method is applied to determine the dilutive effect of convertible or exercisable securities in computing diluted earnings per share. The Company currently is in a loss position and does not calculate diluted earnings per share.


 
 
F-5

 
 
 
Note 4.  
Related Party Transactions
 
 
U.M. AccelMed, Limited Partnership
 
As of June 30, 2010, U.M. AccelMed, Limited Partnership, an Israeli limited partnership (“AccelMed”) is our largest shareholder with 13,338,603 shares of our common stock or 44%.  On June 24, 2009 AccelMed acquired 9,633,228 shares and a warrant to purchase up to 3,211,076 shares of our common stock for an aggregate purchase price of $3,999,972.  This 1st installment warrant has an exercise price of $1.00 per share and expires on June 23, 2012. On May 26, 2010 the 2nd and final installment was completed, under which we issued to AccelMed 3,581,089 shares and a warrant to pu rchase up to 1,193,696 shares for an aggregate purchase price of $1,999,967. The 2nd installment warrant has an exercise price of $1.00 per share and expires on June 23, 2012.  The remaining 124,286 shares of common stock were purchased from MediVision Medical Imaging Ltd. on January 6, 2010 at a purchase price of $0.70 per share.
 
 
MediVision Medical Imaging Ltd.

As of June 30, 2010, MediVision Medical Imaging Ltd., an Israeli corporation (“MediVision”), is our second largest shareholder with 9,112,446 shares of our common stock, or 30.1%.

On October 21, 2009 we purchased substantially all the assets of MediVision (the “MediVision Asset Purchase”). At June 30, 2010, the carrying value of the assets acquired from MediVision were as follows: intangible assets related to customer relationships were $448,959, intangible assets related to the Electro-optical Unit were $199,000, and goodwill was $807,000. During the three and six months ended June 30, 2010, the Company recognized revenue of $304,583 and $587,408 and net losses of $85,402 and $171,412, related to the business operations purchased in connection with the MediVision Asset Purchase. At June 30, 2010 the noncontrolling interest related to the business operations purchased from MediVision was $450,915.
 
 
 
Escrow Agreement
  
Pursuant to the terms of the MediVision Asset Purchase Agreement (the “APA”) an Escrow Agreement (the “Escrow Agreement”) between us, MediVision and Stephen L. Davis, Esq. dated June 24, 2009, MediVision deposited 5,793,452 shares (the “Escrow Shares”) of our common stock into escrow.  If MediVision failed to make certain payments under the APA, the Escrow Shares will be distributed to us or sold and the proceeds thereof distributed to us.  The agreement will terminate upon the later of (i) October 21, 2011 or (ii) the satisfaction and discharge of the $1,800,000 claim made by the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade & Labor to MediVision. On ___ 2010 MediVision satisfied the $1,800,000 claim made by the Office of Chief Scientist of the Israe li Ministry of Industry, Trade & Labor.
 
 
Relationships

Gil Allon (our Chief Executive Officer), together with Noam Allon, President and Chief Executive Officer of MediVision, Gil Allon’s brother and a former director of OIS own 20.31% of MediVision’s ordinary shares. Ariel Shenhar (our Chief Financial Officer), together with Yuval Shenhar, his brother, own 1.06% of MediVision’s ordinary shares.
 
 
CCS Pawlowski GmbH
 
CCS Pawlowski GmbH, a German corporation (“CCS”), was formerly a subsidiary of MediVision which owned 63% of CCS’ ownership interests.  We acquired this ownership interest in connection with the MediVision Asset Purchase. After completion of the MediVision Asset Purchase all inter-company sales were eliminated upon consolidation.
 
 
 
MediStrategy, Ltd.
 
Effective January 1, 2010, OIS Global entered an agreement with MediStrategy Ltd., an Israeli company owned by Noam Allon ("MS"), for Mr. Allon's consulting services.  Under the agreement, MS will be compensated approximately $18,000 monthly effective January 1, 2010 through December 31, 2010.


 
 
F-6

 
 
 
Note 5.
Share-based Compensation
 
At June 30, 2010, we have four active stock-based compensation plans (the “Plans”).  Options granted under these plans generally have a term of ten years from the date of grant unless otherwise specified in the option agreement.  The plans generally expire ten years from the inception of the plans.  The majority of options granted under these agreements have a vesting period of three to four years.  Incentive stock options under these plans are granted at fair market value on the date of grant and non-qualified stock options granted can not be less than 85% of the fair market value on the date of grant.
 
A summary of the changes in stock options outstanding under our equity-based compensation plans during the three months ended June 30, 2010 is presented below:
 
     
 
 
 
 
Shares
 
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (Years)
 
 
 
Aggregate
Intrinsic Value
 
 
Outstanding at January 1, 2010
    3,584,926   $0.60   6.65   $537,739  
 
Granted
    208,964   $0.91   9.54   $18,807  
 
Exercised
    --    --   --    --  
 
Forfeited/Expired
    --    --   --    --  
 
Outstanding at June 30, 2010
    3,793,890   $0.62   6.86   $1,441,678  
 
Exercisable at June 30, 2010
    2,727,460   $0.56   4.07   $1,200,082  

 
 
We use the Black-Scholes-Merton option valuation model to determine the fair value of stock-based compensation. The Black-Scholes-Merton model incorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield. The expected term of an award is generally no less than the option vesting period and is based on our historical experience. Expected volatility is based upon the historical volatility of our stock price. The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s expected life. We use a dividend yield of zero in the Black-Scholes-Merton option valuation model as we do not anticipate paying cash dividends in the foreseeable future.
 
As of June 30, 2010, we had $41,254 of unrecognized expenses related to non-vested stock-based compensation, which is expected to be recognized through 2013.  The total fair value of options vested and the incremental expense for stock-based compensation during the three and six months ended June 30, 2010 was $ 9,836 and $18,795, respectively. The total fair value of options vested and the incremental expense for stock-based compensation during the three and six months ended June 30, 2009 was $7,651 and $16,711, respectively.

 
In calculating compensation related to stock option grants for the three and six months ended June 30, 2010, the fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option-pricing model and the following weighted average assumptions: dividend yield none; expected volatility of 47.96%, risk-free interest rate of 3.69%, and expected term of 10 years. The computation of expected volatility used in the Black-Scholes-Merton option-pricing model is based on the historical volatility of our share price. The expected term is estimated based on a review of historical and future expectations of employee exercise behavior.
 
In connection with the 1st installment of the AccelMed private placement, we also issued to the placement agent, an option to purchase 123,500 shares of our common stock at an exercise price of $0.01 per share. This option expires on June 23, 2012. We recorded the fair value of the options using the Black-Scholes-Merton option valuation model, as a reduction to our common stock and an increase in additional paid-in-capital in the amount of $47,045.
 
In connection with the 2nd installment of the AccelMed private placement, we issued to the placement agent, an option to purchase 36,464 shares of our common stock at an exercise price of $0.01 per share. This option expires on May 26, 2013. We recorded the fair value of the options using the Black-Scholes-Merton option valuation model, as a reduction to our common stock and an increase in additional paid-in-capital in the amount of $18,491.
 
Abraxas Medical Solutions (“Abraxas”)
 
As of June 30, 2010, we had $999 of unrecognized expenses related to non-vested stock-based compensation, which is expected to be recognized through 2011.  The total fair value of options vested and the incremental expense for stock-based compensation during the three and six months ended June 30, 2010 was $166 and $332, respectively.
 
 



 
 
F-7

 

 
Note 6.
Convertible Notes
 
In 2007 and 2009, we issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. (the “Holders”) an aggregate of $2,750,000 in principal amount of our 6.5% Convertible Notes Due October 31, 2011 (the “Notes”) and warrants to purchase shares of our common stock. As of June 30, 2010 the remaining principal balance on the notes was $1,125,000 which is convertible into 1,057,132 shares of our common stock at an adjusted conversion price of $1.06 per share. The Holders also held, as of June 30, 2010, warrants to purchase an aggregate of 950,357 shares of our common stock at an exercise price of $1.21 per share and expire on October 29, 2012 and warrants to purchase aggregate of 500,000 shares of our common stock at an exercise price of $1.00 per share and expire on June 24, 2012.  Our n ext principal payment on the notes will be due February 28, 2011.
 
We computed the intrinsic value of the effective conversion price based on the proceeds received for or allocated to the convertible instrument for the embedded conversion option.  Thus, we first allocated the proceeds to the convertible instrument (the notes) and any other detachable instruments included in the exchange (such as detachable warrants) on a relative fair value basis. We then calculated the effective conversion used to measure the intrinsic value, if any, of the embedded conversion option based on the Black-Scholes-Merton option valuation model.  We adjust for the changes in the Black-Scholes-Merton option valuation model at each reporting period.
 
The impact of this adjustment to our 2010 financial statements to date is an increase to interest expense of $178,639 an increase to the discount on the Notes of $9,606 and an increase to additional paid-in-capital of $152,011.
 
As of June 30, 2010, the following weighted average assumptions were used: dividend yield none, expected volatility of 51.96%, risk-free interest rate of 1.54%, and expected term of 2.33 years. As of June 30, 2010, there was $283,182 of additional paid-in-capital and $46,605 of discount related to the warrants.

Note 7.
Warranty Obligations
 
We generally offer a one-year warranty to our customers.  Our warranty requires us to repair or replace defective products during the warranty period. At the time product revenue is recognized, we record a liability for estimated costs that may be incurred under our warranties.  The costs are estimated based on historical experience and any specific warranty issues that have been identified.  The amount of warranty liability accrued reflects our best estimate of the expected future cost of honoring our obligations under the warranty plans.  We periodically assess the adequacy of our recorded warranty liability and adjust the balance as necessary.
 
The following provides a reconciliation of changes in our warranty reserve:

   
Three Months Ended
 
Six Months Ended
   
June 30,
 
June 30,
   
2010
2009
 
2010
2009
 
Warranty balance at beginning of period
$132,950
$77,250
 
$90,000
$67,000
 
Reductions for warranty services provided
 (52,350)
 (36,925)
 
 (84,200)
 (59,425)
 
Changes for accruals in current period
82,000
43,100
 
156,800
75,850
 
Warranty balance at end of period
$162,600
$83,425
 
$162,600
$83,425
 

 
 
 
F-8

 
 
 
Note 8.
Segment Reporting
 
Our business consists of two operating segments: OIS and Abraxas, our wholly-owned subsidiary.  Our management reviews Abraxas’ results of operations separately from that of OIS. Our operating results for Abraxas exclude income taxes. The provision for income taxes is calculated on a consolidated basis, and accordingly, is not presented by segment. It is excluded from the measure of segment profitability as reviewed by our management. CCS does not meet the materiality requirements for segment reporting and accordingly, CCS’ financial information is reported as Other in the following table.
 
We evaluate our reporting segments in accordance with FASB Accounting Standards Codification Topic 280, Segment Reporting (“Topic 280”). Our Chief Financial Officer (“CFO”) has been determined to be the Chief Operating Decision Maker as defined by Topic 280. The CFO allocates resources to Abraxas based on its business prospects, competitive factors, net sales and operating results.
 
All significant intercompany balances and transactions have been eliminated in consolidation.
 
The following presents our financial information by segment for the three and six months ended June 30, 2010 and 2009:
 
 
 
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
Statement of Income:
 
2010
   
2009
   
2010
   
2009
 
Net sales:
                       
       OIS
  $ 3,680,200     $ 2,418,331     $ 6,895,925     $ 4,699,800  
       Abraxas
    827,996       480,285       1,594,561       608,347  
       Other
    251,932       -       402,957       -  
Total
  $ 4,760,128     $ 2,898,616     $ 8,893,443     $ 5,308,147  
Gross profit:
                               
       OIS
  $ 2,398,516     $ 1,358,684     $ 4,311,130     $ 2,637,399  
       Abraxas
    340,563       126,722       611,205       (12,926 )
       Other
    107,101       -       190,407       -  
Total
  $ 2,846,180     $ 1,485,406     $ 5,112,742     $ 2,624,473  
Operating Loss:
                               
       OIS
  $ 62,123     $ (4,709,443 )   $ (100,037 )   $ (5,055,769 )
       Abraxas
    (443,952 )     (398,860 )     (901,294 )     (1,114,420 )
       Other
    4,052       -       (15,555 )     -  
Total
  $ (377,777 )   $ (5,108,303 )   $ (1,016,886 )   $ (6,170,189 )
                                 
Net loss (consolidated):
  $ (490,488 )   $ (4,004,544 )   $ (1,347,643 )   $ (5,112,493 )
                                 
 
 
 
 
 
F-9

 
 
 
 
page F-10 graphic
 
 
 
 

 
 
F-10

 

OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED BALANCE SHEETS


   
December 31,
 
   
2009
   
2008
 
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
  $ 5,406,239     $ 2,224,625  
Accounts receivable, net of allowance for doubtful
accounts of $434,949 and $210,146 as of
December 31, 2009 and 2008, respectively
    2,710,987       1,698,093  
Receivables from related parties
    -       500,365  
Notes receivable from related party
    -       2,878,234  
Inventories
    991,325       1,206,733  
Prepaid expenses and other current assets
    179,451       233,418  
Total current assets
    9,288,002       8,741,468  
                 
Restricted cash
    158,213       158,031  
Furniture and equipment, net
    481,394       409,280  
Licensing agreement
    -       273,808  
Prepaid products
    -       560,000  
Capitalized imaging software
    336,475       504,711  
Capitalized software development
    767,220       1,150,831  
AcerMed asset purchase
    380,053       570,077  
Goodwill
    807,000       -  
Customer relationship intangible assets
    481,364       -  
Other intangible assets
    199,000       -  
Prepaid financing
    22,195       88,780  
Other assets
    116,461       167,723  
Total assets
  $ 13,037,377     $ 12,624,709  
                 

(Continued)

 
 
F-11

 

OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED BALANCE SHEETS
(Continued)


   
December 31,
   
2009
 
2008
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
Current liabilities:
               
Accounts payable
 
$
867,672
   
$
831,980
 
Accounts payable related party
   
41,847
     
--
 
Accrued liabilities
   
1,115,902
     
1,072,551
 
Deferred extended warranty revenue – current portion
   
1,632,491
     
1,522,308
 
Customer deposits
   
561,245
     
101,678
 
Notes payable - current portion
   
34,048
     
1,611,063
 
Total current liabilities
   
4,253,205
     
5,139,580
 
                 
Deferred extended warranty revenue, less current portion
   
247,231
     
388,516
 
Line of credit
   
150,000
     
150,000
 
Notes payable, less current portion
   
2,946,179
     
500,159
 
Total liabilities
   
7,596,615
     
6,178,255
 
                 
Commitments and contingencies
               
                 
Ophthalmic Imaging Systems stockholders’ equity:
               
Common stock, no par value, 100,000,000 shares authorized; 26,500,059 and 16,866,831 shares issued and outstanding at December 31, 2009 and 2008, respectively
   
20,089,592
     
16,504,773
 
Additional paid in capital
   
420,610
     
966
 
Accumulated deficit
   
(15,536,170
)
   
(10,059,285
)
Cumulative translation adjustment
   
2,241
     
-
 
Total Ophthalmic Imaging Systems’ stockholders’ equity
   
4,976,273
     
6,446,454
 
                 
Noncontrolling Interest
   
464,489
     
-
 
Total liabilities and stockholders’ equity
 
$
13,037,377
   
$
12,624,709
 
                 

The accompanying notes are an integral
part of these consolidated financial statements.

 
 
F-12

 

OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 2009 and 2008

   
2009
 
2008
                 
Sales – products
 
$
9,530,555
   
$
7,990,300
 
Cost of sales – products
   
3,799,236
     
3,811,212
 
Cost of sales – amortization
   
741,871
     
-
 
Gross profit – products
   
4,989,448
     
4,179,088
 
                 
Sales – products to related parties
   
338,492
     
822,980
 
Cost of sales – products to related parties
   
201,093
     
444,186
 
Gross profit –products to related parties
   
137,399
     
378,794
 
                 
Sales – service
   
3,700,253
     
3,677,837
 
Cost of sales – service
   
1,500,079
     
1,513,085
 
Gross profit – service
   
2,200,174
     
2,164,752
 
                 
Net revenues
   
13,569,300
     
12,491,117
 
Cost of sales
   
6,242,279
     
5,768,483
 
Gross profit
   
7,327,021
     
6,722,634
 
                 
Operating expenses:
               
Sales and marketing
   
4,124,480
     
4,034,816
 
General and administrative
   
2,255,389
     
2,070,212
 
Impairment related to the debt of MediVision
   
4,436,187
     
-
 
Research and development
   
2,559,478
     
332,123
 
Research and development-related parties
   
294,014
     
1,887,537
 
                 
Total operating expenses
   
13,669,548
     
8,324,688
 
                 
Loss from operations
   
(6,342,527
)
   
(1,602,054
)
Other income (expense):
               
Interest expense
   
(215,729
)
   
(145,255
)
Other expense
   
(186,592
)
   
(173,890
)
Interest income
   
63,239
     
234,675
 
Other income-legal settlement
   
1,200,000
     
-
 
                 
Total other income (expense)
   
860,918
     
(84,470
)
                 
Net loss before provision for income tax expense
   
(5,481,609)
     
(1,686,524
)
                 
Provision for income tax expense
   
(3,787
   
(1,299,000
)
                 
Net loss
   
(5,485,396
)
   
(2,985,524
)
                 
Less: Noncontrolling interest’s share
   
8,511
     
-
 
                 
Net loss attributable to Ophthalmic Imaging Systems
 
$
(5,476,885
)
 
$
(2,985,524
)
                 
Basic loss per share
 
$
(0.25
)
 
$
(0.18
)
                 
Shares used in the calculation of basic loss per share
   
21,842,234
     
16,866,831
 

The amount of anti-dilutive shares for the twelve months ended December 31, 2009 and 2008 are 520,748 and 69,167, respectively.
 
 
The accompanying notes are an integral
part of these consolidated financial statements.

 
 
F-13

 

OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED STATEMENT OF OPERATIONS
As of and For the Years Ended December 31, 2009 and 2008




   
2009
 
2008
                 
Net loss attributable for Ophthalmic Imaging Systems
 
$
(5,476,885
)
 
$
(2,985,524
)
                 
Other comprehensive income 
               
Foreign currency translation
   
2,241
     
-
 
                 
Comprehensive net loss
 
$
(5,474,644
)
 
$
(2,985,524
)
                 


The accompanying notes are an integral
part of these consolidated financial statements.



 
 
F-14

 

OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2009 and 2008


     
Ophthalmic Imaging Systems’ Shareholders’ Equity
             
     
Common Stock
   
Additional
Paid in
   
 
Accumulated
   
 
Cumulative
   
 
Non-Controlling
   
Total Stockholders’
 
     
Shares
   
Amount
   
Capital
   
Deficit
   
Translation
   
Interest
   
Equity
 
Balance, January 1, 2008
      16,866,831     $ 16,474,720     $ 191,104     $ (7,073,761 )               $ 9,592,063  
Stock based compensation
      —        30,053         —                         30,053  
Additional paid in capital – convertible note & warrants
                  (190,138 )            —             (190,138 )
Net loss
                        (2,985,524 )                 (2,985,524 )
                                                                 
Balance, December 31, 2008
      16,866,831       16,504,773       966       (10,059,285 )                 6,446,454  
                                                                 
Stock based compensation
            32,220                               32,220  
Stock issuance, net of $158,899 issuance cost and $288,473 warrant fair market value
      9,633,228       3,552,599       288,473                         3,841,072  
Additional paid in capital – convertible note & warrants
                  131,171                         131,171  
Noncontrolling interest
                                  $ 473,000       473,000  
Cumulative translation
                            $ 2,241             2,241  
Net loss
                        (5,476,885 )           (8,511 )     (5,485,396 )
Balance, December 31, 2009
      26,500,059     $ 20,089,592     $ 420,610     $ (15,536,170 )   $ 2,241     $ 464,489     $ 5,440,762  


The accompanying notes are an integral
part of these financial statements.
 

 
 
F-15

 

OPHTHALMIC IMAGING SYSTEMS
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 2009 and 2008

   
2009
 
2008
Cash flows from operating activities:
               
Net loss
 
$
(5,485,396
)
 
$
(2,985,524
)
                 
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
237,224
     
187,796
 
Loss (gain) on disposal of asset
   
207
     
(2,114
)
Stock based compensation expense
   
32,220
     
30,053
 
Discount related to note payable
   
131,171
     
(23,817)
 
Change in accounts receivable
   
(1,043,376
)
   
832,268
 
Provision for bad debt
   
224,803
     
5,482
 
Change in accounts receivable – related parties
   
-
     
(103,059
)
Write-off of MediVision assets
   
3,152,042
     
-
 
Change in related party receivable
   
500,365
     
-
 
Change in prepaid products
   
560,000
     
-
 
Change in inventories
   
307,939
     
(460,391
)
Change in prepaid expenses and other current assets
   
53,967
     
274,314
 
Amortization of prepaid financing related to note payable
   
66,585
     
59,585
 
Amortization of Symphony Web software
   
168,236
     
-
 
AcerMed software license amortization
   
573,635
     
-
 
Change in other assets
   
49,317
     
10,187
 
Change in accounts payable
   
(13,968
)
   
105,407
 
Change in accounts payable – related parties
   
41,847
     
-
 
Change in accrued liabilities
   
(51,501
)
   
(364,762
)
Change in deferred extended warranty revenue
   
(31,102
)
   
306,509
 
Change in customer deposits
   
463,782
     
46,244
 
Change in deferred tax asset
   
-
     
1,342,000
 
Net cash used in operating activities
   
(62,003
)
   
(739,822)
 
                 
Cash flows from investing activities:
               
AcerMed asset purchase
   
-
     
(479,262
)
Advance to related parties
   
-
     
(1,731,362
)
Development of imaging software
   
-
     
(424,244
)
Software development capitalization
   
-
     
(1,150,831
)
Other capitalized software investments
   
-
     
(88,418
)
Licensing rights
   
-
     
(24,112
)
Patents
   
-
     
59,483
 
APA acquisition, net of cash acquired
   
(1,235,523
)
       
Acquisition of furniture and equipment
   
(132,951
)
   
(178,125
)
Net cash used in investing activities
   
(1,368,474
)
   
(4,016,871
)
                 
Cash flows from financing activities:
               
Principal payments on notes payable
   
(732,984
)
   
(648,966
)
Proceeds from note payable, United Mizrahi Bank
   
1,500,000
     
-
 
Proceeds from sale of stock, net of expenses
   
3,999,971
     
-
 
Stock issuance costs (payment of due diligence)
   
(158,899
)
   
-
 
Net cash provided by (used in) financing activities
   
4,608,088
     
(648,966)
 
                 
Effect of exchange rate changes on cash and cash equivalents
   
4,003
     
-
 
                 
Net increase (decrease) in cash and cash equivalents
   
3,181,614
     
(5,405,659
)
Cash and cash equivalents, beginning of the year
   
2,224,625
     
7,630,284
 
Cash and cash equivalents, end of the year
 
$
5,406,239
   
$
2,224,625
 
                 
Supplemental schedule of cash flow information:
               
Cash paid for taxes
 
$
12,405
   
$
5,619
 
Cash paid for interest
 
$
19,987
   
$
120,225
 

The accompanying notes are an integral
part of these consolidated financial statements.

 
 
F-16

 

OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Ophthalmic Imaging Systems (the “Company,” “OIS,” “we,” “us” or “our”) was incorporated under the laws of the State of California on July 14, 1986. We are headquartered in Sacramento, California and are engaged in the business of designing, developing, manufacturing and marketing digital imaging systems, image enhancement and analysis software and informatics solutions for use by practitioners in the ocular health field. Our products are used for a variety of standard diagnostic test procedures performed in most eye care practices.
 
Principals of Consolidation
 
In January 2008, the Company, through Abraxas Medical Solutions, Inc., a wholly-owned subsidiary (“Abraxas”), purchased substantially all of the assets of AcerMed, Inc., a leading software developer for Electronic Medical Records (EMR) and Practice Management (PM) software.
 
On October 21, 2009, the Company completed its Asset Purchase transaction with MediVision to purchase substantially all the assets of MediVision, which was completed on October 21, 2009. Such assets include the European operations which consisted of MediVision’s business as conducted by CCS Pawlowski GmbH (“CCS”) and its branch office in Belgium (the “OIS Europe”). Accordingly, the Company began consolidating the results of operations of CCS and OIS Europe as of October 21, 2009.
 
The consolidated financial statements include the accounts of OIS, Abraxas, the 63% investment in CCS, OIS Europe, and OIS Global. All significant intercompany balances and transactions have been eliminated in consolidation.
 
Foreign currencies
 
The consolidated financial statements are presented in the reporting currency of Ophthalmic Imaging Systems, U.S. Dollars (“USD”). The functional currency for the Company’s wholly-owned subsidiary, OIS Europe and its 63% investment in CCS, is the European Union Euro (€).    Accordingly, the balance sheet of OIS Europe and CCS is translated into USD using the exchange rate in effect at the balance sheet date. Revenues and expenses are translated using the average exchange rates in effect during the period. Translation differences are recorded directly in shareholders’ equity as “Foreign currency translation adjustment.” Gains or losses on transactions denominated in a currency other than the subsidiaries’ functional currency which arise as a result of changes in foreign exchange rates are recorded in the statement of operations. The statement of cash flows reflects the reporting currency equivalent of foreign currency cash flows using the exchange rates in effect at the time of the cash flow.
 
Segment Reporting
 
Our business consists of two operating segments: OIS and Abraxas, our wholly-owned subsidiary.  Our management reviews Abraxas’ results of operation separately from that of OIS. Our operating results for Abraxas exclude income taxes. The provision for income taxes is calculated on a consolidated basis, and accordingly, is not presented by segment. It is excluded from the measure of segment profitability as reviewed by our management. CCS does not meet the materiality requirements for segment reporting, and accordingly, CCS’ financial information is reported as Other in the following table.
 

 
 
 
F-17

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

 
 
1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
We evaluate our reporting segments in accordance with FASB Accounting Standards Codification Topic 280, Segment Reporting (“Topic 280”). Our Chief Financial Officer (“CFO”) has been determined as the Chief Operating Decision Maker as defined by Topic 280. The CFO allocates resources to Abraxas based on its business prospects, competitive factors, net sales and operating results.
 
All significant intercompany balances and transactions have been eliminated in consolidation.
 
The following presents our financial information by segment for the years ended December 31, 2009 and 2008:
 
                         
2009
 
OIS
   
Abraxas
   
Other
   
Total
 
Statement of Operations:
                       
                                 
Net revenues
  $ 11,666,981     $ 1,752,474     $ 149,845     $ 13,569,300  
                                 
Gross profit
    6,812,957       401,459       112,605       7,327,021  
                                 
Operating loss
    (4,445,823 )     (1,879,061 )     (17,643 )     (6,342,527 )
                                 
Net loss (Consolidated)
                            (5,485,396 )
                                 
Balance Sheet:
                               
                                 
Assets
    10,848,803       1,592,057       596,517       13,037,377  
                                 
Liabilities
    6,960,164       511,580       124,871       7,596,615  
                                 
Stockholders’ equity
  $ 7,343,181     $ (2,361,507 )   $ 459,088     $ 5,440,762  
                                 
2008
                               
Statement of Operations:
                               
                                 
Net revenues
  $ 12,192,867     $ 298,250       -     $ 12,491,117  
                                 
Gross profit
    6,872,733       (150,099 )     -       6,722,634  
                                 
Operating loss
    (848,012 )     (754,042 )     -       (1,602,054 )
                                 
Net loss (Consolidated)
                            (2,985,524 )
                                 
Balance Sheet:
                               
                                 
Assets
    10,720,591       1,904,118       -       12,624,709  
                                 
Liabilities
    5,992,986       185,269       -       6,178,255  
                                 
Stockholders’ equity
  $ 7,231,300     $ (784,846 )     -     $ 6,446,454  

 

 
 
 
F-18

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Use of Estimates
 
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
 
Change in Rebate Estimates
 
Our rebate program provides customers with an incentive to purchase system upgrades. When purchasing an upgrade, we provide the customer with a discount upon receipt of the old system. Typically, customers pay for the upgrade net of the discount and the old system is returned to us.
 
The quote/purchase order the customer signs includes a line item for the rebate discount, which is then calculated into the net total. The quote specifically states that the old system must be received within 30 days from the completion of the installation of the upgrade for the customer to receive the discount. We then bill the customer for the full amount. At this point we record the gross sale amount and reserve for the rebate portion of the sale.  If a customer pays the full amount and the old system has not been returned yet, we assume that the customer will return the old system and record the rebate portion of the payment in a deposit liability account. If the customer pays the net amount and the old system has not been returned, we continue to bill the customer for the rebate portion until the old system is returned or the rest of the amount due is paid.
 
When 30 days have elapsed from the date the upgrade has been installed and the old system has not been received, we contact the customer and ask what the customer intends to do with the old system. If the customer intends to return the system, we continue to record the reserve. If the customer disposed of the system or intends to keep the system or contact cannot be made, we bill the customer for the full price of the upgrade system and stop reserving for the rebate credit. Until then, we continue to reserve for the rebate until we receive payment for the full price of the upgrade or the old system. These arrangements are not pervasive with our customers. If the old system is not returned, we stop reserving for the rebate portion. If the old system in not returned and we have received the full invoice amount, we remove the rebate port ion of the payment out of the deposit liability account and apply it to the sale. At this point we stop reserving for the rebate.
 
If the old system is returned, we remove the rebate portion from the reserve account and reduce the accounts receivable.
 
Cash and Cash Equivalents
 
For purposes of the statement of cash flows, the Company considers highly liquid investments with original maturities of three months or less as cash equivalents.
 
At December 31, 2009, the Company had deposits with carrying amounts of $5,406,239 including bank balances of $5,421,704. Federally insured balances totaled $926,354 and uninsured balances totaled $4,495,350 at December 31, 2009.
 

 
 
 
F-19

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Concentrations of Credit Risk and Export Sales
 
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high quality financial institutions. Concentrations of credit risk with respect to trade receivables are limited due to the Company’s policy of requiring deposits from customers, the number of customers we have and their geographic dispersion. The Company maintains reserves for potential credit losses and such losses have historically been within management’s expectations. No single customer comprised 10% or more of net sales during the years ended December 31, 2009 or 2008.
 
Revenues from sales to customers located outside of the United States accounted for approximately 9% and 7% of net sales during the years ended December 31, 2009 and 2008, respectively.
 
Inventories
 
Inventories, which consist primarily of purchased system parts, subassemblies and assembled systems, are stated at the lower of cost (determined using the first-in, first-out method) or market.
 
Allowance for Doubtful Accounts
 
The Company generally offers customer terms of 50% deposit paid up-front, remaining 50%, less installation portion, net 15 days after shipment of product, and the installation portion after installation is complete. The allowance for doubtful accounts balance is estimated based on historical experience and any specific customer/installation issues that have been identified. The Company periodically assesses the adequacy of its recorded allowance for doubtful accounts, and adjusts the balance as necessary.
 
Changes in the allowance for doubtful accounts were as follows:
 
Allowance at January 1, 2008
  $ 204,664  
Provision
    69,177  
Bad debt
    (63,695 )
         
Allowance at December 31, 2008
    210,146  
Provision
    425,598  
Bad debt
    (200,795 )
         
Allowance at December 31, 2009
  $ 434,949  

Furniture and Equipment
 
Furniture and equipment are stated at cost and depreciated or amortized on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives generally range from three to seven years. The Company evaluates furniture and equipment for financial impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable.
 

 
 
 
F-20

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Software Capitalization
 
In 2008, we capitalized our EMR and PM software that we acquired from AcerMed through the bankruptcy court.  This software was purchased with the intention that it would be sold, leased or marketed upon modification by our research and development team to our customers. The amount that we capitalized for this software was $570,077.  During the first three months of 2009, we began to sell this software and we began to amortize this asset using the straight-line method of amortization over the economic life of the asset, which we concluded to be three years.  Amortization expense related to these assets was $190,024 for the year ended December 31, 2009.
 
We also capitalized the development costs incurred to prepare this software for sale. Development costs were capitalized once technological feasibility was established. We believe that the software was technologically feasible when we began to capitalize the costs because we had worked with a model/prototype that had been in the market before our acquisition. The amount of development that we capitalized in connection with this software is $1,150,831.  During the first three months of 2009, we began to sell this software, and we began to amortize this asset using the straight-line method of amortization over the economic life of the asset, which we concluded to be three years. Amortization expense related to this asset was $383,612 for the year ended December 31, 2009.
 
In 2008, we also capitalized $504,711 of costs associated with the development of a web-based software once technological feasibility was established. During the first three months of 2009, we began to sell this software and we began to amortize this asset using the straight-line method of amortization over the economic life of the asset, which we concluded to be three years.  Amortization expense related to this asset was $168,236 for the year ended December 31, 2009.
 
Revenue Recognition
 
Our revenue recognition policies comply with applicable accounting rules and regulations including FASB Accounting Standards Codification Topic 985, Software, and Topic 605, Revenue, and Subtopic 25, Multiple-Element Arrangements. Under Topic 605, Subtopic 25, the multiple components of our revenue are considered separate units of accounting in that revenue recognition occurs at different points of time for (1) product shipment, (2) installation and training services, and (3) service contracts based on performance or over the contract term as we incur expenses related to the contract revenue.
 
Revenue for products is recognized when title passes to the customer, which is upon shipment, provided there are no conditions to acceptance, including specific acceptance rights. If we make an arrangement that includes specific acceptance rights, revenue is recognized when the specific acceptance rights are met. In addition, consideration received from our customer agreements are reliably measurable because the amount of the consideration is fixed and no specific refund rights are included in the arrangement and, thus, such consideration is reliably measurable. We defer 100% of the revenue from sales shipped during the period that we believe may be uncollectible.
 
Installation revenue is recognized when the installation is complete. Separate amounts are charged and assigned in the customer quote, sales order and invoice, for installation and training services. These amounts are determined based on fair value, which is calculated in accordance with industry and competitor pricing of similar services and adjustments according to market acceptance. There is no price reduction in the product price if the customer chooses not to have us complete the installation.
 
Extended product service contracts are offered to our customers and are generally entered into prior to the expiration of our one year product warranty. The revenue generated from these transactions is recognized over the contract period, normally one to four years.
 

 
 
 
F-21

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
We do not have a general policy for cancellation, termination, or refunds associated with the sale of its products and services.  All items are on one quote/purchase order with payment terms specified for the whole order.
 
Warranty Reserve
 
Our warranty reserve contains two components, a general product reserve recorded on a per product basis and specific reserves recorded as we become aware of system performance issues. The product reserve is calculated based on a fixed dollar amount per product shipped each quarter.  Specific reserves usually arise from the introduction of new products. When a new product is introduced, we reserve for specific problems arising from potential issues, if any. As issues are resolved, we reduce the specific reserve. These types of issues can cause our warranty reserve to fluctuate outside of sales fluctuations.
 
We estimate the cost of the various warranty services by taking into account the estimated cost of servicing routine warranty claims in the first year, including parts, labor and travel costs for service technicians. We analyze the gross profit margin of our service department, the price of our extended warranty contracts, factor in the hardware costs of the various systems, and use a percentage to calculate the cost per system to use for the first year manufacturer’s warranty.
 
Shipping and Handling Costs
 
Shipping and handling costs are included with cost of sales.
 
Advertising Costs
 
Advertising expenditures totaled $114,301 and $58,485, for the years ended December 31, 2009 and 2008, respectively.
 
Income Taxes
 
Deferred taxes are calculated using the liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
 
We calculate a tax provision quarterly and determine the amount of our deferred tax asset that will more-likely-than-not be used in the future.  In doing so, we determine the amount of our unlimited and capped NOL amounts we will more likely than not be able to use, and the deferred tax asset amount related to the temporary differences of our balance sheet accounts.
 
FASB Accounting Standards Codification Topic No. 740, Taxes, provides the accounting for uncertainty in income taxes recognized in a company’s financial statements.  Topic No. 740 also prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. In addition, Topic No. 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We apply Topic No. 740 to all of our tax positions.< /font>
 

 
 
 
F-22

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
We do not currently allocate our taxes between us and our subsidiary, Abraxas, due to the immaterial impact of Abraxas on our tax provision.
 
Fair Value of Financial Instruments
 
At December 31, 2009 and 2008, the Company’s financial instruments included cash, cash equivalents, receivables, accounts payable, accrued liabilities and borrowings. The fair value of these financial instruments approximated their carrying value because of the short-term nature or variable rate terms of these instruments.
 
Loss Per Share
 
Basic earnings (loss) per share which excludes dilution, is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock, which shares in the earnings of the Company. The treasury stock method is applied to determine the dilutive effect of stock options in computing diluted earnings per share. The Company currently is in a loss position and does not calculate diluted earnings per share.
 
Stock-based Compensation
 
The Company uses a Black-Scholes-Merton option valuation model to determine the fair value of stock-based compensation. The Black-Scholes-Merton model incorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield. The expected term of an award is generally no less than the option vesting period and is based on the Company’s historical experience. Expected volatility is based upon the historical volatility of the Company’s stock price. The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s expected life. The Company uses a dividend yield of zero in the Black-Scholes-Merton option valuation model as it does not anticipate paying cash dividends in the forese eable future.
 

 
 
 
F-23

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Convertible Debt Securities and Detachable Warrants
 
The Company entered into a Purchase Agreement with certain accredited investors pursuant to which we issued to the purchasers, convertible notes and warrants (See Note 5. Notes Payable).
 
The Company computed the intrinsic value of the effective conversion price based on the proceeds received for or allocated to the convertible instrument, if any, of the embedded conversion option.  Thus, the Company first allocated the proceeds received in this financing transaction that includes a convertible instrument to the convertible instrument and any other detachable instruments included in the exchange (such as detachable warrants) on a relative fair value basis.  Then, the Company calculated the effective conversion used to measure the intrinsic value, if any, of the embedded conversion option based on the Black-Scholes-Merton option valuation model.  The Company adjusts for the changes in the Black-Scholes-Merton option valuation mod el at each reporting period. (Assumptions used are displayed in table below.)
 
   
2009
   
2008
 
Dividend Yield
 
None
   
None
 
Expected Volatility
    51.67         58.53    
Risk Free Interest Rate
    3.69         3.53    
Expected terms (years)
    3.00         3.83    

 
Impact of New Financial Accounting Statements
 
FASB Accounting Standards Update No. 2010-8, Technical Corrections to Various Topics.
 
In February 2010, the FASB issued Accounting Update No. 2010-8, Technical Corrections to Various Topics, to eliminate inconsistencies and to clarify guidance on various Codification Topics. Except for certain amendments to Topic 815 and the nullification of paragraph 852-740-45-2, Update No. 2010-08 will become effective for the first reporting period beginning after issuance. Management is currently evaluating the potential impact of Accounting Standards Update No. 2010-08 on our consolidated financial results.
 
FASB Accounting Standards Update No. 2010-06, Fair Value Measurement and Disclosures.
 
In January 2010, the FASB issued Accounting Update No. 2010-06, Fair Value Measurement and Disclosures, to improve disclosures about Fair Value Measurements. The amendments in this Update will require new disclosures related to the transfer in and out of Level 1 and 2, and require that a reporting company present Level 3 activity on a gross basis rather than one net number. In addition, the amendments in this Update clarify existing disclosures related to the level of disaggregation and disclosures about inputs and valuation techniques. Update No. 2010-06 will begin to become effective for reporting periods beginning after December 15, 2009. Management is currently evaluating the potential impact of Accounting Standards Update No. 2010-06 on our consolidated financial results.
 
FASB Accounting Standards Update No. 2010-04, Accounting for Various Topics, Technical Corrections to SEC Paragraphs.
 
In January 2010, the FASB issued Accounting Update No. 2010-4, Accounting for Various Topics, Technical Corrections to SEC Paragraphs, to update SEC staff announcements for codification references. The adoption of Accounting Standards Update No. 2010-04 will not have a material impact on the consolidated financial statements.
 

 
 
 
F-24

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
FASB Accounting Standards Update No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash.
 
In January 2010, the FASB issued Accounting Update No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash, to clarify the accounting for a distribution to shareholders that offers the ability to elect to receive the entire distribution in cash or shares. Accounting Standards Update No. 2010-06 will be effective for reporting periods beginning after December 15, 2009. Management is currently evaluating the potential impact of Accounting Standards Update No. 2010-01 on its consolidated financial results.
 
FASB Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, a Consensus of the FASB Emerging Issues Task Force.
 
In October 2009, the FASB issued Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, a Consensus of the FASB Emerging Issues Task Force, to amend guidance used to allocate and measure revenues by an enterprise that sells or leases tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole. The amendments in the Update require that hardware components of a tangible product containing software elements always be excluded from the software revenue guidance. The Update provides additional guidance on how to determine which software, if any, related to the tangible products also would be excluded from the scope of the software revenue guidance. Update No. 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. Management is currently evaluating the potential impact of Accounting Standards Update No. 2009-14 on our consolidated financial results.
 
FASB Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force.
 
In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, a Consensus of the FASB Emerging Issues Task Force, to amend guidance which establishes a selling price hierarchy for determining the selling price of a deliverable in a multiple-deliverable revenue arrangement. The amendments in this Update also will replace the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenues is based on entity-specific assumptions rather than assumptions of marketplace participation.  In addition, the amendment revises certain disclosure requirements.  Update No. 2009-13 will become effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. Management is currently evaluating the potential impact of Accounting Standards Update No. 2009-14 on our consolidated financial results.
 
FASB Accounting Standards Update No. 2009-01, Generally Accepted Accounting Principles.
 
In October 2009, the FASB issued Accounting Standards Update No. 2009-01, Generally Accepted Accounting Principles, to amend the FASB Accounting Standards Codification for the issuance of the FASB Statement No. 168, the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB. Rules and interpretive releases of the Security and Exchange Commission (SEC) under authority of federal securit ies laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. The adoption of Update No. 2009-01 did not have a material impact on the consolidated financial statements.
 

 
 
 
F-25

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
FASB Accounting Standards Codification Topic 855, Subsequent Events.
 
On June 30, 2009, we adopted Topic 855, Subsequent Events, which is generally based on Financial Accounting Standard 165 which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, Topic 855 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions th at occurred after the balance sheet date. The adoption of Topic 855 did not have a material impact on the consolidated financial statements.
 
FASB Accounting Standards Codification Topic 810, Consolidation, Subtopic 10 Overall, Section 65, Transition Related to FASB Statement No. 160 Noncontrolling Interest in Consolidated Financial Statements – an amendment to ARB No.51.
 
Topic 810, Consolidation, is based on Statement of Financial Accounting Standard No. 160, Noncontrolling Interest in Consolidated Financial Statements – an amendment of ARB 51, which we adopted on January 1, 2009. Topic 810 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This Topic defines a noncontrolling interest, previously called a minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. Topic 810 requires, among other items, that a noncontrolling interest be included in the consolidated statement of financial position within equity separate from the parent’s equity; consolidated net income to be reported at am ounts inclusive of both the parent’s and noncontrolling interest’s shares and, separately, the amounts of consolidated net income attributable to the parent and noncontrolling interest all on the consolidated statement of operations; and if a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in net income based on such fair value. The adoption of Topic 810 has had a material impact on our consolidated financial statements as related to the APA which closed on October 21, 2009.  (For additional details, see Note 6. Related Party Transactions, MediVision Medical Imaging Ltd., MediVision Asset Purchase.)
 
FASB Accounting Standards Codification Topic 810, Consolidation.
 
Topic 810 Consolidation, is generally based on Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R), which was issued in June 2009, which among other things requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest en tity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. Topic 810, Consolidation, became effective on January 1, 2010. Management is currently evaluating the potential impact of this Topic on our consolidated Financial Statements.
 
FASB Accounting Standards Codification Topic 350, Intangibles -- Goodwill and Other.
 
Topic 350, Intangibles – Goodwill and Other, is generally based on Financial Staff Position (“FSP”) 142-3, Determination of the Useful Life of Intangible Asset, which was issued by the FASB in April 2008, which among other things, amends the factors that should be considered in developing renewal or extension
 

 
 
 
F-26

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



1.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
assumptions used to determine the useful life of a recognized intangible asset under Topic 350. The intent of the Topic is to improve the consistency between the useful life of a recognized intangible asset under Topic 350 and the period of expected cash flows used to measure the fair value of the asset, under Topic 805, Business Combinations, which is generally based on SFAS 141R, Business Combinations, and other GAAP principles.  The provisions of Topic 350 are effective for fiscal years beginning after December 15, 2008. Topic 350 is effective for our fiscal year beginning January 1, 2009.  The adoption of Topic 350 did not have a material impact on the consolidated financial statements.
 
FASB Accounting Standards Codification Topic 805, Business Combinations.
 
Topic 805, Business Combinations, is generally based on Financial Accounting Standards No. 141 (revised 2007), Business Combinations, which was issued by the FASB in December 2007, which among other things, establishes principles and requirements regarding the method in which the acquirer in a business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired business, (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial ef fects of the business combination and (iv) requires costs incurred to effect an acquisition to be recognized separately from the acquisition. Topic 805 is effective for all business combinations for which the acquisition date is on or after January 1, 2009. Earlier adoption is prohibited. This standard changes the accounting treatment for business combinations on a prospective basis.  The adoption of Topic 805 has had a material impact on the financial position and results of operations as disclosed below.
 
On March 20, 2008, we entered into a definitive merger agreement (the “Merger Agreement”) with MV Acquisitions Ltd., an Israeli company and a wholly-owned subsidiary (“Merger Sub”), and MediVision, pursuant to which the Merger Sub would have merged with and into MediVision, with MediVision as the surviving entity. On March 16, 2009, we entered into a Termination Agreement with MediVision pursuant to which the Merger Agreement was terminated.
 
We capitalized $519,820 and $527,327 in 2008 and 2007, respectively, for a total of $1,047,047 of costs related to the proposed merger with MediVision.  In accordance with FASB Topic 805, Business Combinations, we must expense these costs. To comply with Topic 805 we have retroactively calculated our consolidated balance sheet as of December 31, 2008 and our consolidated statement of operations and consolidated cash flow statements for the year ended December 31, 2008. Our consolidated balance sheet as of December 31, 2008 and consolidated statement of operations and consolidated cash flow statement for the year ended December 31, 2008 report merger-related costs as expenses for comparative purposes. Beginning in 2009, we have expensed, within general and administrativ e expenses in our consolidated statement of operations, any new merger-related costs. The pro forma impact of this adjustment to our 2008 consolidated financial statements as of and for the year ended December 31, 2008 is $519,720, respectively, as shown below:
 
 
Statement of Operations:
 
FY 2008
   
FY 2008 Revised
For Topic 805
 
Net revenues
  $ 12,491,117     $ 12,491,117  
Cost of sales
    5,768,483       5,768,483  
Gross profit
  $ 6,722,634     $ 6,722,634  
Total operating expenses
    7,804,968       8,324,688  
Net loss
  $ (2,465,805 )   $ (2,985,524 )
Basic loss per share
  $ (0.15 )   $ (0.18 )
Balance Sheet:
               
Total Assets
  $ 13,671,756     $ 12,624,709  
Total Liabilities
  $ 6,178,256     $ 6,178,255  
Total Stockholders’ Equity
  $ 7,493,500     $ 6,446,454  
Total Liabilities and Stockholders’ Equity
  $ 13,671,756     $ 12,624,709  

 

 
 
 
F-27

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)



2.            INVENTORIES
 
Inventories as of December 31, 2009 and 2008 consist of the following:
 
   
2009
   
2008
 
Raw materials
  $ 240,953     $ 413,603  
Work-in-process
    392,440       267,552  
Finished goods
    357,932       525,578  
    $ 991,325     $ 1,206,733  

3.            FURNITURE AND EQUIPMENT
 
Furniture and equipment as of December 31, 2009 and 2008 consist of the following:
 
      2009
 
 
2008
Research and manufacturing equipment
 
$
196,655
   
$
180,819
 
Office furniture and equipment
   
1,050,106
     
930,897
 
Automobiles
   
182,662
     
41,436
 
Demonstration equipment
   
128,055
     
19,368
 
     
1,557,478
     
1,172,520
 
Less: accumulated depreciation
and amortization
   
(1,076,084
)
   
(763,240
)
   
$
481,394
   
$
409,280
 

Depreciation expense was $225,588 and $187,706 for fiscal years ended 2009 and 2008, respectively.
 
4.            ACCRUED LIABILITIES, PRODUCT WARRANTY AND DEFERRED REVENUE
 
Accrued Liabilities
 
Accrued liabilities as of December 31, 2009 and 2008 consist of the following:
 
   
2009
   
2008
 
Accrued compensation
  $ 548,910     $ 671,100  
Accrued warranty expenses
    98,599       67,000  
Other accrued liabilities
    468,393       334,451  
    $ 1,115,902     $ 1,072,551  

Accrued Warranty Expenses
 
Product warranty reserve changes as of December 31, 2009 and 2008 consist of the following:
 
     2009    
2008
Warranty balance at beginning of the year
 
$
67,000
   
$
122,250
 
Reductions for warranty services provided
   
(237,650
)
   
(189,250
)
Changes for accruals in current period
   
269,249
     
134,000
 
Warranty balance at end of the year
 
$
98,599
   
$
67,000
 


 
 
 
F-28

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

4.            ACCRUED LIABILITIES, PRODUCT WARRANTY AND DEFERRED REVENUE (CONTINUED)
 
 
Deferred Extended Warranty Revenue
 
In addition to the Company’s one-year warranty, the Company offers an extended warranty for an additional charge. The Company records the sale of the extended warranty as deferred revenue and amortizes the revenue over the term of the agreement, generally one to four years. At December 31, 2009 and 2008, deferred extended warranty revenue was $1,879,722 and $1,910,824, respectively.
 
5.            NOTES PAYABLE
 
Notes payable at December 31, 2009 and 2008 consist of the following:
 
   
2009
 
2008
Convertible note
 
$
1,338,001
 
$
2,062,308
United Mizrahi Bank Loan
   
1,500,000
     
Other
   
142,226
   
48,914
Total
   
2,980,227
   
2,111,222
             
Less: current portion
   
34,048
   
1,611,063
Long-term portion
 
$
2,946,179
 
$
500,159


Convertible note
 
On October 29, 2007, we issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. (together with The Tail Wind Fund Ltd., the “Holders”) (i) an aggregate of $2,750,000 in principal amount of our 6.5% Convertible Notes Due April 30, 2010 (the “Notes”), which are convertible into 1,676,829 shares of our common stock, no par value, and (ii) warrants to purchase an aggregate of 616,671 shares of our common stock at an exercise price of $1.87 per share. The warrants expire on December 10, 2012.
 
Pursuant to an Extension Agreement, dated June 24, 2009, between us and the Holders with respect to the Notes, the Holders agreed to extend the principal payments due thereon for 18 months, such that the next principal payment with respect to the Notes will be due December 31, 2010, and extend the maturity date of the Notes to October 31, 2011.  As consideration for these extensions and waivers, we issued warrants (the “New Warrants”) to purchase an aggregate of 500,000 shares of our common stock.  These New Warrants have an exercise price of $1.00 per share and expire on June 24, 2012.
 
Pursuant to certain anti-dilution provisions in the Notes and Warrants, which were triggered as a result of the sale of securities under the Purchase Agreement, with AccelMed the conversion and exercise prices changed from $1.64 to $1.1375 per share for the Notes and $1.87 to $1.2970 per share for the Warrants.  Based on these changes, the Holders may receive up to an additional 431,700 and 272,421 shares of common stock under the Notes and Warrants, respectively.
 
The Company computed the intrinsic value of the effective conversion price based on the proceeds received for or allocated to the convertible instrument, if any, of the embedded conversion option.  Thus, the Company first allocated the proceeds received in this financing transaction that includes a convertible instrument to the convertible instrument and any other detachable instruments included in the exchange (such as detachable warrants) on a relative fair value basis.  The Company then calculated the effective conversion used to measure the intrinsic value, if any, of the embedded conversion option based on the Black-Scholes-Merton option valuation model.  The Company adjusts for the changes in the Black-Scholes-Merton option valuation mode l at each reporting period.
 

 
 
 
F-29

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

5.            NOTES PAYABLE (CONTINUED)
 
The impact of this adjustment to our 2009 financial statements to date is an increase to interest expense of $195,407, an increase to the discount on the Notes of $36,807 and an increase to additional paid-in-capital of $131,171.
 
As of December 31, 2009, the following weighted average assumptions were used: dividend yield none, expected volatility of 51.67%, risk-free interest rate of 3.69%, and expected term of 3 years. As of December 31, 2009, there was $132,137 of additional paid-in-capital and $36,999 of discount related to the warrants. During 2009, the Company paid $75,224 of interest due on the note and $687,500 of principal. The remaining principal balance due on the note is $1,375,000 or $1,338,001 net of the discount of $36,999. During 2008, the Company paid $89,375 of interest due on the note. There were no conversions or principal payments made during 2008. The remaining principal balance due on the note as of December 31, 2008 was $2,098,640, or $2,098,448 net of the discount.
 
On March 18, 2010, the Holders converted $150,000 of the principal balance on the Convertible Note into 131,868 shares of our common stock.  Additionally, on March 24, 2010 the Holders converted $100,000 of the principal balance on the Convertible Note into 87,912 shares of our common stock.
 
United Mizrahi Bank Loan
 
The United Mizrahi Bank Loan was executed in connection with the close of the MediVision Asset Purchase.  (For more details on the United Mizrahi Bank Loan, see item Note 6. Related Party Transaction, MediVision Medial Imaging Ltd., United Mizrahi Bank Loan, below.)
 
6.            RELATED PARTY TRANSACTIONS
 
U.M. AccelMed, Limited Partnership
 
As of December 31, 2009, U.M. AccelMed, Limited Partnership, an Israeli limited partnership is our largest shareholder with 9,633,228 shares of our common stock or 36.4%.  AccelMed acquired these shares on June 24, 2009 pursuant to a Purchase Agreement (as described below).  As of March 12, 2010, AccelMed owns 9,757,514 shares of our common stock, or 36.8%.
 
On June 24, 2009, we entered into a Purchase Agreement with AccelMed.  Pursuant to the terms of the Purchase Agreement, we authorized the issuance and sale of up to an aggregate of 13,214,317 shares of our common stock and warrants to purchase up to an aggregate of 4,404,772 shares of our common stock in two installments. On the date of the Purchase Agreement, we completed the 1st installment, under which issued to AccelMed 9,633,228 shares and a warrant to purchase up to 3,211,076 shares for an aggregate purchase price of $3,999,972.  The 1st Installment Warrant entitles AccelMed to purchase 3,211,076 shares of our common stock at an exercise price of $1.00 per share and expires on June 24, 2012.
 
On this date, we also issued to the placement agent, an option to purchase 123,500 shares of our common stock at an exercise price of $0.01 per share.  This option expires on June 24, 2012. We recorded the fair value of the options using the Black-Scholes-Merton option valuation model, as a reduction to our common stock and an increase in additional paid-in-capital in the amount of $47,045.
 
For the 2nd installment, we agreed to issue 3,581,089 shares of common stock and a warrant to purchase up to an aggregate of 1,193,696 shares of common stock, for an aggregate purchase price of $1,999,967. Subject to certain conditions, including, without limitation, the achievement of certain financial milestones, the completion of the 2nd Installment will occur within 14 days of the date of our filing with the SEC our Form 10-Q for the quarter ended March 31, 2010 or on a later date as may be agreed to in writing by the parties. If certain conditions are not met, the 2nd installment is optional.
 

 
 
 
F-30

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

6.           RELATED PARTY TRANSACTIONS (CONTINUED)
 
Pursuant to the terms of the Purchase Agreement, on June 24, 2009, the Company entered into an Agreement (the “Voting Agreement”) by and among (i) AccelMed, (ii) MediVision Medical Imaging Ltd. (“MediVision”), (iii) Agfa Gevaert N.V. (“Agfa”), (iv) Delta Trading and Services (1986) Ltd. (“Delta”), and (v) Gil Allon, Noam Allon, Ariel Shenhar and Yuval Shenhar (collectively, the “Allon/Shenhar Group” and together with Agfa and Delta, the “Principal MV Shareholders”). MediVision and the Principal MV Shareholders are referred to as the “ MediVision/Principal Shareholders Group.”  Under the Voting Agreement, following the 1 st Installment Closing Date, as long as eac h of AccelMed and the MediVision/Principal MV Shareholders Group holds between 25% and 50% of the outstanding shares of common stock, the Company agreed to use its best efforts and will take all actions (including, if necessary, amend its bylaws) to cause to be nominated for election to the Company’s Board of Directors, and each of AccelMed and the members of the MediVision/Principal MV Shareholders Group, agreed to vote its shares of common stock owned, whether directly or indirectly, and whether now owned or thereafter acquired, in favor of, the following nominees: (1) two “Independent Directors” as defined under the listing standards of The Nasdaq Capital Market, the identity of one will be designated and named by AccelMed and the identity of the other by the MediVision/Principal MV Shareholders Group; (2) three persons designated and named by AccelMed; (3) three persons designated and named by MediVision; and (4) one person designated and named jointly by AccelMed and MediVision who sha ll be a reputable individual from the Company’s industry.
 
Pursuant to the terms of the Voting Agreement, following the 1st Installment Closing Date, as long as either AccelMed or the MediVision/Principal MV Shareholders Group holds less than 25% or more than 50% of the outstanding shares of common stock, the Company agreed to use its best efforts and will take all actions (including, if necessary, amend its bylaws) to cause to be nominated for election to the Company’s Board of Directors, and each of AccelMed and the members of the MediVision/Principal MV Shareholders Group, agreed to vote its shares of common stock, in favor of, the following nominees: (1) two “Independent Directors” as defined under the listing standards of The Nasdaq Capital Market, the identity of one will be designated and named by AccelMed and the identity of the other by either MediVision/Princip al MV Shareholders Group; (2) six persons designated and named by AccelMed and the MediVision/Principal MV Shareholders Group, with each of AccelMed and the MediVision/Principal MV Shareholders Group entitled to name the number of persons for election to the Company’s Board of Directors in proportion to their shareholdings in the Company (i.e., calculated based on the percentages of holdings of each out of their combined aggregate holdings, multiplied by six, and rounded to the nearest whole number); (3) one person designated and named jointly by AccelMed and MediVision who shall be a reputable individual from the Company’s industry.
 
In connection with the foregoing, at the first annual meeting of the Company’s shareholders following the execution of the Voting Agreement, AccelMed shall designate Ariel Shenhar and the MediVision/Principal MV Shareholders Group shall designate Gil Allon to serve as directors until the next annual meeting, subject to their continued service as the Company’s Chief Financial Officer and Chief Executive Officer, respectively. In addition, AccelMed has appointed Uri Geiger and Moshe Arkin (the "New Directors ”) to serve on the Company’s Board of Directors.
 
The Voting Agreement will terminate when AccelMed ceases to own 10% of the common stock on a fully-diluted basis or the MediVision/Principal MV Shareholder Group ceases to own, in the aggregate, 10% of the common stock on a fully-diluted basis.
 
 

 
 
 
F-31

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

6.            RELATED PARTY TRANSACTIONS (CONTINUED)
 
MediVision is a significant shareholder of the Company owning 34.9% of the issued and outstanding common stock as of March 12, 2010. 
 
Gil Allon (the Company’s Chief Executive Officer), together with Noam Allon, President and Chief Executive Officer of MediVision and Gil Allon’s brother own 20.31% of MediVision’s ordinary shares. Ariel Shenhar (the Company’s Chief Financial Officer), together with Yuval Shenhar, his brother, own 1.06% of MediVision’s ordinary shares. Agfa and Delta own 15.59% and 42.08% of MediVision’s ordinary shares, respectively.
 
MediVision Medical Imaging Ltd.
 
As of December 31, 2009, MediVision Medical Imaging Ltd., an Israeli corporation (“MediVision”), is our second largest shareholder with 9,380,843 shares of our common stock, or 35.4%.  As of March 12, 2010, MediVision owns 9,256,557 shares of our common stock, or 34.9%.
 
MediVision Asset Purchase
 
On June 24, 2009, we entered into an Asset Purchase Agreement (“APA”) with MediVision to purchase substantially all the assets of MediVision, which was completed on October 21, 2009 (the “MediVision Asset Purchase”). Such assets included the European operations which consisted of MediVision’s business as conducted by CCS Pawlowski GmbH (“CCS”), its branch office in Belgium (the “Belgium Activities”), certain agreements under which MediVision contracted with third parties for distribution and other services (the “Purchased Agreements”), and rights to intellectual property which resulted from MediVision’s research and development (“R&D”) activities performed in Israel.
 
As payment for such assets, we agreed to assume a bank loan outstanding with Mizrahi Tefahot Bank Ltd. (the “United Mizrahi Bank”) in the amount of $1,500,000, to which we were previously a guarantor (For more details of the guaranty, see “Note 6. Related Party Transactions, United Mizrahi Bank Loan” below.), liabilities associated with the acquired assets on and after October 21, 2009, the closing date, and certain taxes, and extinguishment of all intercompany indebtedness owed to us with a principal amount of $4,178,622.
 
In addition, in early 2009, we hired all of MediVision’s research and development staff and moved them to our offices in the United States and Israel.
 
During 2009, we had recorded intercompany accounts and notes receivable due from MediVision of $450,000 and $3,168,622, respectively, prepaid product advances to MediVision of $560,000, which were in anticipation of the completion of the Electro-optical Unit, and $273,808 of exclusivity rights paid to MediVision to sell the Electro-optical Unit in the U.S. All such amounts were extinguished upon completion of the MediVision Asset Purchase. At June 30, 2009, management determined the intercompany indebtedness owed to us by MediVision was impaired and recorded an allowance for doubtful accounts for the outstanding balance equal to $4,436,187. In connection with the MediVision Asset Purchase, management wrote off the balance of intercompany indebtedness owed to us by MediVision, thus, eliminating the allowance for doubtful accounts.  ; Following the completion of the MediVision Asset Purchase, management extinguished an additional $16,243 of intercompany notes receivable due from MediVision.
 

 
 
 
F-32

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

6.            RELATED PARTY TRANSACTIONS (CONTINUED)
 
The purchase price of the MediVision Asset Purchase was allocated to the assets acquired, liabilities assumed and noncontrolling interest in CCS using the relative fair values as determined by management at the acquisition date. Goodwill was computed as follows:
 
Fair Value of Assets Acquired:
           
Net financial assets
  $ 163,000        
Tangible assets
    311,000        
Intangible assets
    692,000        
Total Assets
            1,166,000  
                 
Fair Value of Liabilities Assumed and Noncontrolling Interest
               
Debt to United Mizrahi Bank
    (1,500,000 )        
Noncontrolling interest in CCS
    (473,000 )        
Total Liabilities and Noncontrolling Interest
            (1,973,000 )
                 
Goodwill Resulting from the Business Combination:
          $ 807,000  

In connection with the MediVision Asset Purchase, we recorded (1) financial assets of approximately $163,000 which represents cash, (2) tangible assets of approximately $311,000 which are primarily comprised of net accounts receivable, inventory and fixed assets, and (3) intangible assets of approximately $692,000 which are attributable to customer relationships and the Purchased Agreements related to the European operations of approximately $493,000 and intellectual property related to the Electro-optical Unit of approximately $199,000 which resulted from MediVision’s R&D activities performed in Israel. The intangible assets related to customer relationships and Purchased Agreements were valued on the date of acquisition at fair value and will be amortized over an estimated useful life of 8.2 years and will result in additi onal amortization expense of approximately $60,000 annually. During the year ended December 31, 2009, the Company recognized $8,693 of amortization expense related to customer relationships and Purchased Agreements. The intangible asset for the intellectual property related to the Electro-optical Unit which was valued on the date of the acquisition at fair value, will be amortized over its estimated useful life upon completion of the product and once sales commence.  The Company will test these assets for recoverability on an ongoing basis.
 
The fair value of the noncontrolling interest in CCS of $473,000 was estimated by applying the income approach. This fair value measurement is based on significant inputs that are not observable in the market. Key assumptions include (1) a discount rate of 17% and (2) a terminal year long-term sustainable growth rate of 3%.
 
Goodwill reflects the replacement cost of an assembled workforce associated with personal reputations, relationships and business specific knowledge and the value of expected synergies and the noncontrolling interest holders. The fair value of goodwill exceeds its carrying amount at December 31, 2009. The Company will test goodwill for impairment on an annual bases and between annual test periods if an event occurs or circumstances change that would reduce its carrying value. In connection with the MediVision Asset Purchase, we recorded $52,500 as an expense for attorney and accounting services related to the MediVision Asset Purchase incurred during the year ended December 31, 2009.
 
During the year ended December 31, 2009, the Company recognized revenue and net losses related to the business operations purchased in connection with the MediVision Asset Purchase of $188,683 and $121,333, respectively.
 

 
 
 
F-33

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

 
6.            RELATED PARTY TRANSACTIONS (CONTINUED)
 
The following unaudited pro forma information, prepared in accordance with Generally Accepted Accounting Principals, presents the results of operations for the twelve month periods ending December 31, 2009 and 2008 presented as though our acquisition of certain assets of MediVision had occurred on January 1, 2008.  This summary of unaudited pro forma results of operation is presented for informational purposes only and does not purport to be indicative of the results of future operations of the Company or the results that would have actually been attained had the acquisition taken place at the beginning of 2008:
 
   
Twelve Months
ended
December 31,
2009
   
Twelve Months
ended
December 31,
2008
 
Total Revenue
  $ 14,027,917     $ 13,706,948  
                 
Net loss
    (5,757,728 )     (3,099,608 )
                 
Denominator for basic net loss per share
    21,842,234       16,866,831  
                 
Net loss per share—Basic (1)
  $ (0.26 )   $ (0.18 )

(1) The amount of anti-dilutive shares for the twelve months ended December 31, 2009 and 2008 are 520,748 and 69,167 respectively.
 
Escrow Agreement
 
Pursuant to the terms of the APA and an Escrow Agreement (the “Escrow Agreement”) between us, MediVision and Stephen L. Davis, Esq. dated June 24, 2009, MediVision deposited 5,793,452 shares (the “Escrow Shares”) of our common stock into escrow.  If MediVision fails to make certain payments under the APA, the Escrow Shares will be distributed to us or sold and the proceeds thereof distributed to us.  The agreement will terminate upon the later of (i) October 21, 2011 or (ii) the satisfaction and discharge of the $1,800,000 claim made by the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade & Labor to MediVision.
 
United Mizrahi Bank Loan
 
In 2005, we entered into a Secured Debenture (the “Debenture”) in favor of United Mizrahi Bank Ltd., in an amount of up to $2,000,000 (plus interest, commissions and all expenses). Under the terms of the Debenture, we guaranteed the payment of all of the debts and liabilities of MediVision to United Mizrahi Bank up to $2,000,000. The Debenture is secured by a first lien on all of our assets. On June 24, 2009, pursuant to the Purchase Agreement, we agreed, that upon consummation of the APA, to assume MediVision’s loan under the Debenture.  On October 23, 2009, we entered into a Secured Debenture (the “Secured Debenture”) with United Mizrahi Bank.  Under the Secured Debenture we agreed to assume MediVision’s loan under the Debenture in an amount of up to $1,500,000 (the “Loan Amount”).  We also agreed to secure the Loan Amount by granting United Mizrahi Bank a security interest in all or substantially all of our assets.  Under the Secured Debenture, United Mizrahi Bank may require the immediate payment of the entire Loan Amount upon certain events, which include among other things, our failure to make a payment on a due date or a breach or failure to perform its obligations pursuant to the Secured Debenture.  Upon failure to make a payment, we must pay, within seven days, the amount demanded by United Mizrahi Bank.
 

 
 
 
F-34

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
 
6.            RELATED PARTY TRANSACTIONS (CONTINUED)
 
The Loan Amount accrues interest at a rate equal to LIBOR plus 4.75%.  In addition, principal payments are required to be made in 18 equal monthly installments beginning January 31, 2011. However, if we do not receive at least $1,000,000 upon consummation of a second installment with AccelMed, by June 30, 2010, we may elect to: (i) make principal payments of $60,000 per month beginning July 31, 2010 and ending December 31, 2010, with the remaining principal payments made in 18 equal monthly installments; under this option, we must maintain a cash balance of at least $1,000,000 (decreasing based on the loan balance), 50% of which must be on deposit at United Mizrahi Bank or (ii) make principal payments in 18 equal monthly installments beginning January 31, 2011; under this option, we must maintain a cash balance of at least $ 1,500,000 (decreasing based on the loan balance), 50% of which must be on deposit at United Mizrahi Bank.  As part of its agreement with United Mizrahi Bank, we agreed to deposit $750,000 cash in a bank account at United Mizrahi Bank with such balance to be maintained until June 30, 2010.  After June 30, 2010, we must maintain a balance of at least $375,000 in such bank account, as long as the loan remains outstanding.  As the balance of the deposit is not legally restricted or held as a compensating balance against borrowings, it is not reported as restricted cash on the balance sheet at December 31, 2009. We are also subject to a debt covenant, whereby our cash plus accounts receivable must be at least 150% of the principal and interest outstanding under the loan.
 
The Purchase Agreement includes a covenant which deters the early payment of principal to United Mizrahi Bank in 2010.  If during the year ended December 31, 2010, the aggregate amount of the principal payments that we make to United Mizrahi Bank exceeds our Earnings Before Interest, Taxes and Amortization (“EBITDA”) for the year ended December 31, 2010, then within three business days after we file our audited financial statements for the year ended December 31, 2010 with the Commission, we must issue to AccelMed, shares of our common stock in an amount equal to the aggregate amount of the principal payments made to United Mizrahi Bank during the year ended December 31, 2010 minus EBITDA divided by 0.41522.  Such shares will be issued without receipt of any additional consideration from AccelMed.& #160; At this time, we are unable to determine if any such payment will be required and if required, the amount of such payment.
 
Warrant to United Mizrahi Bank
 
On October 23, 2009, in connection with the assumption of the United Mizrahi loan, we issued to United Mizrahi Bank a warrant (the “Warrant”) to purchase 350,000 shares of our common stock at an exercise price of $1.00 which will expire upon the earlier of October 23, 2012 or twelve months following the completion of (1) a primary public offering of our common stock (a “Public Offering”) or (2) (a) the sale of all or substantially all of our assets or (b) the merger or consolidation of the Company with or into another entity, pursuant to which 50% of the Company’s outstanding common stock is held by person(s) who prior to the transaction held, in aggregate, less than 5% (together, a “Liquidity Event,” and together with a Public Offe ring, an “Exit Event”); provided however, if the underwriter in a Public Offering or the purchasing person(s) in a Liquidity Event require that all our outstanding warrants and options, including the Warrant be exercised prior to or part of the Public Offering or Liquidity Event, as applicable, then the Warrant will terminate, subject to certain notice requirements, upon completion of such transaction.
 
The exercise price of the Warrant is $1.00, subject to the happening of certain events, including, but not limited to, the payment of a stock dividend or a stock split.  The Warrant also includes certain anti-dilution provisions if we issue or sell any equity securities or securities convertible into equity, options or rights to purchase equity securities at a per share selling price less than the exercise price, then the exercise price will be adjusted pursuant to a weighted-average formula.
 
Upon or immediately prior to an Exit Transaction, United Mizrahi may elect to waive all or any portion of the rights under the Warrant for $225,000 (the “Alternative Payment”).  If only a portion of the Warrant is waived or if the Warrant was partially exercised prior to the Exit Event, the Alternative Payment will be reduced proportionately.  In connection with the issuance of the Warrant to United Mizrahi Bank, we recorded the fair value of the Warrant using the Black-Scholes-Merton valuation model as permanent equity as the Warrant was issued in relation to the Purchase Agreement.  The total value of these options is approximately $40,138.
 

 
 
 
F-35

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
 
6.            RELATED PARTY TRANSACTIONS (CONTINUED)
 
MediVision Loans and Advances
 
In connection with the MediVision Asset Purchase, management has written off the balance of intercompany indebtedness which was comprised of accounts receivable and notes receivable from MediVision of $450,000 and $3,168,622, respectively, $560,000 in prepaid assets for funds advanced to MediVision in anticipation of the completion of the Electro-optical Unit and $273,808 that we paid to MediVision for exclusivity rights to sell the Electro-optical Unit in the U.S.  As of June 30, 2009, based upon revised estimates and the timing of the shifting of our focus from the Electro-optical Unit to other products through the end of 2010, management decided to impair the aggregate balance of intercompany indebtedness and thus, recorded an allowance for doubtful accounts equal to $4,436,187 offsetting each account and thus, recording an impairment expense for the same amount. Following the completion of the MediVision Asset Purchase, management extinguished an additional $16,243 of intercompany notes receivable due from MediVision.
 
As of December 31, 2009, OIS owed MediVision $41,847 related to the settlement of its business relationships with MediVision.
 
Intercompany Transactions
 
Until October 21, 2009, upon completion of the MediVision Asset Purchase, we were parties to several agreements with MediVision, pursuant to which MediVision performed the following services:
 
Distributed our WinStation and Symphony Products in Europe, Africa, Israel and India. Products were sold to MediVision at a volume driven discount according to the price list, set forth below. The volume discount table is applicable to all of our distributors, including MediVision. Below is the volume discount table for our distributors for 2009.
 
Annual amounts purchased
 
Discount
$   0  - $  199,999   0 %
$   200,000 - $  299,999   10 %
$   300,000 - $  399,999   20 %
$   400,000 - $  499,999   30 %
$  
500,000 and above
  40 %

In 2009, until the completion of the MediVision Asset Purchase, and for the year ended December 31, 2008, MediVision purchased products of approximately $225,000 and $597,000, respectively. Sales derived from product shipments to MediVision are made at transfer pricing which is based on similar volume discounts that are available to other resellers or distributors of our products.
 
Performed Research and Development.  Prior to July 2009, MediVision performed research and development services. MediVision billed us, on a monthly basis, at cost plus 12%. These research and development services include direct labor, consultants’ fees, travel expenses and the applicable portion of general and administrative expenses.  During the years ended December 31, 2009 and 2008, we paid approximately $294,000 and $1,888,000, respectively, to MediVision for research and development services, respectively.
 
Relationships
 
Gil Allon (our Chief Executive Officer), together with Noam Allon, President and Chief Executive Officer of MediVision, Gil Allon’s brother and a former director of OIS own 20.31% of MediVision’s ordinary shares. Ariel Shenhar (our Chief Financial Officer), together with Yuval Shenhar, his brother, own 1.06% of MediVision’s ordinary shares.
 

 
 
 
F-36

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
 
6.            RELATED PARTY TRANSACTIONS (CONTINUED)
 
CCS Pawlowski GmbH
 
CCS Pawlowski GmbH, a German corporation (“CCS”), was a subsidiary of MediVision which owned 63% of CCS’ ownership interests.  We acquired this ownership interest in the MediVision Asset Purchase.  (For additional details of the MediVision Asset Purchase, see “Note. 6. Related Party Transactions, MediVision Asset Purchase” above.)
 
During the years ending December 31, 2009 and 2008, CCS was our exclusive distributor of certain of our products in Germany and Austria. Products were sold to CCS at a volume driven discount according to the price list, set forth below. The volume discount table is applicable to all of our distributors, including CCS. Below is the volume discount table for our distributors for 2009.
 
Annual amounts purchased
 
Discount
$   0  - $  199,999   0 %
$   200,000 - $  299,999   10 %
$   300,000 - $  399,999   20 %
$   400,000 - $  499,999   30 %
$  
500,000 and above
  40 %

 
During 2009, prior to the MediVision APA, we sold products to CCS of approximately $113,000 compared to products sold to CCS in 2008 of $226,000. At December 31, 2008, we had $50,365 of amounts due from CCS.  After completion of the MediVision Asset Purchase all inter-company amounts were eliminated upon consolidation.
 
MediStrategy, Ltd.
 
In January 2004, we entered into a services agreement with MediStrategy Ltd. (“MS”), an Israeli company owned by Noam Allon, the Company’s Business Development Officer. Under the terms of the agreement, MS provides business services to us primarily in the field in ophthalmology, which includes forming business relationships, identifying potential mergers and acquisitions, identifying and analyzing new complementary lines of business and finding potential business opportunities. All services provided by MS are performed solely by Noam Allon.  In 2008 in consideration for the services provided, we agreed to pay MS a monthly sum of $4,000. In addition, MS is to be paid an annual performance bonus of up to $10,000 upon achievement of goals specified under the terms of the services agreement as determined by MS, Noam Allon, and our Chairman of the Board. During 2008, MS earned fees of $48,000.  As of January 1, 2009, we agreed to pay MS a monthly sum of $1,600.  During the year ending December 31, 2009, MS earned fees of $19,200.  All fees were approved by the compensation committee. The agreement between OIS and MS was terminated effective January 1, 2010. As of January 1, 2010, OIS Global signed an agreement with MS for Noam Allon’s consulting services. Under the terms of the agreement, MS is to be compensated $13,272 monthly for Noam Allon’s services effective October 1, 2009 through December 31, 2009 and approximately $18,000 monthly effective January 1, 2010 through December 31, 2010.
 
7.            LINE OF CREDIT
 
The Company maintains a $150,000 line of credit agreement with Wells Fargo Bank. The line is secured by a pledged deposit with the bank totaling $158,213 at December 31, 2009. Advances on the line bear interest at prime (3.25 % at December 31, 2009) with interest due monthly. The line matures on May 10, 2011.
 

 
 
 
F-37

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
 
8.            SHARE-BASED COMPENSATION
 
OIS
 
At December 31, 2009, we have four active stock-based compensation plans (the “Plans”). Options granted under these plans generally have a term of ten years from the date of grant unless otherwise specified in the option agreement. The plans generally expire ten years from the inception of the plans. Options granted under these agreements have a vesting period of up to four years. Incentive stock options under these plans are granted at fair market value on the date of grant and non-qualified stock options granted cannot be less than 85% of the fair market value on the date of grant.
 
A summary of the Company’s plans as of December 31, 2009 is presented below:
 
Plan Name
 
Options
Authorized
Per Plan
 
Plan Expiration
 
Options Outstanding
   
Range of
Exercise
Prices
   
Available
for Future
Grants
 
                           
2000 Option Plan
    1,500,000  
September 2010
    1,223,836     $0.10 - $2.83       11,163  
2003 Option Plan
    750,000  
October 2013
    577,831     $0.16 - $1.96       2,833  
2005 Option Plan
    750,000  
December 2015
    750,000     $0.16 - $1.05       --  
2009 Option Plan
    750,000  
January 2019
    729,759     $0.55 - $0.65       20,241  
Individual Option Agreement
    123,500  
June 2012
    123,500     $0.10       --  
Individual Option Agreement
    180,000  
December 2019
    180,000     $0.84       --  
Total
              3,584,926               34,237  

 
In calculating compensation recorded related to stock option grants for the year ended December 31, 2009, the fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option-pricing model and the following weighted average assumptions.:
 
   
2009
 
2008
Dividend yield
 
None
 
None
Expected volatility
 
50.23
 
58.76
Risk-free interest rate
 
3.69
 
4.52
Expected term (years)
 
10
 
8

The computation of expected volatility used in the Black-Scholes-Merton option-pricing model is based on the historical volatility of our share price. The expected term is estimated based on a review of historical and future expectations of employee exercise behavior.
 

 
 
 
F-38

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
 
8.            SHARE-BASED COMPENSATION (CONTINUED)
 
A summary of the changes in stock options outstanding under our equity-based compensation plans during the fiscal year ended December 31, 2009 is presented below:
 
   
Options
   
Weighted
Average
Exercise
Price
   
Weighted
Average
Remaining
Contractual
Term (Years)
   
Aggregate
Intrinsic
Value
 
                         
Outstanding at January 1, 2008
    2,358,686     $ 0.73       6.59        
                               
Granted
    -       -       -       -  
Exercised
    -       -       -       -  
                                 
Forfeited/expired
    (86,686 )   $ 0.95       -       -  
                                 
Outstanding at January 1, 2009
    2,272,000     $ 0.72       5.64       -  
                                 
Granted
    1,659,759     $ 0.46       9.43     $ 481,330  
Exercised
    -       -       -       -  
                                 
Forfeited/expired
    (346,833 )   $ 0.64       -       -  
                                 
Outstanding at December 31, 2009
    3,584,926     $ 0.60       6.01     $ 537,739  
                                 
Exercisable at December 31, 2009
    2,366,500     $ 0.54       3.85     $ 496,965  
                                 

Options issued to non-employees reflected in the table above include 668,000 options outstanding on January 1, 2009. None of these shares were exercised in 2009. 333,500 options were granted to non-employees in 2009.  284,000 options lapsed during the year ended December 31, 2009, resulting in 717,500 options outstanding and 467,500 exercisable at December 31, 2009 for non-employees.
 

 
 
 
F-39

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
 
8.           SHARE-BASED COMPENSATION (CONTINUED)
 
The weighted-average grant-date fair value of OIS options granted during 2009 was $0.46. There were no OIS options granted in 2008. There were no OIS options exercised in 2009 or 2008.
 
We recorded an incremental expense of $32,220 and $30,053 for stock-based compensation during the years ended December 31, 2009 and 2008, respectively. As of December 31, 2009, we had 48,046 of unrecognized expense related to non-vested stock-based compensation, which is expected to be recognized through 2012. The total fair value of options vested during the years ended December 31, 2009 and 2008 was $32,220 and $30,053, respectively.

A summary of the status of nonvested shares at December 31, 2009 and changes during the year then ended, is presented below:
 
   
Shares
   
Weighted
Average
Grant Date
Fair Value
 
Non-vested shares at January 1, 2009
    498,625     $ 1.04  
Granted
    1,659,759       0.67  
Vested
    (929,666 )     1.08  
Forfeited/Expired
    (10,292 )     1.95  
Non-vested shares at December 31, 2009
    1,218,426     $ 0.62  

Non-vested shares relating to non-employees reflected in the table above include 80,625 and 250,000 shares outstanding at January 1, 2009 and December 31, 2009, respectively.
 
There was no cash received from warrant and stock option exercises for the year ended December 31, 2009 and 2008.
 
Abraxas
 
On December 9, 2009 we granted Abraxas employees options to purchase a total of 10,000 shares of Abraxas common stock. The options are exercisable at $5.00 per share, expire on December 9, 2019, and begin vesting quarterly over three years as follows: 34%, 33%, and 33%.
 

 
 
 
F-40

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
 
9.     INCOME TAXES
 
The income tax expense for the years ended December 31, 2009 and 2008 consisted of the following:
 
   
Federal
 
State
 
Total
 
2009
                   
Current
 
$
-
 
$
3,787
 
$
3,787
 
Deferred
   
(1,974,000
)
 
(280,000
)
 
(2,254,000
)
Change in valuation allowance
   
1,974,000
   
280,000
   
2,254,000
 
Total income tax expense
 
$
-
 
$
3,787
 
$
3,787
 

   
Federal
 
State
 
Total
 
2008
                   
Current
 
$
(43,000
$
-
 
$
(43,000
)
Deferred
   
(503,000
)  
(81,000
)  
(584,000
)
Change in valuation allowance
   
1,845,000
   
81,000
   
1,926,000
 
Total income tax expense
 
$
1,299,000
 
$
-
 
$
1,299,000
 

In 2009, we determined that we will not more-likely-than-not be able to use any of our deferred tax asset in the future. We analyzed our operating results from 2008, 2009, and projected operating results for 2010, combined with the downward turn in the economy in 2008, and determined that it is not more-likely-than-not that we will be able to use our deferred tax asset in the future.
 
The Company’s effective tax rate for the years ended December 31, 2009 and 2008 was 0% and (112%). The reconciliation of the statutory rate to the effective rate is as follows:
 
   
2009
   
2008
 
Statutory rate
    34 %     (34 )%
State income taxes, net of Federal benefit
    6       (6 )
Other
    20       (11 )
Change in valuation allowance
    (60 )     (61 )
Total
    0 %     (112 )%


 
 
 
F-41

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
 
9.            INCOME TAXES (CONTINUED)
 
The significant components of the Company’s deferred tax assets and liabilities are as follows:
 
   
December 31,
   
2009
 
2008
Deferred tax assets:
               
Net operating loss carry forwards
 
$
3,773,000
   
$
1,823,000
 
Inventory reserves
   
197,000
     
176,000
 
Payroll related accruals
   
165,000
     
136,000
 
Warranty accrual
   
39,000
     
29,000
 
Accounts receivable reserve
   
281,000
     
280,000
 
Uniform capitalization
   
19,000
     
26,000
 
Research and Development tax credit
   
230,000
     
-
 
Deferred revenue
   
823,000
     
819,000
 
Total deferred tax assets
   
5,527,000
     
3,289,000
 
Valuation allowance
   
(5,506,000
)
   
(3,252,000
)
Net deferred tax assets
   
21,000
     
37,000
 
Deferred tax liabilities:
               
Depreciation
   
(21,000
)
   
(37,000
)
Net deferred tax assets
 
$
-
   
$
-
 

 
At December 31, 2009 and 2008, management reviewed recent operating results and projected future operating results, as well as the current conditions in the global economy and medical industry.  On each of these dates, management determined whether it was more-likely-than-not that a portion of the deferred tax assets attributable to net operating losses would be realized. For a description of our analysis in determining our deferred tax asset, see “Note 1. Summary of Significant Accounting Policies, Income Taxes.”
 
We re-evaluate our estimates and assumptions we use in our financial statements on an ongoing and quarterly basis. We adjust these estimates and assumptions as needed and as circumstances change. If circumstances change in the future, we will adjust our estimates and assumptions accordingly. At the present time, we cannot determine whether our assumptions and estimates will change in the future. Based on historical knowledge, however, it is reasonably likely that there will be some changes in some of our estimates and assumptions. The Company did not identify any material uncertain tax positions as of and for the years ended December 31, 2009 and 2008.
 
10.          COMMITMENTS AND CONTINGENCIES
 
The Company has no significant commitments and contingencies other than as disclosed in these financial statements and notes thereto.
 
Operating Leases
 
The Company leases its corporate headquarters and manufacturing facility under a cancelable operating lease that expires in June 2012. The lease agreement provides for minimum lease payments of $143,109 for the twelve months ended December 31, 2010 and 2011 and $71,555 for the six months ended June 30, 2012. Abraxas leases a facility for their office under a cancelable operating lease that expires in May 2011. The lease agreement provides for minimum lease payments of $131,167 for the twelve months ending December 31, 2010, and $55,324 for the five months ended May 31, 2011.
 
Rental expense charged to operations for all operating leases was approximately $192,000 and $230,000 during the years ended December 31, 2009 and 2008, respectively.
 

 
 
 
F-42

 
OPHTHALMIC IMAGING SYSTEMS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
 
11.          WARRANTS
 
Warrant activity for the years ended December 31, 2009 and 2008 is summarized as follows:
 
   
2009
 
2008
   
Warrants
 
Weighted
Average
Exercise
Price
 
Warrants
 
Weighted
Average
Exercise
Price
Outstanding at beginning of year
 
929,671
 
$1.79
 
929,671
 
$1.79
Granted
 
4,333,497
 
1.02
 
-
 
-
Exercised
 
-
 
-
 
-
 
-
Lapsed
 
(313,000)
 
1.64
       
Outstanding at end of year
 
4,950,168
 
$1.05
 
929,671
 
$1.79
Currently exercisable
 
4,950,168
 
$1.05
 
929,671
 
$1.79


 
There were 4,950,168 warrants outstanding and exercisable as of December 31, 2009 with a weighted average remaining contractual life of 2.59 years and a weighted average exercise price of $1.05.  There is no intrinsic value of warrants outstanding at December 31, 2009.  There were an aggregate of 929,671 warrants outstanding and exercisable as of December 31, 2008 with a weighted average remaining contractual life of 2.72 years, a weighted average exercise price of $1.79. There is no intrinsic value of warrants outstanding at December 31, 2008.
 
12.          OTHER INCOME - SETTLEMENT
 
On May 3, 2009, we entered into a Confidential Settlement and Mutual Release Agreement (the “Settlement Agreement”) by and between us, Steven Verdooner, OPKO Health, Inc. and The Frost Group, LLC (collectively “Defendants”).  Mr. Verdooner was formerly our president.  Pursuant to the Settlement Agreement described further under “Legal Proceedings” below, we received a cash settlement of $1,200,000 on May 13, 2009.
 
 
 
 
F-43
 
 
 

 
 

MEDIVISION MEDICAL IMAGING LTD.

CONSOLIDATED BALANCE SHEET
 
 
  US dollars (thousands)  
     September 30,  
December 31,
 
    2009     2008      2008  
    Unaudited     Audited  
                   
A S S E T S
                 
Current assets
                 
Cash and cash equivalents
    74       3,934       2,785  
Restricted cash
    -       171       158  
Accounts receivable:
                       
Trade, net
    313       2,456       2,343  
Other accounts receivable
    151       713       428  
Inventories
    63       1,600       1,576  
Assets and disposal group classified as held for sale
    3,979       -       -  
Total current assets
    4,580       8,874       7,290  
                         
Non-current assets
                       
Property and equipment, net
    29       548       600  
                         
Investment in affiliated company
    4,238       -       -  
                         
Deferred tax assets
    -       1,210       - (*)
                         
Goodwill and other intangible assets
    -       7,823       8,080  
                         
Total assets
    8,847       18,455       15,970  


(*)           Restated – see Note 2C.
 
The accompanying notes are an integral part of the consolidated financial statements.

 
F-44

 
MEDIVISION MEDICAL IMAGING LTD.

 
CONSOLIDATED BALANCE SHEET
 
 
 
     US dollars (thousands)
  September 30,     December 31,  
    2009     2008     2008  
   
Unaudited
   
Audited
 
                   
LIABILITIES AND EQUITY
                 
Current liabilities
                 
Short-term bank credit and other current liabilities
    2,643       3,043       3,664  
Trade payables
    632       1,221       1,409  
Other accounts payable
    5,065       4,527       4,305  
Liabilities included in disposal group held for sale
    249       -       -  
Total current liabilities
    8,589       8,791       9,378  
                         
Long-term liabilities
                       
Long-term loans, net of current maturities
    -       1,898       1,034  
Long-term employee benefits
    61       137       64  
Total long-term liabilities
    61       2,035       1,098  
Total liabilities
    8,650       10,826       10,476  
                         
Equity
                       
Equity attributable to owners of the parent:
                       
Ordinary shares
    215       215       215  
Additional paid-in capital
    9,302       9,295       9,302  
Capital reserve
    (311 )     (311 )     (311 )
Foreign currency translation differences
    118       120       67  
Accumulated deficit
    (9,299 )     (5,617 )(*)     (6,826 ) (*)
      25       3,702 (*)     2,447 (*)
Minority interest
    172       3,927 (*)     3,047 (*)
Total equity
    197       7,629 (*)     5,494 (*)
                         
Total liabilities and equity
    8,847       18,455       15,970  

(*)           Restated – see Note 2C.

 
 
The accompanying notes are an integral part of the consolidated financial statements.

 
F-45

 
MEDIVISION MEDICAL IMAGING LTD.

 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


 
   
US dollars (thousands except per share data)
 
   
Nine month period ended
September 30,
   
Three month period ended
September 30,
    Year ended
December 31,
 
        2009      
2008
     
2009
     
2008
     
2008
 
     
Unaudited
     
Unaudited
     
Audited
 
                                         
Sales
    6,376       10,837       388       3,559       14,410  
Cost of sales
    3,447       5,083       284       1,613       6,630  
Gross profit
    2,929       5,754       104       1,946       7,780  
                                         
Operating expenses:
                                       
Research and development expenses
    1,344       2,025       -       707       2,859  
Selling and marketing expenses
    2,251       3,550       257       1,155       4,832  
General and administrative expenses
    1,463       1,985       28       572       2,319  
Other expenses (income), net
    (420 )     331 (*)     16       178 (*)     520 (*)
Total operating expenses
    4,638       7,891       301       2,612       10,530  
                                         
Operating loss
    (1,709 )     (2,137 )     (197 )     (666 )     (2,750 )
Financial income
    68       213 (**)     (2 )     53 (**)     261 (**)
Financial expenses
    (487 )     (630 )(**)     (56 )     (222 )(**)     (792 )(**)
Loss before taxes on income
    (2,128 )     (2,554 )     (255 )     (835 )     (3,281 )
Income tax expense
    (3 )     (38 )     -       10       (1,341 )(*)
      (2,131 )     (2,592 )     (255 )     (825 )     (4,622 )(*)
Share in losses of affiliated company
    (660 )     -       32       -       -  
      (2,791 )     (2,592 )     (223 )     (825 )     (4,622 )
Other comprehensive loss:
                                       
Loss for the period
    (2,791 )     (2,592 )(*)     (223 )     (825 )     (4,622 )
Exchange differences on translating foreign operations
    75       (4 )(*)     49       (101 )     (103 )
Total comprehensive loss for the period
    (2,716 )     (2,596 )(*)     (174 )     (926 )     (4,725 )(*)
                                         
Attributable to:
                                       
Owners of the parent
    (2,422 )     (2,137 )(*)     (186 )     (729 )(*)     (3,399 )
Minority interest
    (294 )     (459 )(*)     12       (197 )(*)     (1,326 )
      (2,716 )     (2,596 )(*)     (174 )     (926 )(*)     (4,725 )
                                         
Basic loss per share (in Dollars)
    (0.48 )     (0.30 )(*)     (0.29 )     (0.07 )(*)     (0.43 )

(*)           Restated – see Note 2C.
(**)         Reclassified.
 
 
 

The accompanying notes are an integral part of the consolidated financial statements.


 
F-46

 
MEDIVISION MEDICAL IMAGING LTD.

 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 
   
US dollars (thousands)
   
Attributable to owners of the parent
           
   
Share
Capital
     
Additional
paid-in
capital
   
Capital
reserve
   
Foreign
currency
translation
differences
   
Accumulated
deficit
   
Total
attributable
to owners of
the parent
   
Minority
interests
   
Total
equity
 
                                                 
Balance at January 1, 2008 (audited)
    165       8,775       (311 )     132       (3,492 )(*)     5,269 (*)     4,454 (*)     9,723  
Total comprehensive loss for the year
    -       -       -       (65 )     (3,334 ) (*)     (3,399 ) (*)     (1,326 ) (*)     (4,725 ) (*)
Convertible loan converted into shares
    50       576       -       -       -       626       -       626  
Warrants, equity component of convertible loans issued by subsidiary and exercise of options into common stock of a subsidiary
    -       (105 )     -       -       -       (105 )     (98 )     (203 )
Cost of share-based payment
    -       56       -       -       -       56       17       73  
Balance at December 31, 2008 (audited)
    215       9,302       (311 )     67       (6,826 ) (*)     2,447 (*)     3,047 (*)     5,494 (*)
Total comprehensive loss for the period
    -       -       -       51       (2,473 )     (2,422 )     (294 )     (2,716 )
Change in minority interest due to loss of control in subsidiary
    -       -       -       -       -       -       (2,565 )     (2,565 )
Dividend paid to minority interest of a subsidiary
    -       -       -       -       -       -       (16 )     (16 )
Balance at September 30, 2009 (unaudited)
    215       9,302       (311 )     118       (9,299 )     25       172       197  
                                                                 
Balance at January 1, 2008 (audited)
    165       8,775       (311 )     132       (3,492 )(*)     5,269 (*)     4,454 (*)     9,723  
Total comprehensive loss for the period
    -       -       -       (12 )     (2,125 )(*)     (2,137 )     (459 )     (2,596 )(*)
Convertible loan converted into shares
    50       576       -       -       -       626       -       626  
Warrants, equity component of convertible loans issued by subsidiary and exercise of options into common stock of a subsidiary
    -       (100 )     -       -       -       (100 )     (81 )     (181 )
Cost of share-based payment
    -       44       -       -       -       44       13       57  
Balance at September 30, 2008 (unaudited)
    215       9,295       (311 )     120       (5,617 )(*)     3,702 (*)     3,927 (*)     7,629  

(*)           Restated – see Note 2C.
 
 
The accompanying capital notes are an integral part of the consolidated financial statements.

 
F-47

 
MEDIVISION MEDICAL IMAGING LTD.

 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (cont.)
 
     US dollars (thousands)  
       Attributable to owners of the parent                
     
Share
Capital
     
Additional
paid-in
capital
     
Capital
reserve
     
Foreign
currency
translation
differences
     
Accumulated
deficit
   
Total
attributable
to owners of
the parent
   
Minority
interests
   
Total
equity
 
                                                                 
Balance at July 1, 2009 (unaudited)
    215       9,302       (311 )     80       (9,075 )     211       176       387  
Total comprehensive loss for the period
    -       -       -       38       (224 )     (186 )     12       (174 )
Dividend paid to minority interest of a subsidiary
    -       -       -       -       -       -       (16 )     (16 )
Balance at September 30, 2009 (unaudited)
    215       9,302       (311 )     118       (9,299 )     25       172       197  
                                                                 
Balance at July 1, 2008 (unaudited)
    215       9,281       (311 )     214       (4,982 )(*)     4,417 (*)     4,117 (*)     8,534  
Total comprehensive loss for the period
    -       -       -       (94 )     (635 )(*)     (729 )(*)     (197 )(*)     (926 )(*)
Cost of share-based payment
    -       14       -       -       -       14       7       21  
Balance at September 30, 2008 (unaudited)
    215       9,295       (311 )     120       (5,617 )(*)     3,702 (*)     3,927 (*)     7,629  


(*)           Restated – see Note 2C.

The accompanying notes are an integral part of the consolidated financial statements.


 
F-48

 
MEDIVISION MEDICAL IMAGING LTD.

 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
US dollars (thousands)
   
Nine month period ended
September 30,
 
Three month period ended
September 30,
 
Year ended
December 31,
 
   
2009
   
2008
   
2009
   
2008
   
2008
 
    Unaudited    
Unaudited
   
Audited
 
Cash Flows from Operating Activities:
                             
Net loss for the period
    (2,791 )     (2,592 )(*)     (223 )     (825 )(*)     (4,622 ) (*)
Adjustments for:
                                       
Depreciation and amortization
    791       174       6       51       242  
Loss of disposal of assets
    16       -       -       -       10  
Deferred taxes, net
    -       132       -       (76 )     1,341 (*)
Cost of share-based payment
    -       57       -       21       73  
Financial costs and interest
    -       10       -       34       (37
Capital loss from loss of control in a subsidiary
    564       -       -       -       -  
Share in losses of affiliated company
    660       -       (32 )     -       -  
Loss on the sale and issuance of shares of a subsidiary
    16       -       16       -       -  
Other
    208       (37 )     44       9       14  
      (536 )     (2,256 )     (189 )     (786 )     (2,979 )
Changes in Operating Assets and Liabilities:
                                       
Decrease (increase) in trade receivables
    485       1,019       269       220       1,125  
Decrease (increase) in other accounts receivable and prepaid expenses
    (18 )     (11 )     10       159       274  
Decrease (increase) in inventories
    599       (402 )     107       (143 )     (420 )
Increase (decrease) in trade payables
    (253 )     (508 )     (59 )     305       (312 )
Increase (decrease) in other accounts payable and accrued expenses
    (487 )     214       (210 )     202       (109 )
Net cash provided by (used in) operating activities
    (210 )     (1,944 )     (72 )     (43 )     (2,421 )
Cash Flows from Investing Activities:
                                       
Purchase of property and equipment
    (72 )     (115 )     (7 )     (24 )     (184 )
Proceeds from the disposals of property and equipment
    15       -       -       -       8  
Additions to intangible assets
    (89 )     (1,816 )     -       (587 )     (2,110 )
Company no longer consolidated (Appendix A)
    (1,333 )     -       -       -       -  
Net cash used in investing activities
    (1,479 )     (1,931 )     (7 )     (611 )     (2,286 )
Cash Flows from Financing Activities:
                                       
Receipt of convertible loan from shareholder
    416       437       -       400       400  
Receipt of loans
    2,416       -       948       -       476  
Repayment of loans
    (4,139 )     (718 )     (1,095 )     (528 )     (1,311 )
Dividend paid to minority interest of a subsidiary
    (16 )     -       (16 )     -       -  
Net cash used in financing activities
    (1,323 )     (281 )     (163 )     (128 )     (435 )
Decrease in cash and cash equivalents
    (3,012 )     (4,156 )     (242 )     (782 )     (5,142 )
Net foreign exchange differences
    10       (12 )     11       (32 )     (65 )
Cash and cash equivalents at beginning of the period
    2,130       7,805       (641 )     4,451       7,992  
Cash and cash equivalents at the end of the period
    (872 )     3,637       (872 )     3,637       2,785  
Included in disposal group
    (271 )     -       44       -       -  
Cash and cash equivalents at the end of the period
    (1,143 )     3,637       (828 )     3,637       2,785  
 
(*)           Restated – see Note 2C.
 
 
The accompanying notes are an integral part of the consolidated financial statements.

 
F-49

 
MEDIVISION MEDICAL IMAGING LTD.

 
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)


APPENDIX A – COMPANY NO LONGER CONSOLIDATED:
 
     
US dollars (thousands)
 
     
Nine month period
ended September 30,
     
Three month period
ended September 30,
     
Year ended
December 31,
 
     
2009
     
2008
     
2009
     
2008
       2008  
      Unaudited      
Unaudited
     
Audited
 
Working capital (excluding cash and cash equivalents), net
    2,675       -       -       -       -  
Inventories
    825       -       -       -       -  
Investment in an affiliated company
    (4,913 )     -       -       -       -  
Property and equipment, net
    328       -       -       -       -  
Goodwill and other intangible assets
    4,278       -       -       -       -  
Long-term bank loans
    (1,397 )     -       -       -       -  
Minority shareholders in subsidiary
    (2,565 )     -       -       -       -  
Capital loss from loss of control in a subsidiary
    (564 )     -       -       -       -  
      (1,333 )     -       -       -       -  

APPENDIX B – SUPPLEMENTARY INFORMATION:
 
     
US dollars (thousands)
 
     
Nine month period ended
September 30,
     
Three month period
ended September 30,
     
Year ended
December 31,
 
     
2009
     
2008
     
2009
     
2008
     
2008
 
     
Unaudited
     
Unaudited
     
Audited
 
                                         
Cash paid during the year for interest
    143       226       16       150       269  
                                         
Income taxes paid
    8       134       -       56       6  
                                         
Supplemental schedule of non-cash activities:
                                       
Repayment of notes payable and interest through conversion into shares
    -       626       -       -       626  
                                         
Purchase of property and equipment with a financial loan
    -       -       -       -       63  
                                         
Transfer of inventory into property and equipment
    -       -       -       -       34  

 
The accompanying notes are an integral part of the consolidated financial statements.


 
F-50

 
MEDIVISION MEDICAL IMAGING LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 

 
NOTE 1  -
GENERAL
     
           
 
A.
MediVision Medical Imaging Ltd. (the "Company"), an Israeli corporation located in Haifa, was incorporated and commenced business operations in June 1993.  The Company (together with its subsidiaries – the "Group") is primarily engaged in the business of designing, developing, manufacturing and marketing digital imaging systems, image enhancements and analysis software and related products and services for use by practitioners in the ocular healthcare field.

The Company's shares are traded on the EURO.NM market in Belgium.
           
 
B.
At the beginning of 2009, the Company started the implementation of downsizing plan that according to managements' intention is planned to include among other layoffs of employees and significant reduction of expenses and overheads.  After the completion of the APA agreement described in Note 1F below, the Company's main activity will be holding OIS shares.

See also Notes 1G, regarding an Escrow Agreement with respect to part of the Company's holdings in OIS.

The main shareholders are evaluating alternative sources of capital to meet cash requirements, including issuance of debt, issuance of equity securities and entering into other financing agreements with its shareholders.
           
 
C.
On May 3, 2009, Ophthalmic Imaging Systems, a subsidiary (hereinafter: "OIS") entered into a Confidential Settlement and Mutual Release Agreement (the "Settlement Agreement") by and between OIS, Steven Verdooner, OPKO Health, Inc. ("OPKO") and The Frost Group, LLC (collectively "Defendants"), relating to the case entitled Ophthalmic Imaging Systems v. Steven Verdooner, et al., Case No. 07AS02149 in the Superior Court of California for the County of Sacramento. Mr. Verdooner was formerly the OIS president.
 
Pursuant to the Settlement Agreement, OIS agreed to dismiss, with prejudice, the lawsuit between the OIS and the Defendants, whereby OIS alleged claims of breach of fiduciary duty, breach of implied contract, intentional interference with contractual relations, intentional interference with prospective economic advantage, violation of section 502 of the Penal Code of California, aiding and abetting breach of fiduciary duty, and aiding and abetting interference with contractual relations. OIS also agreed to release the Defendants from any claims that could have been brought in the foregoing lawsuit, whether known or unknown. The Defendants agreed to pay and paid OIS US$1,200,000 on May 13, 2009.
 
OIS and the Defendants entered into the Settlement Agreement to avoid the expense and uncertainty of litigation and without making any admission of liability or concession of wrongdoing.
           
 
D.
On June 24, 2009, OIS entered into a Purchase Agreement with AccelMed.  Pursuant to the terms of the Purchase Agreement, OIS authorized the issuance and sale of up to an aggregate of 13,214,317 shares of OIS common stock and warrants to purchase up to an aggregate of 4,404,772 shares of OIS common stock in two installments. On the date of the Purchase Agreement, OIS completed the first installment (the “1st Installment”), under which issued to AccelMed 9,633,228 shares and a warrant to purchase up to 3,211,076 shares for an aggregate purchase price of $3,999,972. The 1st Installment Warrant entitles AccelMed to purchase 3,211,076 shares of OIS's common stock at an exercise price of $1.00 per share. The 1st Installment Warrant expires on June 24, 2012.  In addition, in connection with the transaction, OIS also issued to the placement agent, an option to purchase 123,500 shares of O IS's common stock at an exercise price of $0.01 per share.  This option expires on June 24, 2012.  As result of the completion of the first 1st Installment, the Company's percentage held in OIS decreased from 56% to 35.4%.   As a result of this, the Company recorded a loss of approximately US$ 564 thousand.
 
 

 
F-51

 
MEDIVISION MEDICAL IMAGING LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 
 
NOTE 1  -
GENERAL (cont.)
     
           
 
E.
During the second quarter of 2009, the Company recorded a provision for decline in asset value with respect to its remaining investment in OIS in an amount of US$ 692 thousand.
           
 
F.
On June 24, 2009, the Company entered into an Asset Purchase Agreement (“APA”) with OIS to purchase substantially all the assets of the Company, which was completed on October 21, 2009 (the “Company Asset Purchase”). Such assets included the European operations which consisted of the Company's business as conducted by CCS Pawlowski GmbH (“CCS”), the branch office in Belgium (the “Belgium Activities”), certain agreements under which the Company contracted with third parties for distribution and other services (the “Purchased Agreements”), and rights to intellectual property which resulted from the Company’s research and development (“R&D”) activities performed in Israel. The Company’s R&D staff was acquired by us in early 2009 when OIS hired all of the CompanyR 17;s R&D personnel and moved them to OIS' offices in the United States and Israel. As payment for such assets, OIS agreed to assume a bank loan outstanding with Mizrahi Tefahot Bank Ltd. (the “United Mizrahi Bank”) in the amount of $1,500,000, to which OIS were previously a guarantor, liabilities associated with the acquired assets on and after October 21, 2009, the closing date, and certain taxes, and extinguishment of all intercompany indebtedness owed to OIS with a principal amount of $4,178,622. At June 30, 2009, OIS' management determined the intercompany indebtedness owed to OIS by the Company was impaired and recorded an allowance for doubtful accounts for the outstanding balance. As of September 30, 2009, these amounts were still determined to be impaired. In connection with the Company Asset Purchase, OIS' management wrote off the balance of intercompany indebtedness owed to OIS by the Company, thus, eliminating the allowance for doubtful accounts.
 
See Note 7 below, regarding, the assets and liabilities that were sold as a result of the APA agreement.
           
 
G.
Pursuant to the terms of the APA and an Escrow Agreement (the “Escrow Agreement”) between the Company, OIS and Stephen L. Davis, Esq. dated June 24, 2009, the Company deposited 5,793,452 shares (the “Escrow Shares”) of OIS' common stock into escrow. If the Company fails to make certain payments under the APA, the Escrow Shares will be distributed to OIS or sold and the proceeds thereof distributed to OIS. The agreement will terminate upon the later of (i) October 21, 2011 or (ii) the satisfaction and discharge of the $1,800,000 claim made by the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade & Labor to the Company.
 
As mentioned above, at the date of the signing of this report, the Company received an approval from the Office of the Chief Scientist of the Israeli Ministry of Industry, Trade & Labor.
           
 
H.
Below are data on the representative exchange rates of the US dollar, and the changes therein during the reported periods:
 
 
 
Exchange rate of US$ 1:      
       
   
              NIS
 
September 30, 2009
    3.758  
September 30, 2008
    3.421  
December 31, 2008
    3.802  
 
 
Rate of increase (decrease) in the period:      
   
               %
 
Nine months ended September 30, 2009
    (1.16 )
Nine months ended September 30, 2008
    (11.05 )
Three months ended September 30, 2009
    (4.11 )
Three months ended September 30, 2008
    2.06  
For the year ended December 31, 2008
    (1.14 )

 
F-52

 
MEDIVISION MEDICAL IMAGING LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (cont.)
 
 
 
NOTE 2  -
SIGNIFICANT ACCOUNTING POLICIES
   
           
 
A. 
Basis of preparation
           
 
 
These condensed interim consolidated financial statements are for the nine months ended September 30, 2009.  They have been prepared in accordance with IAS 34 Interim Financial Reporting.  They do not include all of the information required in annual financial statements in accordance with IFRS, and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31, 2008
           
 
B.
Significant accounting policies
           
 
 
These condensed consolidated interim financial statements (the interim financial statements) have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to December 31, 2008 except for the adoption of:
           
   
IAS 1 Presentation of Financial Statements (Revised 2007)
   
           
   
IAS 23 Borrowing Costs (Revised 2007)
   
           
   
IFRIC 13 Customer Loyalty Programmes ii
   
           
   
The adoption of IAS 1 (Revised 2007) makes certain changes to the format and titles of the primary financial statements and to the presentation of some items within these statements. It also gives rise to additional disclosures. The measurement and recognition of the Group's assets, liabilities, income and expenses is unchanged. However, some items that were recognized directly in equity are now recognized in other comprehensive income, for example revaluation of property, plant and equipment. IAS 1 affects the presentation of owner changes in equity and introduces a 'Statement of comprehensive income'.
 
IAS 23 Borrowing Costs (Revised 2007) requires the capitalization of borrowing costs to the extent they are directly attributable to the acquisition, production or construction of qualifying assets that need a substantial period of time to get ready for their intended use or sale.  The appreciation of the standard did not have a material effect on the financial statements.
 
The Group has adopted IFRIC 13 Customer Loyalty Programmes, which clarifies that when goods or services are sold together with a customer loyalty incentive, the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. The adoption of IFRIC 13 does not have a significant effect on the results of the current or prior periods presented.
 
The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.
 
The following new interpretations have been issued, but are not effective for the financial year beginning January 1, 2009 and have not been early adopted:
 
 
IFRIC 17, "Distribution of non-cash assets to owners", effective for annual periods beginning on or after July 1, 2009.  This is not currently applicable to the group, as it has not made any non-cash distributions.
     
 
IFRIC 18, "Transfers of assets from customers", effective for transfers of assets received on or after July 1, 2009.  This is not relevant to the group, as it has not received any assets from customers.


 

 
F-53

 
MEDIVISION MEDICAL IMAGING LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (cont.)

 
 
 
NOTE 2  -
SIGNIFICANT ACCOUNTING POLICIES (cont.)
   
           
 
B.
Significant accounting policies
           
   
IFRS 9 - "Financial Instruments", was published on November 12, 2009. The standard represents the first phase of the current project to replace IAS 39, Financial Instruments: Recognition and Measurement (IAS 39) and it replaces the provisions of IAS 39, with respect to the classification and measurement of financial assets.
 
The standard reduces the number of categories of financial assets and according to its provisions, all financial assets must be measured at either amortised cost or fair value. An entity shall apply IFRS 9 for annual periods beginning on or after January 1, 2013. Early adoption is permitted. To facilitate early adoption, an entity that applies IFRS 9 before financial reporting periods beginning before January 1, 2012 is not required to restate comparatives. Management has not yet determined the impact of IFRS 9, if any, on the financial statements.
     
   
IAS 24 - "Related Party Disclosures (Revised)", was published on November 4, 2009. The main change compared to the previous version is the introduction of an exemption from IAS 24's disclosures for transactions with a) a government that has control, joint control or significant influence over the reporting entity and b) 'government-related entities' (entities controlled, jointly controlled or significantly influenced by that same government). The standard includes also an amended definition of "related party" to clarify the intended meaning and remove some inconsistencies.
 
The revised Standard is to be applied retrospectively for annual periods beginning on or after January 1, 2011. Earlier application, of either the whole Standard or of the partial exemption for government-related entities, is permitted.
           
   
IFRIC 13 Customer Loyalty Programmes ii
   
           
   
Other pronouncements which have been issued but are not effective for the financial year beginning January 1, 2009 and have not been early adopted are described in the consolidated financial statements of the group for the year ended December 31, 2008.
 
Management is of the opinion that the standard, when adopted, will not have material impact on the financial statements.
     
 
C.
Restatement
     
    The Company restated its financial statements for the year ended December 31, 2008 and for the nine and three month periods ended September 30, 2008, in order to retroactively reflect the effect of changes in the accounting treatment of the following issues:
 
 
A.
The financial statements for the year ended December 31, 2008 were restated in order to retroactively reflect the cancellation of deferred tax assets recognized in the past, in the financial statements of a subsidiary operating in the United States and as a result in the consolidated financial statements of the Company in respect of tax losses not yet utilized by the subsidiary.  Such treatment was applied since the subsidiary does not expect to have taxable income in the foreseeable future, against which such deferred taxes could be utilized.
 
 
B.
The financial statements for the year ended December 31, 2008 and for the nine and three month periods ended September 30, 2008 were restated in order to retroactively reflect the recognition of costs involved in the change of the Company's capital structure as an expense.  Prior to this correction, the Company presented the aforementioned costs as a direct off-set to the equity attributable to owners of the parent.
 

 

 
F-54

 
MEDIVISION MEDICAL IMAGING LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (cont.)
 
 
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (cont.)
     
 
C.
Restatement (cont.)
     
    The impact of the restatement on the financial statements is as follows:
     
    1.      Balance sheets
 
 
US dollars (thousands)
 
   
December 31, 2008
 
   
Before
restatement
   
Effect
of the
restatement
   
After
restatement
 
                   
Deferred tax assets
    1,502       (1,502 )     -  
Accumulated deficit
    (6,454 )     (372 )     (6,826 )
Minority interest
    4,177       (1,130 )     3,047  
 
 
US dollars (thousands)
 
   
September 30, 2008
 
   
Before
restatement
   
Effect
of the
restatement
   
After
restatement
 
                   
Accumulated deficit
    (6,018     401       (5,617
Minority interest
    4,328       (401 )     3,927  
 
    2.      Statements of loss
 
 
US dollars (thousands)
 
   
December 31, 2008
 
   
Before
restatement
   
Effect
of the
restatement
   
After
restatement
 
                   
Other expenses
    -      
(520
)    
(520
Income tax expense
   
161
     
(1,502
   
(1,341
Loss for the period
   
(2,600
)    
(2,022
)    
(4,622
 )
 
 
US dollars (thousands)
 
   
Nine month period ended
September 30, 2008
 
   
Before
restatement
   
Effect
of the
restatement
   
After
restatement
 
                   
Other expenses
   
48
     
(379
)    
(331
Loss for the period
   
(2,213
)    
(379
)    
(2,592
 
 
US dollars (thousands)
 
   
Three month period ended
September 30, 2008
 
   
Before
restatement
   
Effect
of the
restatement
   
After
restatement
 
                   
Other expenses
   
(1
)    
(177
)    
(178
Loss for the period
   
(648
)    
(177
)    
(825
 

 
F-55

 
MEDIVISION MEDICAL IMAGING LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (cont.)
 
 
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (cont.)
   
           
 
D.
Non-current assets and liabilities classified as held for sale
           
   
When the Group intends to sell a non-current asset or a group of assets (a disposal group), and if sale within 12 months is highly probable, the asset or disposal group is classified as 'held for sale' and presented separately in the statement of financial position.
     
   
Liabilities are classified as 'held for sale' and presented as such in the statement of financial position if they are directly associated with a disposal group.
     
   
Assets classified as 'held for sale' are measured at the lower of their carrying amounts immediately prior to their classification as held for sale and their fair value less costs to sell. However, some 'held for sale' assets such as financial assets or deferred tax assets, continues to be measured in accordance with the Group's accounting policy for those assets. No assets classified as 'held for sale' are subject to depreciation or amortization, subsequent to their classification as 'held for sale'.
     
    See Note 1F and Note 7 regarding, non-current assets and liabilities classified as held for sale, at the reporting period.
 
NOTE 3 -
CASH AND CASH EQUIVALENTS (For the purpose of the cash flow statements)
   
           
  Cash and cash equivalents comprise of the following:
 
     US dollars (thousands)  
   
September 30,
      December 31,  
    2009     2008      2008  
     Unaudited         Audited  
                   
Cash and cash equivalents
    74       3,934       2,785  
Short-term bank credit
    (1,217 )     (297 )     (655 )
      (1,143 )     3,637       2,130  
 
NOTE 4 -
SEGMENT REPORTING
   
       
 
As of January 2008, with the commencing operation of Abraxas by Ophthalmic Imaging Systems (hereinafter: "OIS"), the Company began operating through two different core activities, as follows:
   
  1.  Electronic record and practice management software;
     
  2.  Ophthalmic application.
 
     
US dollars (thousands)
 
       
Nine month period ended
September 30, 2009 (Unaudited)
 
       
Electronic record
and practice
management software
   
Ophthalmic application
   
Total
 
                         
Revenue from external customers
      608         5,768         6,376    
                             
Operating loss
      (1,114 )       (595 )       (1,709 )  
                             
Loss for the period
      (1,114 )       (1,677 )       (2,791 )  

 
F-56

 
MEDIVISION MEDICAL IMAGING LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (cont.)
 
 
 
NOTE 4 -
SEGMENT REPORTING (cont.)
   
       
  2.
Ophthalmic application (cont.).
 
     
US dollars (thousands)
 
       
Three month period ended
September 30, 2009 (Unaudited)
 
       
Electronic record
and practice
management software
   
Ophthalmic application
   
Total
 
                         
Revenue from external customers
      -        
388
       
388
   
                             
Operating loss
      -         (197 )       (197 )  
                             
Loss for the period
      -         (223 )       (223 )  
 
 
     
US dollars (thousands)
 
       
Year ended December 31, 2008
 
       
Electronic record
and practice
management software
   
Ophthalmic application
   
Total
 
                         
Revenue from external customers
     
298
       
14,112
       
14,410
   
                             
Operating loss
     
(754
)      
(1,996
(*)      
(2,750
(*)  
                             
Loss for the period
     
(754
)      
(3,868
) (*)      
(4,622
(*)  
                                     
(*)      Restated – see Note 2C.                            
 
 
NOTE 5 -
CONVERTIBLE LOAN AGREEMENT
   
           
  During August 2008 in respect of the Term Sheet signed between certain majority shareholders (the "Shareholders"), in connection with a convertible loan provided by the Shareholders to the Company, the Shareholders granted the company an additional loan in the amount of $400,000.
   
 
During the reported period, a new Convertible Loan Agreement was signed with the Shareholders at an aggregate amount of up to additional $800,000. The loan agreement shall cover also the principal amount of the above mentioned $400,000 provided to the Company during August 2008 and will apply the terms and conditions as detailed in the Convertible Loan Agreement. The loan shall bear interest at an annual rate of 12% and shall be repaid within 12 months from the date of the grant. Loan and any interest due thereon may be converted in a whole or in part into ordinary shares of the Company, at a conversion price equal to the lower between (1) the Company’s average share price on the Belgium EuroNext Stock Exchange during the 30 days prior the date of this agreement; and (2) the Company’s average share price on the Belgium EuroNext Stock Exchange during the 30 days prior the Conversi on, and in each case subject to a discount at the rate of 20% of the Company’s average share price on the Belgium EuroNext Stock Exchange at the applicable dates. As security for the Company's obligation including repayments of the loan and any interest due thereon and the Conversion Rights, the Company shall grant to the shareholders a pledge in shares of common stock of OIS held by the Company subject to a discount at a rate of 30% of the price of OIS’ shares, to be allocated among each Shareholder pro-rata to the portion of the Loan which he actually provides.
   
 
 
 
F-57

 
MEDIVISION MEDICAL IMAGING LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (cont.)
 
 
 
NOTE 6 -
TERMINATION OF MERGER AGREEMENT WITH OIS
   
           
 
In March 2009, the Company and OIS have mutually agreed to terminate their merger agreement. The termination of the agreement is due to exorbitant costs the companies and associated shareholders would incur as a result of regulatory requirements. The companies initially announced the merger agreement in March 2008.
 
NOTE 7 -
ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE
   
           
 
As stated in Note 1F, the assets and liabilities that will be sold as a result of the APA agreement, have been classified as assets and liabilities held for sale.
   
  The carrying amounts of assets and liabilities in this disposal group are summarized as follows:

     
US dollars
(thousands)
 
       
September 30,
 
                                              2009  
       
Unaudited
 
Current assets
         
Cash and cash equivalents
        271     
Accounts receivable
        184     
Inventories
        93     
           
Non-current assets
         
Property, plant and equipment
        165     
Goodwill and other intangible assets
        3,266     
Assets classified as held for sale
        3,979     
           
Current liabilities
         
Short-term bank credit and other current liabilities
        23     
Trade and other payables
        141     
           
Non-current liabilities
         
Long-term loans
        85     
Liabilities classified as held for sale
        249     
 
 
 
 
F-58

 
 

 
 
 

MEDIVISION MEDICAL IMAGING LTD.


CONSOLIDATED FINANCIAL STATEMENTS


AS OF DECEMBER 31, 2008 AND

FOR THE YEAR THEN ENDED

AND

INDEPENDENT AUDITOR'S REPORT

 
 
 
INDEPENDENT AUDITOR'S REPORT
 
 
 
 
To the Board of Directors
Medivision Medical Imaging Ltd.
 
       We have audited the accompanying consolidated balance sheet of Medivision Medical Imaging Ltd. and subsidiaries (the "Company") as of December 31, 2008, and the related consolidated statement of operations, changes in shareholders' equity and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008, and the results of their operations and their cash flows for the year then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

As discussed in Note 19, on June 24, 2009, to raise additional capital, Ophthalmic Imaging Systems, a subsidiary of the Company, sold to AccelMed 9,633,228 shares and a warrant to purchase up to 3,211,076 shares for an aggregate purchase price of $4,000,000.  On May 26, 2010, Ophthalmic Imaging Systems sold to AccelMed 3,581,089 shares and a warrant to purchase up to 1,193,696 shares for an aggregate purchase price of $2,000,000.

As discussed in Note 19, on October 21, 2009, the Company completed an Asset Purchase Agreement with Ophthalmic Imaging Systems to sell substantially all the assets of the Company.



/S/ Perry-Smith, LLP


Sacramento, California
August 10, 2010
 
 
 
 

 
F-59

 

MEDIVISION MEDICAL IMAGING LTD.
 
CONSOLIDATED BALANCE SHEET
 
December 31, 2008
(in thousands of U.S. dollars)
 
                                                        ASSETS
     
       
Current assets:
     
   Cash and cash equivalents
  $ 2,785  
   Restricted cash
    158  
   Accounts receivable:
       
      Trade, net
    2,343  
      Other accounts receivable
    428  
   Inventories
    1,576  
         
            Total current assets
    7,290  
         
Non-current assets:
       
   Property and equipment, net
    600  
   Goodwill and other intangible assets
    8,080  
         
            Total assets
  $ 15,970  
         
                             LIABILITIES AND SHAREHOLDERS' EQUITY
       
         
Current liabilities:
       
   Short-term bank credit and other current liabilities
  $ 3,664  
   Trade payables
    1,409  
   Other accounts payable
    4,305  
         
            Total current liabilities
    9,378  
         
Long-term liabilities:
       
   Long-term loans, net of current maturities
    1,034  
   Long-term employee benefits
    64  
         
            Total long-term liabilities
    1,098  
         
            Total liabilities
    10,476  
         
Commitments and contingencies
       
         
Shareholders' equity:
       
   Equity attributable to equity holders of the parent:
       
      Ordinary shares of NIS 0.1 par value each; authorized – 10,000,000
       
         shares; issued and outstanding – 8,484,872
    215  
   Additional paid-in capital
    9,302  
   Capital reserve
    (311 )
   Foreign currency translation differences
    67  
   Accumulated deficit
    (6,826 )
         
      2,447  
         
Minority interest
    3,047  
         
            Total equity
    5,494  
         
            Total liabilities equity
  $ 15,970  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
F-60

 

MEDIVISION MEDICAL IMAGING LTD.
 
CONSOLIDATED STATEMENT OF OPERATIONS
 
For the Year Ended December 31, 2008
(in thousands of U.S. dollars, except per share data)
 
 
Sales
  $ 14,410  
Cost of sales
    6,630  
         
      Gross profit
    7,780  
         
Operating expenses:
       
   Research and development expenses
    2,859  
   Selling and marketing expenses
    4,832  
   General and administrative expenses
    2,319  
         
      Total operating expenses
    10,010  
         
Operating loss
    (2,230 )
         
Financial income
    73  
         
Financial expenses
    (604 )
         
Loss before other loss
    (2,761 )
         
Other loss, net
    (520 )
         
Loss before taxes on income
    (3,281 )
         
Income tax expense
    (1,341 )
         
Net loss for the year
    (4,622 )
         
Attributed to:
       
   Equity holders of the parent
    (3,296 )
   Minority interest
    (1,326 )
    $ (4,622 )
         
Basic loss per share
  $ (0.43 )
 
 
The accompanying notes are an integral
part of these consolidated financial statements.

 
F-61

 

MEDIVISION MEDICAL IMAGING LTD.
 
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Year Ended December 31, 2008
(in thousands of U.S. dollars)
 
 
   
Attributable to Equity Holders of the Parent
             
   
Share
Capital
   
Additional
Paid-In
Capital
   
Capital
Reserve
   
Foreign
Currency
Translation
Differences
   
Accumulated
Deficit
   
Total
   
Minority
Interests
   
Total
Equity
 
                                                 
Balance, January 1, 2008
  $ 165     $ 8,775     $ (311 )   $ 132     $ (3,492 )   $ 5,269     $ 4,454     $ 9,723  
                                                                 
Convertible loan converted into shares
    50       576                               626               626  
                                                                 
Total comprehensive loss
                            (65 )     (3,334 )     (3,399 )     (1,326 )     (4,725 )
                                                                 
Warrants, equity component of
   convertible loans issued by 
   subsidiary and exercise of options
   into common stock of a subsidiary
            (105 )                             (105 )     (98 )     (203 )
                                                                 
Cost of share-based payment
            56                               56       17       73  
                                                                 
Balance, December 31, 2008
  $ 215     $ 9,302     $ (311 )   $ 67     $ (6,826 )   $ 2,447     $ 3,047     $ 5,494  
                                                                 
 
 
 
 
The accompanying notes are an integral
part of these consolidated financial statements.

 
F-62

 

MEDIVISION MEDICAL IMAGING LTD.
 
CONSOLIDATED STATEMENT OF CASH FLOWS
 
For the Year Ended December 31, 2008
(in thousands of U.S. dollars)
 
Cash flows from operating activities:
     
   Net loss for the year
  $ (4,622 )
   Adjustments to reconcile net loss to net cash used in
       
      operating activities:
       
         Depreciation
    242  
         Loss of disposal of assets
    10  
         Deferred taxes, net
    1,341  
         Cost of share-based payment
    73  
         Financial costs
    232  
         Other
    14  
         Changes in operating assets and liabilities:
       
            Decrease in trade receivables
    1,125  
            Decrease in other accounts receivable and prepaid expenses
    274  
            Increase in inventories
    (420 )
            Increase in trade payables
    (312 )
            Decrease in other accounts payable and accrued expenses
    (109 )
            Interest paid
    (269 )
         
               Net cash used in operating activities
    (2,421 )
         
Cash flows from investing activities:
       
   Purchase of property and equipment
    (184 )
   Proceeds from the sale of property and equipment
    8  
   Additions to intangible assets
    (2,110 )
         
               Net cash used in investing activities
    (2,286 )
         
Cash flows from financing activities:
       
   Receipt of convertible loan from shareholder
    400  
   Short-term credit from banks
    476  
   Repayment of long-term loans
    (1,311 )
         
               Net cash used in financing activities
    (435 )
         
               Decrease in cash and cash equivalents
    (5,142 )
         
Net foreign exchange differences
    (65 )
Cash and cash equivalents, beginning of year
    7,992  
         
Cash and cash equivalents, end of year
  $ 2,785  
         
Supplementary Information:
       
   Cash paid during the year for interest
  $ 269  
   Income taxes
  $ 6  
         
Supplementary schedule of non-cash activities:
       
   Repayment of notes payable and interest through conversion
       
      into shares
  $ 626  
   Purchase of property and equipment with a financial loan
  $ 63  
   Transfer of inventory into property and equipment
  $ 34  
 
The accompanying notes are an integral
part of these consolidated financial statements.

 
F-63

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
 
 

1.             GENERAL
 
The Business
 
Medivision Medical Imaging Ltd. (the "Company"), an Israeli corporation located in Haifa, was incorporated and commenced business operations in June 1993.  The Company and its subsidiaries (the "Group") is primarily engaged in the business of designing, developing, manufacturing and marketing digital imaging systems, image enhancements and analysis software and related products and services for use by practitioners in the ocular healthcare field.  The principal markets of the Company are located in the United States.
 
In January 2008, Ophthalmic Imaging Systems ("OIS"), through its wholly-owned subsidiary, Abraxas Medical Solutions, Inc., a Delaware corporation ("Abraxas"), acquired substantially all the assets of AcerMed, Inc., a leading developer of Electronic Medical Records (EMR) and Practice Management software.  AcerMed has been providing comprehensive and advanced EMR and Practice Management software solutions for medical practices, from solo practitioners to multi-site practices nationwide.  Through the acquisition, OIS gained the rights to software applications that automate the clinical, administrative, and financial operations of a medical office.
 
Definitions

 
"The Company"
Medivision Medical Imaging Ltd.

 
"Subsidiaries"
Companies whose financial statements are fully consolidated with those of the Company.

 
"The Group"
The Company and its subsidiaries.

 
"OIS"
Ophthalmic Imaging Systems.

 
OIS is a company incorporated in Sacramento, California, USA, whose shares are traded over the counter on the NASDAQ (OISI.OB).  At December 31, 2008, the Company owns 56% of OIS's outstanding common stock.  (See also Note 16).

 
"CCS"
CCS Pawlowski GmbH. (CCS), a company incorporated in Jena, Germany.  CCS designs, develops, manufactures and markets ophthalmic digital imaging and image enhancement systems.  At December 31, 2008, the Company owns 63% of CCS's outstanding common stock.  (See Note 6).
  
 
"CPI"
The Consumer Price Index as published by the Central Bureau of statistics in Israel.

 
"NIS"
New Israeli Shekels.

 
F-64

 
1.            GENERAL (Continued)

Definitions (Continued)

 
"Dollar" or "$"
U.S. Dollar.

 
"Euro" or "€"
European currency.

2.            SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).

The consolidated financial statements have been prepared on the historical cost basis except for certain items that are measured at fair value.

Use of Estimates

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

The significant management judgments in applying the accounting policies (critical account policies) of the Group are presented below.
 
Financial Statements in U.S. Dollars
The majority of the Company's and its U.S. subsidiary, OIS, sales are denominated in U.S. Dollars (Dollar) and the majority of their costs are incurred in Dollars or linked thereto.  Accordingly, the Company has determined the Dollar as the currency of the Company and OIS primary economic environment, and thus as their functional currency in accordance with IAS 21.  The consolidated financial statements are presented in Dollars.
 
The financial currency of a certain subsidiary is the Euro, which is the currency of the economic environment in which that subsidiary operates.  On consolidation, assets and liabilities have been translated into Dollars at the closing rate at the reporting date.  Income and expenses have been translated into the Group's presentation currency at the average rate over the reporting period.  Gains and losses from the translation of the subsidiary's financial statements to Dollars are reflected in shareholders' equity under "foreign currency translation differences".  On disposal of a foreign operation, the cumulative translation differences recognized in equity are reclassified to profit or loss and recognized as part of the gain or loss on disposal.  Goodwill and fair value adjustments arising on the acquisition of a foreign entity have been treated as assets and liabilities of the foreign entity and translated into Dollars at the closing rate.

 
F-65

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.            SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Financial Statements in U.S. Dollars (Continued)
 
Transactions and balances originally denominated in Dollars are presented at their original amounts.  Balances in non-Dollar currencies are translated into Dollars using historical and current exchange rates for non-monetary and monetary balances respectively.  For non-Dollar transactions reflected in the statement of operations, the average exchange rates prevailing at the date of the transaction are used.  Depreciation and changes in inventories deriving from non-monetary items are based on historical exchange rates.
 
All transaction gains and losses from the above translation are reflected in the statement of operations in financial expenses.
 
Data regarding the representative exchange rates of the New Israeli Shekels (NIS) in relation to the Dollar and the Euro on the balance sheet date and the changes therein during the reported period are as follows:
 
   
Exchange Rate of the NIS
 
   
U.S. Dollar
   
Euro
 
December 31, 2008
  $ 3.802       5.30  
                 
Change during the year ended:
               
   December 31, 2008
    (1.1 )%     (6.34 )%
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and its subsidiaries.  Subsidiaries are all entities over which the Group has the power to control the financial and operating policies.  Inter-company translations and balances, including profits from inter-company sales not yet realized outside the Group, have been eliminated upon consolidation.
 
Acquisitions of subsidiaries are included in the financial statements using the purchase method of accounting.  Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.  The financial statements of subsidiaries are prepared for the same reporting periods as the Company, using consistent accounting policies.  Adjustments are made to conform to any dissimilar accounting policies that may exist.
 
Minority interests represent the portion of a subsidiary's profit and loss and net assets that is not held by the Group.  If losses in a subsidiary applicable to a minority interest exceed the minority interest in the subsidiary's equity, the excess is allocated to the majority interest except to the extent that the minority has a binding obligation and is able to cover the losses.
 

 
F-66

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Cash and Cash Equivalents
 
The Company considers all highly liquid investments readily convertible into cash, originally purchased with maturities of three months or less, to be cash equivalents.
 
For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above.
 
Restricted Cash
 
Restricted cash is primarily invested in certificates of deposits, which mature within one year and is used as security for a line of credit of OIS.
 
Trade Receivables
 
Trade receivables include amounts billed to customers from transactions arising in the ordinary course of business.  Management periodically evaluates the collectibility of these receivables.  An estimate for double debts is made when collection of the full amount is no longer probable.  The allowance for doubtful account balances is estimated based on historical experience and any specific customer installation issues that have been identified.  Bad debts are written off when identified.
 
Inventories
 
Inventories are valued at the lower of cost or net realizable value.  Cost for raw materials is determined on a first-in, first-out basis.  Cost for work-in-progress and finished products is determined as the cost of direct materials and labor and a proportion of manufacturing overhead based on normal operating activities.
 
Net realizable value is estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to complete the sale.
 
Property and Equipment
 
Property and equipment are stated at cost, less accumulated depreciation and any impairment in value.
 
Depreciation is computed by the straight-line method, on the basis of the estimated useful lives of the assets.
 
Material residual value estimates and estimates of useful life are updated as required, but at least annually.
 

 
F-67

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Property and Equipment (Continued)
 
Annual depreciation rates are as follows:
 
   
Percent
 
   Machinery and equipment
    15 – 25  
   Office furniture and equipment
    6 – 15  
   Computers and peripheral equipment
    20 – 33  
   Vehicles
    16.67  
   Leasehold improvements
 
Over the term of the lease
 
 
Gains or losses on the disposal of property and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognized in the consolidated statement of operations.
 
The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.  If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.  The recoverable amount of property and equipment in the greater of the net selling price and the value in use.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets.  For an asset that does not generate largely independent cash inflows, the recoverable amount is determined f or the cash-generating unit to which the asset belongs.  Impairment losses are recognized in the consolidated statement of operations.
 
Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit.  Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit.  With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist.  An impairment charge is reversed if the cash-generating unit's recoverable amount exceeds its carrying amount.
 
Business Combinations and Goodwill
 
Business combinations are accounted for using the purchase method.  The purchase method involves the recognition of the acquiree's identifiable assets and liabilities, including contingent liabilities, regardless of whether they were recorded in the financial statements prior to acquisition.  On initial recognition the assets and liabilities of the acquired subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the Group's accounting policies.  Goodwill is stated after separating out identifiable intangible assets.
 

 
F-68

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Business Combinations and Goodwill (Continued)
 
Goodwill represents the excess of the cost of the acquisition over the fair value of identifiable net assets of a subsidiary at the date of acquisition.  Goodwill arising from the purchase of OIS (for which the agreement date was prior to March 31, 2004) was amortized on a straight-line basis over its useful economic life of 20 years.  Goodwill is stated at cost less accumulated amortization at December 31, 2004, and any impairment in value as of December 31, 2008.
 
In accordance with the transition provisions of the IFRS 3, the Group has ceased amortizing goodwill commencing on January 1, 2005.  IFRS 3 requires the Group to test goodwill for impairment annually at the cash generating unit level (unless an event occurs during the year which requires the goodwill to be tested more frequently).  The Company has not recorded any impairment losses with respect to its annual goodwill test, in the reported periods.
 
Leases
 
Financial leases, which effectively transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the present value of the minimum lease payments at the inception of the lease term and disclosed as leased property and equipment.  Lease payments are apportioned between the finance changes and reduction of the lease liability to achieve a constant rate of interest on the remaining balance of the liability.
 
Depreciation methods and useful lives for assets held under finance lease agreements, correspond to those applied to comparable assets which are legally owned by the Group.
 
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases.  Operating lease payments are recognized as an expense in the consolidated statement of operations on a straight-line basis over the lease term.
 
Warranty Provision
 
The Group's warranty provision contains two components.  A general product provision on a per product basis and a specific provision increased as the Group becomes aware of system performance issues.  The product provision is calculated based on a fixed Dollar amount per shipped units each quarter.  Specific provisions usually arise from the introduction of new products.
 
When a new product is introduced, the Group provides for specific problems arising from potential issues, if any.  As issues are resolved, the Group reduces the specific provision.  These types of issues can cause the warranty provision to fluctuate outside of sales fluctuations.
 
 

 
F-69

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Warranty Provision (Continued)
 
The Group estimates the cost of the various warranty services by taking into account the estimated cost of services for routine warranty claims in the first year, including parts, labor and travel costs for service technicians.  The Group analyzes the gross profit margin of their service department, the price of their extended warranty contracts, factoring in the hardware costs of various systems, and use a percentage to calculate the cost per system to use for the first year manufacturer's warranty.
 
Borrowing Costs
 
Borrowing costs are recognized as an expense when incurred in accordance with the benchmark accounting treatment under IAS 23.
 
Convertible Debt
 
Convertible Debt with Fixed Conversion Terms
 
The component parts (liability and equity elements) of such convertible debt are measured and reported separately in the consolidated balance sheet.  Upon the issuance of such convertible debt, the fair value of the liability component is determined using a market rate for an equivalent non-convertible debt.  This amount is shown as a liability on the amortized cost basis until conversion or repayment.  The remainder, if any, of the proceeds received upon the issuance of the convertible debt is allocated to the equity component (option) and included in shareholders' equity.  The value of the option is not changed in subsequent periods.
 
Such convertible debt is considered as a compound financial instrument that contains both a liability and an equity component.
 
Issuance costs are allocated between the liability and equity components of the convertible debt based on the allocation of the proceeds to those components when they are first recognized.
 
Convertible Debt with Variable Conversion Turns
 
Such convertible debt is considered as a hybrid financial liability that contains an embedded derivative.
 
Upon initial recognition of such instrument, the Company recognizes the embedded derivative (the conversion option) separately from the host contract based on its fair value at the initial recognition.  The remainder is allocated to the liability component.  The derivative is then measured at fair value at each balance sheet date and the changes in the fair value are reported through the consolidated statement of operations.  The liability component is measured after initial recognition at amortized cost using the effective interest method.  This component is shown as a liability until conversion or repayment.
 

 
F-70

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Convertible Debt (Continued)
 
Convertible Debt with Variable Conversion Turns (Continued)
 
Issuance costs are allocated between the embedded derivative and the cost based on the allocation of the proceeds shown above.  The costs allocated to the embedded derivative are charged to income on initial recognition and the proceeds allocated to the host component are charged to the host component.
 
Long-term Employee Benefit
 
The Company's liability for employee rights upon retirement with respect to its Israeli employees is calculated, pursuant to Israeli severance pay law, based on the most recent salary of each employee multiplied by the number of years of employment, as of the balance sheet date.  Employees are entitled to one month's salary for each year of employment, or a portion thereof.  The Company makes monthly deposits to insurance policies and severance pay funds.  The liability of the Company is fully provided for.
 
The deposited funds include profits accumulated up to the balance sheet date.  The deposited funds may be withdrawn upon the fulfillment of the obligation pursuant to Israeli severance pay laws or labor agreements.  The value of the deposited funds is based on the cash surrender value of these policies, and includes immaterial profits.
 
The liability for employee rights upon retirement for the employees of the non-Israeli subsidiaries of the Company is calculated on the basis of the labor laws of the country in which the subsidiary is located and is covered by an appropriate accrual.
 
Income Taxes
 
Tax expense recognized in the consolidated statement of operations is comprised of deferred tax and current tax not recognized directly in equity.
 
Deferred income tax is provided for, using the liability method, on all temporary differences at the balance sheet date, between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.  However, deferred tax is not provided on the initial recognition of goodwill, or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.
 
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry forward of unused tax assets, and unused tax losses can be utilized.
 

 
F-71

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Income Taxes (Continued)
 
Deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.
 
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
 
Deferred income tax assets and liabilities are measured, without discounting, at the tax rates that are expected to apply to the period in which the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as of the balance sheet date.
 
Revenue Recognition
 
Revenue is recognized when the significant risks and rewards of ownership have passed to the buyer, the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity, the costs incurred or to be incurred can be measured reliably, and when the criteria for each of the Group's different activities has been met.
 
The multiple components of the Group's revenue are considered separate units of accounting in that revenue recognition occurs at different points of time for product shipment, installation and training services, and service contracts based on performance or contract period.
 
Revenue for product shipment is recognized when title passes to the customer, which is upon shipment, provided there are no conditions to acceptance, including specific acceptance rights.  If the Group makes an arrangement that includes specific acceptance rights, revenue is recognized when the specific acceptance rights are met.  Upon review, the Group concluded that consideration received from their customer agreements are reliably measurable because the amount of the consideration is fixed and no specific refund rights are included in the arrangement.  The Group defers 100% of the revenue from sales shipped during the period that they believe may be uncollectible.
 
Installation revenue is recognized when the installation is complete.  Separate amounts are charged and assigned in the customer quote, sales order and invoice, for installation and training services.  These amounts are determined based on fair value, which is calculated in accordance with industry and competitor pricing of similar services and adjustments according to market acceptance.  There is no price reduction in the product price if the customer chooses not to have the Group complete the installation.
 

 
F-72

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Revenue Recognition (Continued)
 
Extended product service contracts are offered to the Group's customers and are generally entered into prior to the expiration of the Group's one year product warranty.  The revenue generated from these transactions are recognized over the contract period, normally one to four years.
 
The Group does not have a general policy for cancellation, termination or refunds associated with the sale of their products and services.  All items are on a quote/purchase order with payment terms specified for the whole order.  Occasionally, the Group has customers who require specific acceptance tests and, accordingly, the Group does not recognize such revenue until these specific tests are met.
 
Research and Developments Costs and Other Intangible Assets
 
Research costs are expensed as incurred.  An intangible asset arising from development expenditures on an individual project is recognized only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the asset and the ability to measure reliably the expenditure during development.
 
During the period of development, the asset is tested for impairment annually.  Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortization and accumulated impairment losses.  Amortization of the asset begins when development is complete and the asset is available for use.  It is amortized over the period of expected future sales.  During the period of which the assets are not yet in use it is tested for impairment annually.
 
Other intangible assets include acquired and internally developed software and knowledge used in production that qualify for recognition as an intangible asset in a business combination.  They are accounted for using the cost model whereby capitalized costs are amortized on a straight line basis over their estimated useful lives, as these assets are considered finite.  Residual values and useful lives are reviewed at each reporting date.  In addition, they are subject to impairment testing as described above.  The following useful life is applied:
 
EMR related software – 15 years
 
Royalty-bearing Grants
 
Royalty-bearing grants form the Chief Scientist and BIRD-F for funding certain approved research projects are recognized at the time the Company is entitled to such grants on the basis of the related costs incurred and are presented as a reduction of research and development expenses.
 

 
F-73

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Earnings Per Share
 
The Group calculates basic and diluted earnings per share in accordance with IAS 33, Earnings Per Share.  Basic earnings per share are computed using the weighted average number of shares outstanding during the period.  Diluted earnings per share are computed using the weighted average number of shares outstanding during he period plus the dilutive effect of stock options outstanding during the period, if any, and after consideration with any dilutive effect of the convertible loans.
 
Fair Value of Financial Instruments
 
The carrying values of cash and cash equivalents, restricted cash, trade and other receivables, short-term bank credit, trade and other payable, and long-term loans reported in the consolidated balance sheet approximate their fair values.
 
Concentrations of Credit Risk
 
Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash, cash equivalents (including restricted cash) and trade receivables.
 
Cash and cash equivalents are deposited with banks and financial institutions in Israel, Germany and the United States of America.  Management believes that the financial institutions that hold the Group's investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments.
 
The Group has adopted credit policies and standards intended to accommodate industry growth and inherent risk.  The Group performs ongoing credit evaluations of its customers' financial condition and has limited the risk by implementing a policy that requires deposits from customers, and that takes into account the number of customers and their geographic dispersion.  The Group includes provisions in the consolidated financial statements which, in the opinion of management, are adequate to cover doubtful accounts.
 
Share-based Payment
 
IFRS 2, Share-Based Payment, requires an expense to be recognized when goods or services are acquired in exchange for shares or rights to shares (equity-settled transactions), or in exchange for other assets equivalent in value to a given number of shares or rights to shares (cash-settled transactions).
 
All goods and services received in exchange for the grant of any share-based payment are measured at their fair values.  Where employees are rewarded using share-based payments, the fair values of employees' services are determined indirectly by reference to the fair value of the equity instruments granted.  This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example profitability and sales growth targets and performance conditions).
 

 
F-74

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Share-based Payment (Continued)
 
All share-based payment is ultimately recognized as an expense in the consolidated statement of operations with a corresponding credit to "additional paid-in capital".
 
If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest.  Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable.  Estimates are subsequently revisited, if there is any indication that the number of share options expected to vest differs from previous estimates.  Any cumulative adjustment prior to vesting is recognized in the current period.  No adjustment is made to any expense recognized in prior periods if share options ultimately exercised are different to that estimated on vesting.
 
Provisions, Contingent Liabilities and Contingent Assets
 
Provisions are recognized when present obligations as a result of a past event will probably lead to an outflow of economic resources from the Group and amounts can be estimated reliably.  Timing or amount of the outflow may still be uncertain.  A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events, for example, product warranties granted, legal disputes or onerous contracts.  Restructuring provisions are recognized only if a detailed formal plan for the restructuring has been developed and implemented, or management has at least announced the plan's main features to those affected by it.  Provisions are not recognized for future operating losses.
 
Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation.  Provisions are discounted to their present values, where the time value of money is material.
 
Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognized as a separate asset.  However, this asset may not exceed the amount of the related provision.
 
All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.
 
Financial Instruments
 
Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the financial instrument.
 
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.

 
F-75

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Financial Instruments (Continued)
 
A financial liability is derecognized when it is extinguished, discharged, cancelled or expires.
 
Financial assets and financial liabilities are measured initially at fair value plus transactions costs, except for financial assets and financial liabilities carried at fair value through the consolidated statement of operations, which are measured initially at fair value.
 
Financial assets and financial liabilities are measured subsequently as described below.
 
Financial Assets
 
For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments, are classified into the following categories upon initial recognition:
 
·  
Loans and receivables
·  
Financial assets at fair value through the consolidated statement of operations
·  
Held-to-maturity investments
·  
Available-for-sale financial assets
 
The category determines subsequent measurement and whether any resulting income and expense is recognized in the consolidated statement of operations in other comprehensive income.
 
All financial assets except for those at fair value through the consolidated statement of operations are subject to review for impairment at least at each reporting date.  Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired.  Different criteria to determine impairment are applied for each category of financial assets, which are described below.
 
The financial assets of the Group were classified as "loans and receivables".
 
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  After initial recognition these are measured at amortized cost using the effective interest method, less provision for impairment.  Discounting is omitted where the effect of discounting is immaterial.  The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.
 
 
F-76

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Financial Instruments (Continued)
 
Financial Liabilities
 
The Group's financial liabilities include borrowings, trade and other payables and derivative financial instruments.
 
Financial liabilities are measured subsequently at amortized cost using the effective interest method, except for financial liabilities held for trading or designated at fair value through profit or loss, that are carried subsequently at fair value with gains or losses recognized in the consolidated statement of operations.
 
All derivative financial instruments (including embedded derivatives) that are not designated and effective as hedging instruments are accounted for at fair value through the consolidated statement of operations.
 
All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within "financial expenses" or "financial income".
 
IFRS and IFRIC Interpretations Not Yet Effective
 
IAS 23 Borrowing Costs (Revised) (Effective from January 1, 2009)
 
The revised standard requires the capitalization of borrowing costs, to the extent they are directly attributable to the acquisition, production or construction of qualifying assets that need a substantial period of time to get ready for their intended use or sale.  The option currently used by the Group of immediately expensing those borrowing costs will be removed.  In accordance with the transitional provisions of the revised standard, the Group capitalizes borrowing costs relating to qualifying assets for which the commencement date is on or after the effective date.  No retrospective restatement will be made for borrowing costs that have been expensed for qualifying assets with a commencement date before the effective date.  The revised standard will decrease the Group's reported interest e xpense and increase the capitalized cost of qualifying assets under construction in future periods.  Management believes that borrowing costs are expected to be capitalized in the first year of application of this revised standard.  The capitalization is primarily related to some of the Group's development projects.
 

 
F-77

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
IFRS and IFRIC Interpretations Not Yet Effective (Continued)
 
IFRIC 13 Customer Loyalty Programs (Effective from July 1, 2008)
 
This interpretation clarifies that when goods or services are sold together with a customer loyalty incentive (for example loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values.  The Group's current accounting policy is to recognize the consideration in full and to provide for the estimated cost of the future rewards.  Consequently, the adoption of this interpretation will change the Group's accounting policy.  The Group very seldom awards free products in connection with a sales transaction.  Therefore, management believes the financial effects of this interpretation are insignificant for current and future reporting periods.
 
IFRS 3 Business Combinations (Revised 2008) (Effective from July 1, 2009)
 
The standard is applicable for business combinations occurring in reporting periods beginning on or after July 1, 2009 and will be applied prospectively.  The new standard introduces changes to the accounting requirements for business combinations, but still requires use of the purchase method, and will have a significant effect on business combinations occurring in reporting periods beginning on or after July 2, 2009.
 
IAS 27 Consolidated and Separate Financial Statements (Revised 2008) (Effective from July 1, 2009)
 
The revised standard introduces changes to the accounting requirements for the loss of control of a subsidiary and for changes in the Group's interest in subsidiaries.  Management does not expect the standard to have a material effect on the Group's consolidated financial statements.
 
Amendments to IFRS 2 Share-based Payment (Effective From January 1, 2009)
 
The IASB has issued an amendment to IFRS 2 regarding vesting conditions and cancellations.  None of the Group's current share-based payment plans are affected by the amendments.  Management does not consider the amendments to have an impact on the Group's consolidated financial statements.

 
F-78

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
IFRS and IFRIC Interpretations Not Yet Effective (Continued)
 
Annual Improvements 2008
 
The IASB has issued Improvements for International Financial Reporting Standards 2008.  Most of these amendments become effective in annual periods beginning on or after January 1, 2009.  The Group expects the amendment to IAS 23 Borrowing Costs to be relevant to the Group's accounting policies.  The amendment clarifies the definition of borrowing costs by reference to the effective interest method.  This definition will be applied for reporting periods beginning on or after January 1, 2009.  Management believes additional amendments are made to several other standards.  These amendments are not expected to have a material impact on the Group's consolidated financial statements.
 
Critical Accounting Estimates and Judgments
 
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
 
Critical Accounting Estimates and Assumptions
 
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods  Actual results could differ from those estimates.
 
The Group makes estimates and assumptions concerning the future.  The resulting accounting estimates will, by definition, seldom equal the related actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
 
The following are significant management judgments in applying the accounting policies of the Group that have the most significant effect on the consolidated financial statements.
 
Internally Generated Software and Research Costs
 
Management monitors progress of internal research and development projects by using a project management system.  Significant judgment is required in distinguishing research from the development phase.  Development costs are recognized as an asset when all the criteria are met, whereas research costs are expensed as incurred.
 

 
F-79

 
 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 
2.             SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Internally Generated Software and Research Costs (Continued)
 
To distinguish any research-type project phase from the development phase, it is the Group's accounting policy to also require a detailed forecast of sales or cost savings expected to be generated by the intangible asset.  The forecast is incorporated into the Group's overall budget forecast as the capitalization of development costs commences.  This ensures that managerial accounting, impairment testing procedures and accounting for internally-generated intangible assets is based on the same data.
 
The Group's management also monitors whether the recognition requirements for development costs continue to be met.  This is necessary as the economic success of any product development is uncertain and may be subject to future technical problems after the time of recognition.
 
Deferred Tax Assets
 
The assessment of the probability of future taxable income in which deferred tax assets can be utilized is based on the Group's latest approved budget forecast, which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit.  The tax rules in the numerous jurisdictions in which the Group operates are also carefully taken into consideration.  If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilized without a time limit, that deferred tax asset is usually recognized in full.  The recognition of deferred tax assets that are subject to certain legal or economic limits or uncertainties is assessed individually by management based on the specific facts and circumstances.
 
Impairment
 
An impairment loss is recognized for the amount by which the asset's or cash-generating unit's carrying amount exceeds its recoverable amount.  To determine the recoverable amount, management estimates expected future cash flows from each cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows.  In the process of measuring expected future cash flows, management makes assumptions about future gross profits.  These assumptions relate to future events and circumstances.  The actual results may vary, and may cause significant adjustments to the Group's assets within the next financial year.
 

 
F-80

 
 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 
3.
ACCOUNTS RECEIVABLE
 
A summary of accounts receivable at December 31, 2008 follows:
 
Trade, net:
     
Open accounts
  $ 2,567  
Less: allowance for doubtful accounts
    (224 )
         
    $ 2,343  
         
Other accounts receivable:
       
Prepaid expenses
  $ 354  
Other
    74  
         
    $ 428  
 
4.
INVENTORIES
 
A summary of inventories at December 31, 2008 follows:
 
Raw materials
  $ 425  
Work in progress
    367  
Finished products
    784  
         
    $ 1,576  
 

 
F-81

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

5.
PROPERTY AND EQUIPMENT
 
Property and equipment consists of the following:
 
   
Machinery
and
Equipment
   
Office
Furniture
and
Equipment
   
Computers
and
Peripheral
Equipment
   
Vehicles*
   
Leashold
improve-ments
   
Total
 
Cost:
                                   
Balance as of
                                   
January 1, 2008
  $ 380     $ 883     $ 183     $ 101     $ 30     $ 1,577  
                                                 
Changes during the year:
                                               
Foreign translation
    (4 )                     (6 )             (10 )
Additions, including
                                               
through business
                                               
combination
    36       192       3       62               293  
Disposals
            (13 )             (27 )             (40 )
                                                 
Balance as of
                                               
December 31, 2008
  $ 412     $ 1,062     $ 186     $ 130       30     $ 1,820  
                                                 
Accumulated depreciation:
                                               
Balance as of
                                               
January 1, 2008
  $ 323     $ 467     $ 162     $ 21     $ 29     $ 1,002  
Foreign translation
    (3 )                     (3 )             (6 )
Additions
    25       182       16       19               242  
Disposals
                            (18 )             (18 )
                                                 
Balance as of
                                               
December 31, 2008
  $ 345     $ 649     $ 178     $ 19     $ 29     $ 1,220  
                                                 
Depreciated cost:
                                               
Balance as of
                                               
December 31, 2008
  $ 67     $ 413     $ 8     $ 111     $ 1     $ 600  
 
*   Includes assets under capital lease agreements, whose original cost is $137 as of December 31, 2008.
*   Liens – see Note 10.
 
6.
GOODWILL AND OTHER INTANGIBLE ASSETS
 
A summary of goodwill and other intangible assets at December 31, 2008 follows:
 
Original amounts:
     
Goodwill
  $ 4,233  
Intangible assets
    4,872  
         
      9,105  
Accumulated amortization:
       
Goodwill *
    1,025  
    $ 8,080  
 
 

 
F-82

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

6.
GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
 
On August 18, 2000, the Company acquired a controlling interest of voting shares of OIS.  The consideration for the acquisition, paid in cash, was $2,575.  Goodwill arising on the acquisition amounted to $3,487.  
 
Effective July 1, 2004, the Company acquired 54% of the voting shares of CCS, a company incorporated in Jena, Germany.  CCS designs, develops, manufactures and market ophthalmic digital imaging and image enhancement systems.  The consideration for the acquisition was $845 of with $813 was paid in cash and the balance of $32 by transfer of shares of Medivision's U.S. subsidiary, OIS.
 
In July 2005, the Company increased its holdings in CCS by an additional 9% in consideration of one thousand EURO and reached a 63% holding in CCS.

Intangible assets consist primarily of capitalized development costs and the purchase of substantially all the assets of AcerMed, Inc., a leading software developer for Electronic Medical Records.
 
7.
SHORT-TERM CREDIT AND CURRENT MATURITIES OF LONG-TERM LOANS
 
A summary of short-term credit and current maturities of long-term loans at December 31, 2008 follows:
 
   
Interest Rate
   
2008
 
             
Short-term bank credit
          505  
Line of credit
 
Prime
      150  
Convertible shareholder loans
    9%       349  
Liability with respect to conversion component
            100  
Current maturities of long-term notes (Note 9)
            2,560  
                 
            $ 3,664  
 
 
 
 
F-83

MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 
 
 
7.
SHORT-TERM CREDIT AND CURRENT MATURITIES OF LONG-TERM LOANS (Continued)
 
In May 2003, OIS entered into a line of credit agreement with a bank of up to $150.  The line is secured by a $158 pledged deposit with the bank.  Advances on the line bear interest at prime (3.25% at December 31, 2008) and are due monthly.  The line of credit expires on May 10, 2011.
 
In September 2007, the Company signed a Term Sheet which summarizes the various understandings reached between the Company and certain of its majority shareholders (the "Shareholders"), in connection with a convertible loan to be provided by the Shareholders to the Company.  As of December 31, 2007, the Company received a loan in an amount of $550.  On June 30, 2008, the Company issued 1,677,573 Ordinary Shares NIS 0.1 par value to Shareholders under the Term Sheet, in connection with a convertible loan provided by the Shareholders to the Company during the fourth quarter of 2007 and January 2008.  In consideration of the issued shares, the shareholders loan in the amount of $626 was converted into share capital of the Company.
 
During August 2008, under the above Term Sheet, the Shareholders granted the Company an additional loan in the amount of $400.
 
The loan shall bear interest at an annual rate of 9% and shall be repaid within 12 months from the date of closing (September 2009).
 
The loan will be convertible at the election of the shareholders at a price per share reflecting a discount rate of 20% of the average share price during the 30 days before conversion.
 
The proceeds were allocated to a shareholders' loan component and to a liability with respect to the conversion component (an embedded derivative) (Note 2).
 
8.
OTHER ACCOUNTS PAYABLE
 
Other accounts payable at December 31, 2008 consisted of the following:
 
Employees
  $ 1,066  
Accrued expenses to shareholders
    278  
Deferred extended warranty revenue
    1,925  
Advances from customers
    111  
Warranty provision
    76  
Accrued expenses and other credit balances
    849  
         
    $ 4,305  
 
In addition to OIS's one-year warranty, OIS offers an extended warranty for an additional charge to the customer.  OIS records the sale of the extended warranty as deferred revenue and amortizes the revenue over the term of the agreement, generally one to four years.

 
F-84

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

8.
OTHER ACCOUNTS PAYABLE (Continued)
 
Product warranty provision changes consist of the following:
 
Balance at beginning of the year
  $ 131  
         
Net provisions
    134  
Warranty costs incurred
    (189 )
         
Balance at end of the year
  $ 76  
 
9.
LONG-TERM LOANS
 
Long-term loans at December 31, 2008 consisted of the following:
 
 
   
Interest Rate
   
2008
 
             
Bank loans
 
LIBOR + 3.75%
    $ 1,377  
Capitalized lease
    3% – 4%       119   
Convertible shareholders' loan
    9%       2,098  
                 
              3,594  
                 
Less: current maturities of long-term loans
            (2,560 )
                 
            $ 1,034  
 
For the loan agreement with United Mizrahi Bank, see Note 10.
 
The LIBOR rate was 1.425% at December 31, 2008.
 
In November 2006, the Company obtained a long-term bank loan in the amount of $750.  The loan with interest at an annual rate of LIBOR + 3.75% is to be paid in eighteen monthly installments, commencing in July 2009.
 
In February 2007, the Company obtained a long-term bank loan in the amount of $500.  The loan with interest at an annual rate of LIBOR + 3.75% is to be paid in eighteen monthly installments, commencing in July 2009.
 
On October 29, 2007, OIS entered into a Purchase Agreement (the "Purchase Agreement") with certain purchasers, pursuant to which OIS issued to the Purchasers (i) an aggregate of $2,750 in principal amount of its 6.5% interest bearing Convertible Notes Due April 30, 2010 (the "Notes"), which Notes are convertible into 1,676,829 shares of OIS common stock, no par value, and (ii) warrants ("Warrants") to purchase an aggregate of 616,671 shares of OIS common stock at an exercise price of $1.87 per share.  The Warrants expire on December 10, 2012.

 
F-85

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

9.
LONG-TERM LOANS (Continued)
 
The Company allocated the proceeds to the liability component and to the equity components (including warrants) in accordance with the principles detailed in Note 2 (including consideration with minority interest).
 
Aggregate maturities of long-term loans are as follows:
 
First year – current maturities
  $ 2,560  
         
Second year
    928  
Third year
    45  
Fourth year
    61  
         
      1,034  
         
    $ 3,594  
 
10.
COMMITMENTS AND CONTINGENT LIABILITIES
 
Chief Scientist
 
The Company is committed, under agreements with the Chief Scientist in respect of certain research and development projects, to pay royalties to the Chief Scientist at the rate of 3.5% of the sales of products resulting from the research and development which resulted with the AngioVision product line, at an amount not to exceed the amount of the grants received by the Company, as participation in the research and development program.  The sales of the AngioVision product line have decreased significantly.  As of December 31, 2008, the Company had an outstanding contingent obligation to pay royalties in the amount of $1,804.  The obligation to pay these royalties is contingent on actual sales of the AngioVision product and in the absence of such sales no payment is required.  Company management is of the opinion that payment of these royalties is remote.
 
BIRD-F
 
The Group received grants from the Binational Industrial Research Development Foundation (BIRD-F).  Royalty payments to BIRD-F are due at the rate of 2.5% for the first year and 5% beginning with the second year and thereafter, on revenues derived from research and development projects in which BIRD-F participated in their financing, up to 15% of the amount received by the Group.
 
As of December 31, 2008, grants received from BIRD-F amounted to $769, and the Group has an outstanding contingent obligation to pay royalties to BIRD-F aggregating up to $1,154.  The obligation to pay these royalties is contingent on actual sales of the product and in the absence of such sales, no payment is required.  Company management is of the opinion that payment of these royalties is remote.

 
F-86

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

10.
COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
 
Liens
 
The Company's liabilities to banks are secured by a fixed lien on the Company's share capital, goodwill, patents and insurance rights and a floating lien on all of its assets.

To secure its liabilities to United Mizrahi Bank, the Company pledged 750,000 shares of its holdings in the common stock of OIS in favor of the bank.

OIS granted a security interest in substantially all assets of OIS to United Mizrahi Bank Ltd., as security for amounts borrowed by the Company from the bank.  To secure this debenture, the Company pledged 2,345,500 shares of OIS common stock.

To secure its liabilities to its shareholders for convertible loans received during 2008, the Company pledged 4,837,391 shares of its holdings in the common stock of OIS in favor of its shareholder.
 
Short-term bank loan, including current maturities of
     
long-term loans
  $ 2,560  
         
Long-term bank loans
  $ 1,034  
 
Lease Agreements
 
OIS leases its facilities under a non-cancelable operating lease that expires in June 2012 with minimum lease payments of approximately $111 for the year ended December 31, 2009, $143 for the years ended December 31, 2010 and 2011, and $72 for the six months ending June 30, 2012.  OIS'S wholly-owned subsidiary, Abraxas, leases a facility for its office under a non-cancelable operating lease that expires April 30, 2009.  The lease agreement provides for minimum lease payments of $28 for the four months ended April 30, 2009.
 
The Company rents its facilities under a non-cancelable operating lease that expires in September 2010.  The lease agreements require minimum lease payments of approximately $40 per year until 2010.
 
Subsequent to the balance sheet date, the Company unilaterally terminated the agreement and moved to a new rented facility under a non-cancelable operating lease agreement that expires in February 22, 2011.  The lease agreement requires minimum lease payments of approximately $20 per year.
 
CCS leases its facilities under a six-month cancellation notice operating lease that is unlimited in time with minimum lease payments of approximately $22 per year.

 
F-87

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

10.
COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
 
Claims
 
On March 12, 2007, one of the Company's subcontractors filed the following legal actions: (i) in the Tel Aviv District court – seeking judgment whereby any intellectual property rights arising from the parties' cooperation shall be partitioned between the Parties in equal parts; and (ii) in the Tel Aviv Magistrates Count – seeking monetary judgment against MediVision with respect to alleged debts.  In June 2010, the Company reached a settlement agreement and paid the subcontractors $235.

On May 11, 2007, OIS filed a civil action in the Superior Court of California for the County of Sacramento against its former president Steven Verdooner.  OIS consequently moved for and was granted an order amending the complaint to add claims against defendants Opko Health, Inc. and the Frost Group, LLC.  The complaint alleges against Mr. Verdooner claims of breach of fiduciary duty, intentional interference with contract, and intentional interference with prospective economic advantage, and it alleges claims against Opko Health and the Frost Group, as stated above, of interference and with aiding and abetting Verdooner's interference and breach of fiduciary duty.  The complaint requests total damages against defendants in excess of $7,000.  In May 2009, OIS agreed to a settlement with the defe ndants.  The defendants paid OIS $1,200.
 
11.
SHARE CAPITAL
 
Composition
 
Share capital for the year ended December 31, 2008 consisted of the following:
 
   
Registered
   
Issued and
Fully Paid
 
             
Ordinary shares
    10,000,000       8,484,872  

 
F-88

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

11.
SHARE CAPITAL (Continued)
 
Composition (Continued)
 
On June 30, 2009, the Company issued 1,677,573 Ordinary Shares NIS 0.1 par value to certain majority shareholders (the "Shareholders") in respect of the Term Sheet signed in September 2007 between the Shareholders, in connection with a convertible loan provided by the Shareholders to the Company during the fourth quarter of 2007 and January 2008.  In consideration of the issued shares, the Shareholders' loan in the amount of $626 was converted into share capital of the Company.
 
Warrants
 
In July 2005, the Company obtained a long-term bank loan in the amount of $2,000. The loan bears interest at an annual rate of LIBOR + 3.75%, and is to be paid in twenty four monthly installments, commencing on August 1,  2006.  The Company and the bank reached a new payments schedule under which the company will pay until June 2009 a monthly payment of $30 and from there on $83 unless otherwise agreed between the parties.  Under covenants set in the loan agreement, as long as any part of the loan is outstanding, the Company must maintain controlling ownership in OIS shares and a minimum amount of consolidated free cash as set in the agreement.  The Company was in compliance with all restrictive loan covenants as of December 31, 2008 and during the reported period.
 
In consideration for the loan, the Company modified the terms of the warrants issued to the bank during 2002.  The warrants to purchase shares of the Company for a total consideration of up to Euro 348,603 may be exercised at any time, for a period ending at the earlier of 8.5 years after December 9, 2002 or 12 months after the consummation of an exit transaction as described in the agreement with the bank.  The exercise price will be the lower of Euro 1.3 or the price per share set at the exit transaction less 40%.  The Company calculated the incremental fair value (increase in fair value of the warrants before and after the modification) using an option pricing model.
 
Stock Option Plans
 
On October 17, 1999, the Board of Directors of the Company adopted a Stock Option Plan (the "1999 Plan") pursuant to which share options in the Company may be granted to employees, officers, directors and consultants of the Company or any subsidiary.  An aggregate of 500,000 Ordinary Shares of the Company are reserved for issuance under the 1999 Plan.  Any options which are canceled or forfeited within the option period will become available for future grants.  The 1999 Plan will terminate in 2010, unless previously terminated by the Board of Directors.  The plan is under section 102 of the Israeli Tax Ordinance in connection with exemption from tax on the date of issuance of shares (subject to limitations).  As of December 31, 2008, there are 236,888 Ordinary Shares available for issu ance under the 1999 Plan.

 
F-89

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

11.
SHARE CAPITAL (Continued)
 
Stock Option Plans (Continued)
 
On November 16, 2004, the Board of Directors of the Company adopted an Israeli Stock Option Plan (the "2004 ISOP") pursuant to which share options in the Company may be granted to employees, officers, directors and consultants of the Company or any subsidiary.  An aggregate of 500,000 Ordinary Shares of the Company are reserved for issuance under the 2004 ISOP.  Any options which are canceled or forfeited within the option period will become available for future grants.  The vesting period will be 50% after two years, 25% after three years and 25% after four years from the grant date.  The 2004 ISOP will terminate in 2014, unless previously terminated by the Board of Directors.  As of December 31, 2008, there are 204,800 Ordinary Shares available for issuance under the 2004 ISOP.
 
As of December 31, 2008, there are 558,312 options outstanding, of which 546,312 are exercisable into Ordinary Shares as follows:
 
Exercise Price Per Share
   
Outstanding
Number
of Options
   
Weighted
Average
Contractual
Life
Remaining
In Years
   
Exercisable
Number
of Options
 
(EURO)
                   
  0.50 – 1.50       263,112       1.5       263,112  
  0.80       271,200       6       271,200  
  2.02 – 2.53       24,000       8       12,000  
                             
          558,312 *             546,312  
 
 
 
*
Including 218,768 options not issued under section 102 of the Israeli Tax Ordinance.
 
 
**
Weighted average contractual life remaining in years.
 
 
   
December 31, 2008
 
   
Amount
   
Weighted
Average
Exercise
Price
 
         
(EURO)
 
Outstanding at the beginning of the year
  $ 763,489       0.88  
                 
Granted
               
Exercised
               
Forfeited
    (205,177 )     1.83  
                 
Outstanding at the end of the year
  $ 558,312       1.08  
                 
Exercisable options
  $ 546,312       1.07  

 
F-90

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

11.
SHARE CAPITAL (Continued)
 
Stock Option Plans (Continued)
 
The fair value of options grants is estimated at the date of grant using the Black-Scholes option pricing model.  The following are the data and assumptions used:
 
Dividend yield
    0%  
Historical Volatility
    74%  
Expected Volatility
    74%  
Risk free interest rate
    3.5%  
Expected life of options
 
4 years
 
Exercise price
  $ 2.58 - $3.23  
Share price
  $ 3.14  
Fair value
  $ 1.77 - $1.93  
 
The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.
 
The Company recorded employee compensation expense of $56 for the year ended December 31, 2008, with a corresponding increase in equity (additional paid-in capital).
 
In addition, compensation expense of $30 was recorded for the year ended December 31, 2008, in connection with grants of options by OIS.
 
There were no grants during fiscal year 2008.
 
12.  
SELECTED STATEMENT OF OPERATIONS DATA
 
Sales
 
Sales for the year ended December 31, 2008 is comprised as follows:
 
North America
  $ 11,676  
Europe
    2,578  
Other
    156  
         
    $ 14,410  

 
F-91

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

12.          SELECTED STATEMENT OF OPERATIONS DATA (Continued)
 
Cost of Sales
 
Cost of sales for the year ended December 31, 2008 is comprised as follows:
 
Materials consumed
  $ 2,769  
Salaries
    3,566  
Other
    244  
         
      6,579  
         
Changes in work in progress and finished products
    51  
         
    $ 6,630  
 
Research and Development Expenses
 
Research and development expenses for the year ended December 31, 2008 is comprised as follows:
 
Salaries and related expenses
  $ 1,612  
Subcontractors and consultants
    370  
Materials and supplies
    42  
Depreciation
    24  
Miscellaneous
    811  
         
    $ 2,859  
 
Selling and Marketing Expenses
 
Selling and marketing expense for the year ended December 31, 2008 is comprised as follows:
 
Salaries and related expenses
  $ 3,173  
Advertising and exhibitions
    491  
Foreign travel
    549  
Communications
    49  
Miscellaneous
    570  
         
    $ 4,832  

 
F-92

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

12.  
SELECTED STATEMENT OF OPERATIONS DATA (Continued)
 
General and Administrative Expenses
 
General and administrative expenses for the year ended December 31, 2008 is comprised as follows:
 
Salaries and related expenses
  $ 936  
Professional services
    529  
Rent
    250  
Communications
    72  
Vehicle maintenance
    19  
Doubtful and bad debts
    65  
Depreciation
    55  
Miscellaneous
    393  
         
    $ 2,319  
 
Financial Expenses, Income
 
Financial expenses and income for the year ended December 31, 2008 is comprised as follows:
 
Expenses:
     
Bank expenses and interest, net
  $ 604  
         
Income:
       
Interest income
  $ 73  
 
Income Tax Expense
 
Income tax expense for the year ended December 31, 2008 is comprised as follows:
 
Current taxes
  $ 1  
Deferred taxes
    (1,342 )
         
    $ (1,341 )
 
Earnings Per Share
 
Earnings per share for the year ended December 31, 2008 is comprised as follows:
 
Net loss for the year attributed to equity holders of the parent
  $ 3,296  
         
Weighted average number of shares used in calculation of
basic earnings per share
    7,646,086  
         
Basic and diluted earnings per share
  $ (0.43 )

 
F-93

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

13.
INCOME TAXES
 
Tax Benefits under the Encouragement of Capital Investments Law
 
The Company was granted "approved enterprise" status.  The main benefits to which the Company will be entitled, if it implements all the terms of the approved program, are exemption from tax on income from the approved enterprise, and reduced tax rates on dividends originating from this income.  The income from the approved enterprise will be exempt from tax for a ten year period, commencing on the date that taxable income is first generated by the approved enterprise (limited to the earlier of a maximum period of 12 years from commencing operations or 14 years from the date the approval letter is received). In August 1999, the Company was granted an additional period of extension, thus extending the period of tax exemption until 2009.
 
Dividend distributions originating in the income of the approved enterprise will be subject to tax at the rate of 15%, provided that the dividend is distributed during the period stipulated in the law.  In the event of a dividend distribution (including withdrawals and charges that are deemed to be dividends) out of the income originating from the approved enterprise, and on which the Company received a tax exemption, income from which the dividend is distributed will be subject to corporate tax at the rate of 25%.
 
The entitlement to the above benefits is conditional upon the Company fulfilling the conditions stipulated by the above law, regulations published hereunder and the instruments of approval for the specific investments in "approved enterprises".  In the event of failure to comply with these conditions, the benefits may be canceled and the Company may be required to refund the amount of the benefits, in whole or in part, including interest.  As of December 31, 2008, management believes that the Company is in compliance with all of the aforementioned conditions.
 
Measurement of Results for Tax Purposes Under the Income Tax (Inflationary Adjust-ments) Law, 1985 (the "Inflationary Adjustment Law")
 
The Company reports income for tax purposes in accordance with the provisions of the Inflationary Adjustments Law, whereby taxable income is measured in NIS, adjusted for changes in the Israeli Consumer Price Index.
 
Results of operations for tax purposes are measured in terms of earnings in NIS after adjustments for changes in the Israeli Consumer Price Index ("CPI").  Commencing January 1, 2008,this law is void and in its place there are transition provisions, whereby the results of operations for tax purposes are to be measured on a nominal basis.
 
Carry Forward Tax Losses
 
The Company has accumulated losses for tax purposes as of December 31, 2008, in the amount of approximately $7,000, which may be carried forward and offset against taxable income in the future for an indefinite period.

 
 
F-94

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

13.
INCOME TAXES (Continued)
 
Carry Forward Tax Losses (Continued)
 
In June 2004, an amendment to the Income Tax Ordinance (No. 140 and Temporary Provision), 2004 was passed by the "Knesset" (Israeli parliament) and on July 25, 2005, another law was passed, the amendment to the Income Tax Ordinance (No. 147) 2005, according to which the corporate tax rate is to be gradually reduced to the following tax rates: 2007 - 29%, 2008 - 27%, 2009 - 26%, 2010 and thereafter - 25%.
 
For the year ended December 31, 2008, a reconciliation of the theoretical tax expense, assuming all income is taxed at the statutory rate applicable to the income of companies in Israel, and the actual tax benefit, is as follows:
 
Loss before taxes as reported in the consolidated
     
statement of operations
  $ (3,281 )
Statutory tax rate in Israel
    27 %
         
Theoretical tax expense
    866  
         
Increase in taxes resulting from:
       
Losses in respect of which no deferred taxes were generated
    455  
         
Actual tax expense
  $ 1,341  
 
 
Final Tax Assessments
 
The Company has tax assessments that are deemed final through 2003.

 
 
F-95

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 
 
 
14.
RELATED PARTY TRANSACTIONS AND BALANCES
 
Balances
 
Related party balances at December 31, 2008 consist of the following:
 
Accrued expenses to shareholders
  $ 211  
         
Other liabilities to shareholders
  $ 44  
         
Convertible loans of shareholders
  $ 449  
         
Other liabilities to Directors
  $ 21  
 
No advances or loans were granted to Directors of the Company.
 
Transactions
 
Interest to related parties for the year ended December 31, 2008 consist of the following:
 
Interest to related parties
  $ 40  
         
Salaries to key management personnel of the Company
       
(shareholders), including stock-based compensation
  $ 171  
         
Salaries to key management personnel of a subsidiary
       
(shareholders)
  $ 576  
         
Fees to Directors of the Company
  $ 27  
         
Salaries to Directors of a subsidiary
  $ 45  
 

 
F-96

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 
 
15.
DEVELOPMENT SHARE CAPITAL OF OIS
 
As of December 31, 2008, the Company owns approximately 56% of outstanding common stock (9,445 thousand shares).
 
Warrant activity for the year ended December 31, 2008 is summarized as follows:
 
   
Warrants
   
Weighted
Average
Exercise
Price
 
             
Outstanding at beginning and end of year
    929,671     $ 1.79  
                 
Currently exercisable
    929,671     $ 1.79  
 
On October 29, 2007, OIS entered into a Purchase Agreement with The Tail Wind Fund and Solomon Strategic Holdings, Inc.  Within this agreement, there were warrants issued to purchase an aggregate of 616,671 shares of OIS common stock at an exercise price of $1.87 per share.  526,973 of the warrants were issued to The Tail Wind Fund and 89,698 were issued to Solomon Strategic Holdings, Inc.  These warrants expire on December 10, 2012.
 
The  313,000 warrants outstanding as of January 1, 2008 and December 31, 2008 were issued in conjunction with the debt offerings for Laurus Master Fund.  The debt related to Laurus Master Fund was completely paid with cash or converted into shares as of December 31, 2006.  These warrants expire on April 27, 2009.
 
There were 929,671 warrants outstanding and exercisable as of December 31, 2008 with a weighted average remaining contractual life of 2.72 years, a weighted average exercise price of $1.79.

As of December 31, 2008, the price of the OIS share on the stock exchange was $0.17.  At December 31, 2008, the value of the share is $0.33 (Note 2).
 

 
 
F-97

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 
 
 
16.
FINANCIAL RISK MANAGEMENT
 
Financial Risk Factors
 
The Company's activities expose it to a variety of financial risks:  market risk (including currency risk, fair value interest rate risk), credit risk and liquidity risk.
 
The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance.
 
Company management designs principles for overall risk management, as well as develops policies covering specific areas, such as foreign exchange risk, pricing risk, interest rate risk, credit risk and liquidity risk.
 
The Company's principal financial instruments are comprised of accounts receivable, cash and cash equivalents, trade and other payables, short-term bank credit and long-term loans which arise directly from its operations.  During the year the Company did not undertake trading in financial instruments (including derivatives).
 
Credit Risk
 
Financial assets, which potentially subject the Company to credit risk, consist principally of trade receivables.  The Company has policies in place to ensure that sales are made to customers with an appropriate credit history.  The carrying amount of accounts receivable, represents the maximum amount exposed to credit risk.  The Company has no significant concentrations of credit risk.  Although collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Company.
 
Cash (including cash equivalents and restricted cash) is placed in financial institutions, which are considered at the time of deposit to have minimal risk of default.
 
Foreign Exchange Risk
 
The Company performs purchases of goods and services and sells its products, receives loans and credit lines, which are denominated mainly in U.S. Dollars and partly in Euro and in NIS.  As a result, the Company is exposed to foreign exchange risk.
 
The Company does not have formal arrangements to mitigate foreign exchange risks of the Company's operations.

 
F-98

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

16.
FINANCIAL RISK MANAGEMENT (Continued)
 
Financial Risk Factors (Continued)
 
Price Risk
 
The Company does not hold equity securities or any other publicly traded investments and therefore is not exposed to price risk with respect to financial instruments.
 
Cash Flow and Fair Value Interest Rate Risk
 
The Company's income and operating cash flows are substantially independent of changes in market interest rates.  The Company is exposed to LIBOR interest rate risk as its borrowings are linked significantly to the LIBOR. The Company has no interest-bearing assets.
 
Liquidity Risk
 
Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities, and the ability to close out market positions.
 
The Company manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash-outflows due in a short-term perspective.  Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection.  Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly.
 
The Company maintains cash and cash equivalents to meet its liquidity requirements for up to 30-day periods.
 
17.
CAPITAL RISK MANAGEMENT
 
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns to the owner and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
 
In order to maintain or adjust the capital structure, the Company may return the capital to the shareholders, issue new capital and convertible loans or sell assets to reduce debt.
 

 
F-99

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

18.
SEGMENT REPORTING
 
As of January 2008, with the commencing operation of Abraxas by OIS, the Company began operating through two different core activities, as follows:
 
·  
Electronic record and practice management software
·  
Ophthalmic application
 
   
Year Ended December 31, 2008
 
   
Electronic
Record and
Practice
Management
Software
   
Ophthalmic
Application
   
Total
 
                   
Revenue from external customers
  $ 298     $ 14,112     $ 14,410  
                         
Operating loss
  $ 754     $ 1,476     $ 2,230  
                         
Loss
  $ 754     $ 3,868     $ 4,622  
                         
Assets
  $ 1,904     $ 14,066     $ 15,970  
 
19.           SUBSEQUENT EVENTS
 
New Convertible loan Agreement
 
During August 2008 in respect of the Term Sheet signed between certain majority shareholders (the "Shareholders"), in connection with a convertible loan provided by the Shareholders to the Company, the Shareholders granted the Company an additional loan in the amount of $400.
 
Subsequent to the balance sheet date, a new Convertible Loan Agreement was signed with the Shareholders at an aggregate amount of up to additional $800.  The loan agreement shall cover also the principal amount of the above mentioned $400 provided to the Company during August 2008 and will apply the terms and conditions as detailed in the Convertible Loan Agreement.  The loan shall bear interest at an annual rate of 12% and shall be repaid within 12 months from the date of the grant. Loan and any interest due thereon may be converted in a whole or in part into ordinary shares of the Company, at a conversion price equal to the lower between (1) the Company's average share price on the Belgium EuroNext Stock Exchange during the 30 days prior the date of this agreement; and (2) the Company's average share price on the Belgium EuroNext Stock Exchange during the 30 days prior the Conversion, and in each case subject to a discount at the rate of 20% of the Company's average share price on the Belgium EuroNext Stock Exchange at the applicable dates.  As security for the Company's obligation including repayments of the loan and any interest due thereon and the Conversion Rights, the Company shall grant to the shareholders a pledge in shares of common stock of OIS held by the Company subject to a discount at a rate of 30% of the price of OIS' shares, to be allocated among each Shareholder pro-rata to the portion of the Loan which the respective shareholder actually provides.

 
F-100

 
MEDIVISION MEDICAL IMAGING LTD.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of U.S. dollars)
(Continued)
 

19.           SUBSEQUENT EVENTS (Continued)
 
Termination of Merger Agreement with OIS
 
In March 2008, the Company and OIS entered into a merger agreement.  In March 2009, the Company and OIS have mutually agreed to terminate their merger agreement.  The termination of the agreement is due to exorbitant costs the companies and associated shareholders would incur as a result of regulatory requirements.  The companies initially announced the merger agreement in March 2008.

Asset Purchase

On June 24, 2009, the Company entered into an Asset Purchase Agreement ("APA") with OIS to sell substantially all the assets of the Company, which was completed on October 21, 2009. Such assets included the European operations which consisted of the Company's business as conducted by CCS, its branch office in Belgium, certain agreements under which the Company contracted with third parties for distribution and other services, and rights to intellectual property which resulted from the Company's research and development activities performed in Israel.

As payment for such assets, OIS agreed to assume a bank loan outstanding with Mizrahi Tefahot Bank Ltd. (the "United Mizrahi Bank") in the amount of $1,500, to which OIS was previously a guarantor, liabilities associated with the assets sold on and after October 21, 2009, the closing date, and certain taxes, and extinguishment of all intercompany indebtedness owed by us with a principal amount of $4,179.

In addition, in early 2009, OIS hired all of the Company's research and development staff and moved them to the offices in the United States and Israel.

During 2009, OIS had recorded intercompany accounts and notes receivable due from the Company of $450 and $3,169, respectively, prepaid product advances to the Company of $560, which were in anticipation of the completion of the Electro-optical Unit, and $274 of exclusivity rights paid to the Company to sell the Electro-optical Unit in the U.S.  All such amounts were extinguished upon completion of the Asset Purchase.
Purchase Agreement

On June 24, 2009, OIS entered into a Purchase Agreement with AccelMed.  Pursuant to the terms of the Purchase Agreement, OIS authorized the issuance and sale of up to an aggregate of 13,214,317 shares of their common stock and warrants to purchase up to an aggregate of 4,404,772 shares of their common stock in two installments.  On the date of the Purchase Agreement, OIS completed the 1st installment, under which OIS issued to AccelMed 9,633,228 shares and a warrant to purchase up to 3,211,076 shares for an aggregate purchase price of $4,000.  The 1st Installment Warrant entitles AccelMed to purchase 3,211,076 shares of their common stock at an exercise price of $1.00 per share and expires on June 24, 2012.  On May 26, 2010 the 2nd and final installment was completed, under which OIS issued to AccelMed 3,581,089 shares and a warrant to purchase up to 1,193,696 shares for an aggregate purchase price of $2,000.  The 2nd installment warrant has an exercise price of $1.00 per share and expires on June 23, 2012.  The remaining 124,286 shares of common stock were purchased from the Company on January 6, 2010 at a purchase price of $0.70 per share.
 
 
 
 
F-101

 
 
OPHTHALMIC IMAGING SYSTEMS
 
UNAUDITED PRO FORMA
 
CONDENSED COMBINED FINANCIAL STATEMENTS


The following tables present unaudited pro forma condensed combined financial data that reflects the acquisition of substantially all the assets of MediVision Medical Imaging Ltd. (MediVision), which was completed on October 21, 2009 (the “MediVision Asset Purchase”). Such assets included the European operations which consisted of MediVision’s business as conducted by CCS Pawlowski GmbH (“CCS”), its branch office in Belgium (the “Belgium Activities”), certain agreements under which MediVision contracted with third parties for distribution and other services (the “Purchased Agreements”), and rights to intellectual property which resulted from MediVision’s research and development (“R&D”) activities performed in Israel.
 
This information is derived from and should be read in conjunction with the historical financial statements and notes thereto of Ophthalmic Imaging Systems (“OIS”) and MediVision that are included in this filing. The unaudited pro forma condensed combined financial data are presented for illustrative purposes only and do not purport to be indicative of the results of operations or financial position for future periods or the results that actually would have been realized had the business combination described above been consummated as of January 1, 2008.
 
The pro forma financials that are being presented are the unaudited combined balance sheets of OIS at September 30, 2009, the unaudited combined condensed statement of operations for the nine months ending September 30, 2009 and the audited combined condensed statement of operation for the year ending December 31, 2008. OIS presents their financial statements under accounting principles generally accepted in the United States (U.S. GAAP). When OIS consolidates the results of the MediVision Asset Purchase into its financials statements, OIS converts MediVision’s results from IFRS, International Financial Reporting Standards to U.S. GAAP. The pro forma financials presented are based on OIS’ and MediVision’s unaudited and audited consolidated financials to OIS pro forma financials. The adjustments presented reflect adju stments due to changes from IFRS to U.S. GAAP, consolidating and reclassification adjustments due to the transaction, and pro forma adjustments. The Company has adjusted the historical consolidating financial information to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results. This information should be read in conjunction with the:
 
(i)  
accompanying notes to the unaudited pro form condensed combined financial statements;
 
(ii)  
separate historical unaudited interim financial statements for the nine months ending September 30, 2009 and historical audited financial statements of OIS for year ending December 31, 2008; and
 
(iii)
separate historical unaudited interim financial statements for the nine months ending September 30, 2009 and historical audited financial statements of MediVision for the year ending December 31, 2008.
 
 
 
 
F-102

 

OPHTHALMIC IMAGING SYSTEMS
UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
September 30, 2009
(in thousands of U.S. Dollars)

   
Historical OIS
   
Historical MediVision
   
Adjustments to reclassify and consolidate financial statements
       
Consolidated MediVision and OIS
   
Adjustments to reconcile to U.S. GAAP
       
OIS and MediVision after conversion to U.S. GAAP
   
Pro forma adjustments
       
Pro forma combined
 
ASSETS
                                                           
                                                             
Current assets:
                                                           
Cash and cash equivalents
  $ 4,811     $ 74     $ 271     A   $ 5,156       -         $ 5,156       -         $ 5,156  
Accounts receivable, net of allowance for
    2,628       313       184     A     3,125       -           3,125     $ (42 )   E     3,083  
Inventories
    868               93     A     961       -           961       -           961  
Prepaid expenses and other current assets
    257       214       -           471       -           471       -           471  
Assets and disposal group classified as held for sale
            3,979       (3,979 )   A     -       -           -       -           -  
Total current assets
    8,564       4,580       (3,431 )         9,713       -           9,713       (42 )         9,671  
                                                                          -  
Restricted cash
    158       -       -           158       -           158       -           158  
Furniture and equipment, at cost, net
    349       29       165     A     543       -           543       -           543  
Goodwill and other intangible assets
    1,816       -       3,266     A     5,082       (3,184 )   D     1,898       (82 )   F     1,816  
Accumulated Amortization
                                                            (105 )   G     (105 )
Investment in affiliated company
    -       4,238       (4,238 )   B     -       -           -       -           -  
                                                              -           -  
Total assets
  $ 10,887     $ 8,847     $ (4,238 )       $ 15,496     $ (3,184 )       $ 12,312     $ (229 )       $ 12,083  
                                                                          -  
Current liabilities:
                                -       -           -       -           -  
Accounts payable
  $ 804     $ 632     $ 418     A   $ 1,854       -         $ 1,854     $ (42 )   E   $ 1,812  
Short term bank credits and other current liabilities
    -       2,643       23     A     2,666       -           2,666       -           2,666  
Accrued liabilities
    1,027       5,065       (4,436 )   C     1,656       -           1,656       26     H     1,682  
Liabilities included in disposal group held for sale
    -       249       (249 )   A     -       -           -       -           -  
Deferred warranty revenue and customer deposits
    2,122       -       -           2,122       -           2,122       -           2,122  
Notes payable - current portion
    7       -       -           7       -           7       -           7  
Total current liabilities
    3,960       8,589       (4,244 )         8,305       -           8,305       (16 )         8,289  
                                                              -           -  
Line of credit
    150       61       -           211       -           211       -           211  
Notes payable, less current portion
    1,369       -       85     A     1,454       -           1,454       -           1,454  
Total liabilities
    5,479       8,650       (4,159 )         9,970       -           9,970       (16 )         9,954  
                                                                          -  
Noncontrolling interest
    -       172       (172 )   B     -       -           -                   -  
Stockholders’ equity:
                                                            -           -  
Capital
    20,494       9,206       (9,206 )   B     20,494       -           20,494                   20,494  
Foreign currency translation
    -       118                   118       -           118       -           118  
Accumulated deficit
    (15,086 )     (9,299 )     9,299     B     (15,086 )     (3,184 )         (18,270 )     (213 )    F-H     (18,483 )
Total stockholders’ equity
    5,408       197       (79 )         5,526       (3,184 )         2,342       (213 )         2,129  
Total liabilities and stockholders’ equity
  $ 10,887     $ 8,847     $ (4,238 )       $ 15,496     $ (3,184 )       $ 12,312     $ (229 )       $ 12,083  

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements
 
 
 
F-103

 

 
OPHTHALMIC IMAGING SYSTEMS
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2009
(in thousands of U.S. Dollars)

   
OIS Three Months Ended 9/30/09
   
MediVision Nine Months Ending 9/30/09
   
Adjustments to reclassify and consolidate financial statements
         
Consolidated MediVision and OIS
   
Adjustments to reconcile to U.S. GAAP
   
OIS and MediVision after conversion to U.S. GAAP
   
Pro forma adjustments
       
Pro forma combined
 
Revenues:
                                                         
Net sales
  $ 3,933     $ 6,376     $ -           $ 10,309       -     $ 10,309     $ (97 )     $ 10,212  
Cost of sales
    1,654       3,447       -             5,101       -       5,101       (97 )   E     5,004  
                                                                           
Gross profit
    2,279       2,929       -             5,208       -       5,208       -           5,208  
Operating expenses:
                                                                         
Sales and marketing
    959       2,251       -             3,210       -       3,210       -           3,210  
General and administrative
    478       1,463       -             1,941       -       1,941       45     G     1,986  
Research and development
    693       1,344       -             2,037       -       2,037       -           2,037  
Total other (expenses) income
            (420 )     -             (420 )     -       (420 )     -           (420 )
Total operating expenses
    2,130       4,638       -             6,768       -       6,768       45           6,813  
                                                                           
Income (loss) from operations
    149       (1,709 )     -             (1,560 )     -       (1,560 )     (45 )         (1,605 )
                                                            -              
Total Other (expense) income
    (61 )     (419 )     -             (480 )             (480 )     (11 )   H     (491 )
Net income before provision for income  tax (expense) benefit
    88       (2,128 )     -             (2,040 )     -       (2,040 )     (56 )         (2,096 )
Provision for income tax (expense) benefit
    (2 )     (3 )     -             (5 )             (5 )     -           (5 )
Share of loss of affiliated Company
    -       (660 )     660         A     -               -       -           -  
Net income before noncontrolling interest
    86       (2,791 )     660               (2,045 )     -       (2,045 )     (56 )         (2,101 )
                                                              -              
Noncontrolling  Interest
            294       (294       B     -       -       -       -           -  
Net income (loss)
  $ 86     $ (2,497 )   $ 366             $ (2,045 )     -     $ (2,045 )   $ (56 )       $ (2,101 )
                                                                             
Basic earnings per (loss) share
  $ 0.00                                                                 $ (0.10 )
                                                                             
Shares used in the calculation of basic earnings (loss) per share
    20,289,626                                                                   20,289,626  
                                                                             
Diluted earnings (loss) per share
  $ 0.00                                                                 $ (0.10 )
                                                                             
Shares used in the calculation of diluted earnings per share
    20,799,494                                                                      
                                                                             
 
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements
 
 

 
 
F-104

 

OPHTHALMIC IMAGING SYSTEMS
UNAUDITED PRO FORMA
CONDENSED COSOLIDATED STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 2008
(in thousands of U.S. Dollars)

   
Historical OIS
   
Historical MediVision Stand Alone
   
Adjustments to reclassify and consolidate financial statements
     
Consolidated MediVision and OIS
   
Adjustments to reconcile to U.S. GAAP
     
OIS and MediVision after conversion to U.S. GAAP
   
Pro forma adjustments
     
Pro forma combined
 
Revenues:
                                                     
Net sales
  $ 12,491     $ 1,919       -       $ 14,410       -       $ 14,410       -       $ 14,410  
Cost of sales
    5,768       862       -         6,630       -         6,630       -         6,630  
                                                                       
Gross profit
    6,723       1,057       -         7,780       -         7,780       -         7,780  
Operating expenses:
                                                                     
Sales and marketing
    4,035       797       -         4,832       -         4,832       -         4,832  
General and administrative
    1,551       769       -         2,320       3,184   D     5,504       60   G     5,564  
Research and development
    2,220       638       -         2,858       -         2,858       -         2,858  
Total operating expenses
    7,806       2,204       -         10,010       3,184         13,194       60         13,254  
Loss from operations
    (1,083 )     (1,147 )     -         (2,230 )     (3,184 )       (5,414 )     (60 )       (5,474 )
                                                                       
Financial expense, net
    (84 )     (447 )     -         (531 )     -         (531 )     (15 ) H     (546 )
Merger  Expenses
    (520 )     -       -         (520 )     -         (520 )     -         (520 )
                                                                       
Net loss before provision for income  tax (expense) benefit
    (1,687 )     (1,594 )     -         (3,281 )     (3,184 )       (6,465 )     (75 )       (6,540 )
                                                                       
Provision for income tax (expense) benefit
    (1,299 )     (42 )     -         (1,341 )     -         (1,341 )     -         (1,341 )
Net loss before noncontrolling interest
    (2,986 )     (1,636 )     -         (4,622 )     (3,184 )       (7,806 )     (75 )       (7,881 )
                                                                       
Noncontrolling Interest
            53       (53 A     -       -         -       -         -  
Net loss
  $ (2,986 )   $ (1,583 )     (53     $ (4,622 )     (3,184 )     $ (7,806 )   $ (75 )     $ (7,881 )
                                                                       
Basic loss per share
  $ (0.18 )                                                         $ (0.47 )
                                                                       
Shares used in the calculation of basic loss per share
    16,866,831                                                             16,866,831  
 
The accompanying notes are an integral part of these financial statements


 
F-105

 

OPHTHALMIC IMAGING SYSTEMS

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS


1.  
Adjustments to reclassify and consolidate financial statements.


A.  
Represents the reclassification of assets and liabilities recorded by MediVision as Assets and Disposal Group Held for Sale to various assets and liability financial statement categories as of September 30, 2009.  The Assets and Disposal Group Held for Sale is comprised of all CCS assets and liabilities, goodwill, and the IRI intangible asset at September 30, 2009.

B.  
Represents the reversal of the Investment in Affiliated Company asset and all equity recorded by MediVision as of September 30, 2009.

C.  
Represents the reversal of inter-company liabilities which were considered impaired and written off by OIS as of June 30, 2009. These liabilities were not considered impaired and written off by MediVision as of September 30, 2009 and as such reflected in MediVision’s unaudited interim balance sheet at September 30, 2009.

2.  
Adjustments of the financial results of the business activities purchased in connection with the MediVision Asset Purchase from IFRS to U.S. GAAP.

D.  
Represents the expensing of capitalized assets on MediVision’s balance sheet at September 30, 2009 under IFRS related to research and development expenses for the IRI product and goodwill (according to U.S. GAAP, we need to expense $2,479,741 of capitalized assets related to the IRI product and decrease goodwill by $704,000 due to the change in the amortization rules between IFRS and U.S. GAAP) (IFRS allowed MediVision to amortize through 2004; U.S. GAAP only allows for amortization through 2001). This entry decreases (credit to) goodwill and other assets of $3,183,741.


3.  
Pro forma adjustments

The following pro forma adjustments are included in the unaudited pro forma condensed combined financial statements:

E.  
Represents the pro forma impact of the elimination of inter-company sales to MediVision and CCS during the three months ended September 30, 2009. The adjustment to the pro forma financial statements is necessary as MediVision ceased consolidating OIS as of June 24, 2009 which is the day that MediVision lost control over OIS.  During the three months ended September 30, 2009 OIS recorded sales of approximately $62,000 to MediVision and approximately $35,000 to CCS. In addition as of September 30, 2009 OIS had approximately $42,000 due from CCS.

F.  
Represents the write off of approximately $82,000 of goodwill recorded by MediVison as of September 30, 2009. This balance represents the remaining balance of goodwill recorded by MediVision at September 30, 2009 after the expensing of goodwill in connection with the conversion of MediVision to U.S. GAAP from IFRS (For more details on this conversion see Note D to the Notes to Unaudited Pro Forma Condensed Combined Financial Statements).

G.  
Represents the pro forma impact of amortization expense related to the customer relationship and the Purchased Agreements intangible assets. The total balance of these intangible assets are $493,000 which are amortized for 8.2 years resulting in additional amortization expense $45,091 for the nine months ending September 30, 2009 and $60,122 the year ended December 31, 2008. This pro forma adjustment also resulted in accumulated amortization of $105,213 as of September 30, 2009 related to the expense recognized for the nine months ending September 30, 2009 and the year ending December 31, 2008.

H.  
Represents the pro forma impact of the increase in interest expense related to the $1,500,000 loan from United Mizrahi Bank Ltd. The pro forma adjustment to interest expense is calculated as the change in the fixed interest rate component of the loan after OIS assumed the loan in connection with the MediVision Asset Purchase. The fixed interest rate component of the loan changed from 3.75% to 4.75% which results in additional interest expense for the nine months ending September 30, 2009 of $11,250 and additional interest of $15,000 for the year ending December 31, 2008. This pro forma adjustment also resulted in accrued interest of $26,250 as of September 30, 2009 related to pro forma interest expense for the nine months ending September 30, 2009 and the year ending December 31, 2008.

4.  
Other events that did not result in a pro forma adjustments

 
I.  
Pursuant to an Extension Agreement, dated June 24, 2009, between us and the Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. (together with The Tail Wind Fund Ltd., the “Holders”), the Holders agreed to extend the principal payments due thereon for 18 months, such that the next principal payment with respect to the Notes will be due December 31, 2010, and extend the maturity date of the Notes to October 31, 2011.  As consideration for these extensions and waivers, we issued warrants (the “New Warrants”) to purchase an aggregate of 500,000 shares of our common stock.  These New Warrants have an exercise price of $1.00 per share and expire on June 24, 2012.

We combined the New Warrants with existing instruments issued to the Holders, and first allocated the proceeds received in this financing transaction that includes a convertible instrument to the convertible instrument and any other detachable instruments included in the exchange (such as detachable warrants) on a relative fair value basis.  We then calculated the effective conversion used to measure the intrinsic value, if any, of the embedded conversion option based on the Black-Scholes-Merton option valuation model.  We adjust for the changes in the Black-Scholes-Merton option valuation model at each reporting period. As the New Warrants are not separable from the existing financial instruments issued to the Holders, we did not record the pro forma impact of the issuance of the New Warrants to the pro forma fina ncial statements.

J.  
On October 23, 2009, in connection with the assumption of the United Mizrahi loan, we issued to United Mizrahi Bank a warrant (the “Warrant”) to purchase 350,000 shares of our common stock at an exercise price of $1.00. On October 22, 2009 we determined that the fair value of these Warrants were $40,138 using the Black-Scholes-Merton valuation model. We recorded the fair value of these Warrants as permanent equity as the Warrants were issued in relation to the Purchase Agreement. As the Warrants were recorded as permanent equity, this issuance did not result in an adjustment to the pro forma financial statements.


 
 
F-106

 
PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 13.  Other Expenses of Issuance and Distribution
 
The following table sets forth the estimated expenses in connection with the offering described in this Registration Statement:

Item
 
Amount ($)
 
       
SEC Registration Fee
  $ 373  
Legal Fees
    10,000  
Accounting Fees
    5,000  
Miscellaneous
    5,000  
         
Total
  $ 20,373  
         

Item 14.  Indemnification of Directors and Officers
 
Our bylaws, filed as Exhibit 3.2, provide that we will indemnify our officers and directors for costs and expenses incurred in connection with the defense of actions, suits, or proceedings against them on account of their being or having been our directors or officers in accordance with Section 317 of the California Corporations Code. Our bylaws also permit us to maintain insurance on behalf of our officers, directors, employees and agents against any liability asserted against and incurred by that person whether or not we have the power to indemnify such person against liability for any of those acts.
 
Pursuant to the terms of the Purchase Agreement, on June 24, 2009, we extended Indemnification Agreements to all of our board members on that date and to date, we entered into agreements with Uri Geiger, Menachem Inbar, Uri Ram, Gil Allon and Ariel Shenhar. Under the Indemnification Agreements, we agreed to hold harmless and indemnify each of Messrs. Geiger, Inbar, Ram, Allon, Shenhar, Phillips and Greer to the fullest extent authorized under the California General Corporations Code and our Articles of Incorporation, as amended, subject to certain limitations as specified therein.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”) may be permitted to directors, officers and controlling persons of Ophthalmic Imaging Systems pursuant to the foregoing provisions, or otherwise, Ophthalmic Imaging Systems has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
 
Item 25.  Recent Sales of Unregistered Securities
 
On June 2, 2010, we granted to certain employees, options to purchase an aggregate of 172,500 shares of common stock for compensation. The options vest in 6 equal installments, each installment includes options to purchase 28,750 shares of common stock on the following dates: December 3, 2010, June 3, 2011, December 3, 2011, June 3, 2012, December 3, 2012, and June 3, 2013.  The options are exercisable at $1.10 per share and expire on June 2, 2020. We relied upon the exemption from registration under 4(2) of the Securities Act as of 1933, as amended (the “Securities Act”) in connection with these issuances.
 
On May 26, 2010, we issued to U.M. AccelMed, Limited Partnership (“AccelMed”) 3,581,089 shares of our common stock and a warrant to purchase 1,193,696 shares of our common stock at an exercise price of $1.00 per share which expires on June 23, 2012. In connection with this issuance we relied upon the exemption from registration under Section 4(2) of the Securities Act and Rule 506 as promulgated thereunder.
 

 
II-1

 

May 26, 2010, in connection with the issuance to AccelMed, we issued a warrant to Alon Baraket, the placement agent, an option to purchase 36,464 shares of our common stock at an exercise price of $0.01 per share. This option expires on May 26, 2013. We relied upon the exemption from registration under Section 4(2) of the Securities Act in connection with this issuance.
 
On December 23, 2009, we granted Noam Allon, our Chief Technology Officer, options to purchase 180,000 shares of common stock. The options vest in 4 equal semi-annual installments beginning on June 23, 2010, are exercisable at $0.84 per share and expire on December 23, 2019. We relied upon the exemption from registration under Section 4(2) of the Securities Act in connection with this issuance.
 
On November 18, 2009, we granted Gil Allon, our CEO, options to purchase 242,141 shares of common stock. The options vest in 4 equal semi-annual installments beginning on May 18, 2010, are exercisable at $0.65 per share and expire on November 18, 2019. We relied upon the exemption from registration under Section 4(2) of the Securities Act in connection with this issuance.
 
On November 18, 2009, we granted Ariel Shenhar, our CFO, options to purchase 318,285 shares of common stock. The options vest in 4 equal semi-annual installments beginning on May 18, 2010, are exercisable at $0.65 per share and expire on November 18, 2019. We relied upon the exemption from registration under Section 4(2) of the Securities Act in connection with this issuance.
 
On October 29, 2009, we granted Uri Ram, a director, options to purchase 30,000 shares of common stock for his services as Chairman of the Board.  The options vest in 6 equal installments, each installment includes options to purchase 5,000 shares of common stock on the following dates: October 29, 2009, March 13, 2010, September 13, 2010, March 13, 2011, September 13, 2011 and March 13, 2012.  The options are exercisable at $0.55per share and expire on October 29, 2019. We relied upon the exemption from registration under 4(2) of the Securities Act in connection with this issuance.
 
On October 29, 2009, we granted to certain employees, options to purchase an aggregate of 19,333 shares of common stock for returning to OIS as employees. The options vest in 6 equal installments, each installment includes options to purchase 3,222 shares of common stock on the following dates: April 29, 2010, October 29, 2010, April 29, 2011, October 29, 2011, April 29, 2012 and October 29, 2012.  The options are exercisable at $0.55 per share and expire on October 29, 2019. We relied upon the exemption from registration under 4(2) of the Securities Act in connection with these issuances.
 
On October 23, 2009, we granted United Mizrahi bank a warrant to purchase 350,000 shares of our common stock at an exercise price of 1.00 which will expire upon the earlier of October 23, 2012 or 12 months following the completion of (1) a primary public offering of our common stock (a “Public Offering”) or (2) (a) the sale of all or substantially all of our assets or (b) the merger or consolidation of our business with or into another entity, pursuant to which 50% of our outstanding common stock is held be person(s) who prior to the transaction held, in aggregate, less than 5% (together, a “Liquidity Event,” and together with a Public Offering, an “Exit Event”); provided however, if the underwriter in a Public Offering or the purchasing person(s) in a Liquidity Event require that all of our outstanding warrants and options, including this warrant to United Mizrahi Bank be exercised prior to or part of the Public Offering or Liquidity Event, as applicable, then this warrant will terminate, subject to certain notice requirements, upon completion of such transaction.  We relied upon the exemption from registration under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder (“Rule 506”) in connection with this issuance.
 
On June 24, 2009, we entered into a private placement transaction with U.M. AccelMed, Limited Partnership (“AccelMed”) which was exempt from registration under Section 4(2) of the Securities Act and Rule 506 promulgated threunder.  Pursuant to the Purchase Agreement between AccelMed and us dated June 23, 2009, we issued 9,633,228 shares of our common stock and a warrant to purchase 3,211,076 shares of our common stock at an exercise price of $1.00 per share and expire on June 24, 2012.  Under the Purchase Agreement, we are obligated to register for resale the shares of common stock issued and the shares of common stock issuable upon exercise of the warrant.

 
II-2

 

On June 24, 2009, in connection with the private placement transaction with AccelMed, we issued a warrant to Alon Baraket, the placement agent, an option to purchase 123,500 shares of our common stock at an exercise price of $0.01 per share. This option expires on June 24, 2012. We relied upon the exemption from registration under Section 4(2) of the Securities Act in connection with these issuances.
 
On June 24, 2009, we entered into an Extension Agreement with The Tail Wind Fund Ltd. (“Tail Wind”) and Solomon Strategic Holdings, Inc. (“Solomon”).  Pursuant to the Extension Agreement among us, Tail Wind and Solomon, we issued warrants to purchase an aggregate of 500,000 shares of our common stock at an exercise price of $1.00 per share and expire on June 24, 2012.  We relied upon the exemption from registration under Section 4(2) of the Securities Act in connection with these issuances.
 
On January 6, 2009, we granted Gil Allon, our CEO, options to purchase 272,500 shares of common stock in lieu of 20% of his annual salary for fiscal 2009. The options vest in 12 equal monthly installments beginning on January 31, 2009, are exercisable at $0.16 per share and expire on January 6, 2019. We relied upon the exemption from registration under Section 4(2) of the Securities Act   in connection with this issuance.
 
On January 6, 2009, we granted Ariel Shenhar, our CFO, options to purchase 265,000 shares of common stock in lieu of 20% of his annual salary for fiscal 2009. The options vest in 12 equal monthly installments beginning on January 31, 2009, are exercisable at $0.16 per share and expire on January 6, 2019. We relied upon the exemption from registration under Section 4(2) of the Securities Act in connection with this issuance.
 
On January 6, 2009, we granted Noam Allon, a consultant to OIS, options to purchase 180,000 shares of common stock in lieu of 20% of his compensation for fiscal 2009. The options vest in 12 equal monthly installments beginning on January 31, 2009, are exercisable at $0.16 per share and expire on January 6, 2019. We relied upon the exemption from registration under Section 4(2) of the Securities Act in connection with this issuance.
 
On December 19, 2007, we granted Gil Allon, our CEO, options to purchase 260,000 shares of common stock for services rendered during 2007. The options vest in 6 equal installments every 6 months beginning on June 19, 2008. Options to purchase 130,000 shares are exercisable at $0.82 per share and the remaining 130,000 at $1.05 per share. All of the options expire on December 19, 2015. We relied upon the exemption from registration under Section 4(2) of the Securities Act in connection with this issuance.
 
On December 19, 2007, we granted Ariel Shenhar, our CFO, options to purchase 230,000 shares of common stock for services rendered during 2007. The options vest in 6 equal installments every 6 months beginning on June 19, 2008. Options to purchase 115,000 shares are exercisable at $0.82 per share and the remaining 115,000 at $1.05 per share. All of the options expire on December 19, 2015. We relied upon the exemption from registration under Section 4(2) of the Securities Act in connection with this issuance.
 
On October 29, 2007, we entered into a private placement transaction with Tail Wind and Solomon which was exempt from registration under Section 4(2) and Rule 506.  Pursuant to the purchase agreement among Tail Wind, Solomon and us, as amended by the Extension Agreement, we issued convertible notes in the principal amount of $2,750,000 bearing interest at the rate of six and one-half percent (6.5%) per annum, due October 31, 2011, convertible into shares of our common stock at an adjusted conversion price of $1.06 per share. Interest is payable at our option in cash or shares of common stock. Additionally, we issued warrants to Tail Wind and Solomon, to purchase an aggregate of 950,357 shares of our common stock at an adjusted exercise price of $1.21 per share.  Tail Wind and Solomon may exercise the warrant throug h October 29, 2012. We are obligated to register for resale the shares of common stock issuable upon conversion of the note and upon exercise of the warrant pursuant to a registration rights agreement dated October 29, 2007. In March 2010, the Holders of the Notes converted $250,000 of the principal balance into 218,780 shares of our common stock.
 

 
II-3

 

Item 16.  Exhibits and Financial Statements
 
 
Ophthalmic Imaging Systems:
Page
   
   
June 30, 2010
 
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009
F-1
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2010 and 2009
F-2
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months ended June 30, 2010 and 2009
F-3
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2010 and 2009
F-4
Notes to Unaudited Condensed Consolidated Financial Statements
F-5
   
December 31, 2009
 
Report of Independent Registered Public Accounting Firm
F-10
Consolidated Balance Sheets as of December 31, 2009 and 2008
F-11
Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008
F-13
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2009 and 2008
F-14
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2009 and 2008
F-15
Consolidated Statements of Cash Flow for the Years Ended December 31, 2009 and 2008
F-16
Notes to Consolidated Financial Statements
F-17
   
MediVision Medical Imaging, Ltd.:
 
   
September 30, 2009
 
Unaudited Consolidated Balance Sheets as of September 30, 2009 and 2008, and December 31, 2008
F-44
Unaudited Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2009 and 2008, and for the Year Ended December 31, 2008
F-46
Unaudited Consolidated Statement of Changes in Equity for the Nine Month period ending September 30, 2009, and 2008
F-47
Unaudited Consolidated Statements of Cash Flows for the Three and Nine Months ended September 30, 2009 and 2008, and for the Year Ended December 31, 2008
F-49
Notes to Unaudited Consolidated Financial Statements
F-51
   
December 31, 2008
 
Report of Independent Registered Public Accounting Firm
F-59
Consolidated Balance Sheet as of December 31, 2008
F-60
Consolidated Statement of Operations for the Year Ended December 31, 2008
F-61
Consolidated Statement of Changes in Equity for the Year Ended December 31, 2008
F-62
Consolidated Statement of Cash Flows for the Year Ended December 31, 2008
F-63
Notes to Consolidated Financial Statements
F-64
   
Pro Forma Financial Statements:
 
   
September 30, 2009  
Unaudited Pro Forma Combined Balance Sheet as of September 30, 2009
F-103
Unaudited Pro Forma Combined Statement of Operations for the Nine Months ended September 30, 2009
F-104
Notes to Unaudited Pro Forma Combined Financial Statements
F-106
   
December 31, 2008  
Unaudited Pro Forma Combined Statement of Operations for the Year Ended December 31, 2008  F-105
Notes to Unaudited Combined Pro Forma Financial Statements F-106
 

 
 
II-4

 


Exhibit
Number
Description of Exhibit
 
Footnote
Reference
       
3.1
Articles of Incorporation of Ophthalmic Imaging Systems, as amended.
 
(1)
3.2
Amendment to Articles of Incorporation (Certificate of Determination of Preferences of Series A Junior Participating Preferred Stock of Ophthalmic Imaging Systems)
 
(2)
3.3
Amendment to Articles of Incorporation (Certificate of Determination of Preferences of Series B Preferred Stock of Ophthalmic Imaging Systems).
 
(3)
3.4
Amended and Restated Bylaws of Ophthalmic Imaging Systems.
 
(4)
3.5
Amendment to Articles of Incorporation (increases the number of common shares which the Corporation is authorized to issue to one hundred million)
 
(31)
4.1
Specimen of Stock Certificate.
  (1) 
4.2
Purchase Agreement dated October 29, 2007 among Ophthalmic Imaging Systems, The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc.
 
(6)
4.3
Form of Convertible Notes dated October 29, 2007 issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc.
 
(6)
4.4
Form of Warrant dated October 29, 2007 issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc.
 
(6)
4.5
Registration Rights Agreement dated October 29, 2007 by and among Ophthalmic Imaging Systems, The Tail Wind Fund Ltd., and Solomon Strategic Holdings, Inc.
 
(6)
4.6
Warrant dated June 24, 2009, issued in favor of U.M. AccelMed, Limited Partnership.
 
(18)
4.7
Form of 2nd Installment Warrant to be issued in favor of U.M. AccelMed, Limited Partnership.
 
(19)
4.8
Form of Warrant issued in favor of The Tail Wind Fund, Ltd. and Solomon Strategic Holdings, Inc.
 
(20)
4.9
Warrant dated May 26, 2010, issued in favor of U.M. AccelMed, Limited Partnership
 
(32)
5.1
Opinion of Troutman Sanders LLP
   **
9.1
Agreement dated June 24, 2009, by and among U.M. AccelMed, Limited Partnership, MediVision Medical Imaging Ltd., Agfa Gevaert N.V., Delta Trading and Services (1986) Ltd., Gil Allon, Noam Allon, Ariel Shenhar and Yuval Shenhar.
 
(21)
10.1
Lease Agreement, dated as of April 21, 2001, between Ophthalmic Imaging Systems and Jackson-Jahn, Inc.
 
(7)
10.2
First Amendment to the Lease Agreement dated as of April 21, 2001 between Ophthalmic Imaging Systems and Jackson-Jahn, Inc.
 
(8)
10.3
Second Amendment to the Lease Agreement dated as of April 21, 2001 between Ophthalmic Imaging Systems and Jackson-Jahn, Inc.
 
(8)
10.4
Confidentiality Agreement dated March 27, 1992 between Ophthalmic Imaging Systems and Steven R. Verdooner.
 
(1)
10.5
Assignment dated October 23, 1990 of U.S. Patent Application for Apparatus and Method for Topographical Analysis of the Retina to Ophthalmic Imaging Systems by Steven R. Verdooner, Patricia C. Meade and Dennis J. Makes (as recorded on Reel 5490, Frame 423 in the Assignment Branch of the U.S. Patent and Trademark Office).
 
(1)
10.6
Form of International Distribution Agreement used by Ophthalmic Imaging Systems and sample form of End User Software License Agreement.
 
(1)
10.7
2009 Stock Option Plan
 
(9)+
10.8
Rental Agreement dated May 1, 1994 by and between Ophthalmic Imaging Systems and Robert J. Rossetti.
 
(10)
10.9
Ophthalmic Imaging Systems’ 1997 Nonstatutory Stock Option Plan and sample form of Nonstatutory Stock Option Agreement.
 
(11)+
 
 
 
II-5

 
 
 
 
Exhibit
Number
Description of Exhibit
 
Footnote
Reference
10.10
Form of Indemnification Agreement between Ophthalmic Imaging Systems and each of its directors, officers and certain key employees.
 
(12)
10.11
Cooperation and Project Funding Agreement dated January 21, 2001, among Israel- United States Binational Industrial Research and Development Foundation, MediVision and Ophthalmic Imaging Systems.
 
(13)
10.12
2000 Stock Option Plan.
 
(7)+
10.13
2003 Stock Option Plan.
 
(14)+
10.14
Loan and Security Agreement dated as of February 28, 2005 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd.
 
(15)
10.15
Promissory Note dated as of February 28, 2005 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd.
 
(8)
10.16
Secured Debenture dated as of July 20, 2005 by and between Ophthalmic Imaging Systems and United Mizrahi Bank Ltd.
 
(15)
10.17
Research and Development Services Agreement dated as of January 1, 2004 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd.
 
(15)
10.18
Distribution Agreement dated as of February 14, 2006 by and between Ophthalmic Imaging Systems and CCS Pawlowski GmbH.
 
(15)
10.19
Distribution Agreement dated as of January 1, 2004 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd. and Addendum thereto dated December 9, 2005.
 
(15)
10.20
Services Agreement dated as of January 1, 2004 by and between Ophthalmic Imaging Systems, MediStrategy Ltd. and Noam Allon and Addendum thereto dated September 30, 2005.
 
(15)
10.21
Employment Agreement dated December 1, 2001 between Ophthalmic Imaging Systems and Gil Allon.
 
(17)
10.22
Amendment to Employment Agreement dated April 12, 2006 between Ophthalmic Imaging Systems and Gil Allon.
 
(17)
10.23
Employment Agreement dated July 11, 2002, between Ophthalmic Imaging Systems and Ariel Shenhar.
 
(17)
10.24
Amendment to Employment Agreement dated December 3, 2003, between Ophthalmic Imaging Systems and Ariel Shenhar.
 
(17)
10.25
Amendment to Employment Agreement dated February 29, 2004, between Ophthalmic Imaging Systems and Ariel Shenhar.
 
(17)
10.26
Amendment to Employment Agreement dated April 12, 2006, between Ophthalmic Imaging Systems and Ariel Shenhar.
 
(17)
10.27
Purchase Agreement dated October 29, 2007 by and among Ophthalmic Imaging Systems, the Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc.
 
(16)
10.28
Confidential Settlement and Mutual Release Agreement dated May 3, 2009, by and between Ophthalmic Imaging Systems, Steven Verdooner, OPKO Health, Inc. and The Frost Group, LLC
 
(22)
10.29
 
*
10.30
Form of Indemnification Agreement.
 
(23)
10.31
 
*
10.32
Escrow Agreement dated June 24, 2009, by and among Ophthalmic Imaging Systems, MediVision Medical Imaging Ltd. and Stephen L. Davis, Esq.
 
(24)
10.33
Letter Agreement dated June 24, 2009, by and between Ophthalmic Imaging Systems and Mizrahi Tefahot Bank Ltd.
 
(25)
10.34
Extension Agreement dated June 24, 2009, by and between Ophthalmic Imaging Systems, The Tail Wind Fund Ltd. and Solomon Strategic Holdings.
 
(26)
 
 
 
II-6

 
 
 
 
 
Exhibit
Number
Description of Exhibit
 
Footnote
Reference
10.35
Secured Debenture dated October 23, 2009, by and between Ophthalmic Imaging Systems and Mizrahi Tefahot Bank Ltd.
 
(28)
10.36
Warrant dated October 23, 2009, issued to Mizrahi Tefahot Bank Ltd.
 
(29)
10.37
2009 Stock Option Plan
 
(27)
10.38
2010 Stock Option Plan
 
(33)
14
Code of Ethics
 
(8)
23.1
 
*
23.2
Consent of Troutman Sanders LLP (included in Exhibit 5.1)
 
**
24.1
Powers of Attorney (included on the signature page of the initial filing of this registration statement)
 
(30)
_________________________
*
Filed herewith.
**
To be filed by amendment.
+
Management contract or compensatory plan or arrangement.
(1)
Incorporated by reference to Ophthalmic Imaging Systems’ Registration Statement on Form S-18, number 33-46864-LA.
(2)
Incorporated by reference to Exhibit A of Exhibit 1 of Ophthalmic Imaging Systems’ Form 8-K, filed on January 2, 1998.
(3)
Incorporated by reference to Exhibit 3.1 of Ophthalmic Imaging Systems’ Form 8-K, filed on November 24, 1999.
(4)
Incorporated by reference to Exhibit 3.1 of Ophthalmic Imaging Systems’ Form 10-K filed on March 29, 2010.
(5)
Incorporated by reference to Exhibit 4.3 of Ophthalmic Imaging Systems’ Form 8-K, filed on April 29, 2004.
(6)
Incorporated by reference to Ophthalmic Imaging Systems’ Form 8-K filed on October 31, 2007.
(7)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001, filed on March 26, 2002.
(8)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004, filed on March 18, 2005.
(9)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended August 31, 1993, filed on November 26, 1993.
(10)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the fiscal year ended August 31, 1994, filed on November 29, 1994.
(11)
Incorporated by reference to Ophthalmic Imaging Systems’ Quarterly Report on Form 10-QSB for the quarterly period ended November 30, 1997, filed on January 14, 1998.
(12)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended August 31, 1998, filed on December 15, 1998.
(13)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the transition period from September 1, 2000 to December 31, 2000, filed on March 29, 2001.
(14)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 25, 2004.
(15)
Incorporated by reference to Exhibit 99.2 of Ophthalmic Imaging Systems’ Form 8-K filed on July 25, 2005.
(16)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005, filed on March 28, 2006.
(17)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, filed on March 29, 2006.
(18)
Incorporated by reference to Exhibit 10.2 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(19)
Incorporated by reference to Exhibit 10.3 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(20)
Incorporated by reference to Exhibit 10.10 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
 
 
 
II-7

 
 
(21)
Incorporated by reference to Exhibit 10.4 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(22)
Incorporated by reference to Ophthalmic Imaging Systems’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009, filed on May 15, 2009.
(23)
Incorporated by reference to Exhibit 10.5 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(24)
Incorporated by reference to Exhibit 10.7 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(25)
Incorporated by reference to Exhibit 10.8 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(26)
Incorporated by reference to Exhibit 10.9 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(27)
Incorporated by reference to Ophthalmic Imaging Systems’ Schedule 14A filed on April 15, 2009.
(28)
Incorporated by reference to Exhibit 10.2 of Ophthalmic Imaging Systems’ Form 8-K filed on October 27, 2009.
(29)
Incorporated by reference to Exhibit 10.3 of Ophthalmic Imaging Systems’ Form 8-K filed on October 27, 2009.
(30)
Incorporated by reference to Ophthalmic Imaging Systems’ Registration Statement, Registration Number 333-161778 filed on September 8, 2009.
(31)
Incorporated by reference to Exhibit 3.4 of Ophthalmic Imaging Systems’ Form 10-K filed on March 29, 2010.
(32)
Incorporated by reference to Exhibit 10.10 of Ophthalmic Imaging Systems’ Form 8-K filed on May 27, 2010.
(33)
Incorporated by reference to Exhibit A of Ophthalmic Imaging Systems’ Schedule 14A filed on July 26, 2010.


 
II-8

 

Item  28.  Undertakings
 
The undersigned registrant hereby undertakes:
 
(1) To file, during any period in which offers or sales are being made, a post−effective amendment to this registration statement:
 
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
 
(ii) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post−effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registrat ion Fee” table in the effective registration statement;
 
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
 
(2)  That, for the purpose of determining any liability under the Securities Act, each such post−effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof.
 
(3)  To remove from registration by means of a post−effective amendment any of the securities being registered which remain unsold at the termination of the offering.
 
(4)  That, for purposes of determining liability under the Securities Act to any purchaser:
 
(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or p rospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its co unsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
 

 
II-9

 

SIGNATURES
 
Pursuant to the requirement of the Securities Act of 1933, the registrant has caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Sacramento, State of California, on October 15, 2010.
 
 
 
     OPHTHALMIC IMAGING SYSTEMS
       
       
    By:   /s/ Gil Allon   
    Gil Allon  
    Chief Executive Officer  
    (Principal Executive Officer)  
       
    By: /s/ Ariel Shenhar   
    Ariel Shenhar  
   
Chief Financial Officer, Vice President and Secretary
 
   
(Principal Financial and Accounting Officer)
 
       
       
       
 
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

 
/s/ Gil Allon         
Gil Allon   Director   October 15, 2010
Chief Executive Officer        
(Principal Executive Officer)        
         
         
/s/ Ariel Shenhar         
Ariel Shenhar    Director   October 15, 2010 
Chief Financial Officer         
(Principal Financial and Accounting Officer)        
         
         
/s/ Uri Ram         
Uri Ram   Director   October 15, 2010
         
         
/s/ Jonathan R. Phillips         
Jonathan R. Phillips   Director   October 15, 2010
         
         
/s/ Merle Symes        
Merle Symes   Director    
         
         
/s/ Yigal Berman        
Yigal Berman   Director    
         
         
/s/ Uri Geiger         
Uri Geiger   Director   October 15, 2010
         
         
/s/ Menachem Inbar         
Menachem Inbar   Director   October 15, 2010
         
 
By :  /s/ Ariel Shenhar       
Name: Ariel Shenhar      
Title:  Attorney in Fact      
         
         
          

 
II-10

 

EXHIBIT INDEX
 
 
 

Exhibit
Number
Description of Exhibit
 
Footnote
Reference
       
3.1
Articles of Incorporation of Ophthalmic Imaging Systems, as amended.
 
(1)
3.2
Amendment to Articles of Incorporation (Certificate of Determination of Preferences of Series A Junior Participating Preferred Stock of Ophthalmic Imaging Systems)
 
(2)
3.3
Amendment to Articles of Incorporation (Certificate of Determination of Preferences of Series B Preferred Stock of Ophthalmic Imaging Systems).
 
(3)
3.4
Amended and Restated Bylaws of Ophthalmic Imaging Systems.
 
(4)
3.5
Amendment to Articles of Incorporation (increases the number of common shares which the Corporation is authorized to issue to one hundred million)
 
(31)
4.1
Specimen of Stock Certificate.
  (1) 
4.2
Purchase Agreement dated October 29, 2007 among Ophthalmic Imaging Systems, The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc.
 
(6)
4.3
Form of Convertible Notes dated October 29, 2007 issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc.
 
(6)
4.4
Form of Warrant dated October 29, 2007 issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc.
 
(6)
4.5
Registration Rights Agreement dated October 29, 2007 by and among Ophthalmic Imaging Systems, The Tail Wind Fund Ltd., and Solomon Strategic Holdings, Inc.
 
(6)
4.6
Warrant dated June 24, 2009, issued in favor of U.M. AccelMed, Limited Partnership.
 
(18)
4.7
Form of 2nd Installment Warrant to be issued in favor of U.M. AccelMed, Limited Partnership.
 
(19)
4.8
Form of Warrant issued in favor of The Tail Wind Fund, Ltd. and Solomon Strategic Holdings, Inc.
 
(20)
4.9
Warrant dated May 26, 2010, issued in favor of U.M. AccelMed, Limited Partnership
 
(32)
5.1
Opinion of Troutman Sanders LLP
  **
9.1
Agreement dated June 24, 2009, by and among U.M. AccelMed, Limited Partnership, MediVision Medical Imaging Ltd., Agfa Gevaert N.V., Delta Trading and Services (1986) Ltd., Gil Allon, Noam Allon, Ariel Shenhar and Yuval Shenhar.
 
(21)
10.1
Lease Agreement, dated as of April 21, 2001, between Ophthalmic Imaging Systems and Jackson-Jahn, Inc.
 
(7)
10.2
First Amendment to the Lease Agreement dated as of April 21, 2001 between Ophthalmic Imaging Systems and Jackson-Jahn, Inc.
 
(8)
10.3
Second Amendment to the Lease Agreement dated as of April 21, 2001 between Ophthalmic Imaging Systems and Jackson-Jahn, Inc.
 
(8)
10.4
Confidentiality Agreement dated March 27, 1992 between Ophthalmic Imaging Systems and Steven R. Verdooner.
 
(1)
10.5
Assignment dated October 23, 1990 of U.S. Patent Application for Apparatus and Method for Topographical Analysis of the Retina to Ophthalmic Imaging Systems by Steven R. Verdooner, Patricia C. Meade and Dennis J. Makes (as recorded on Reel 5490, Frame 423 in the Assignment Branch of the U.S. Patent and Trademark Office).
 
(1)
10.6
Form of International Distribution Agreement used by Ophthalmic Imaging Systems and sample form of End User Software License Agreement.
 
(1)
10.7
Stock Option Plan.
 
(9)+
10.8
Rental Agreement dated May 1, 1994 by and between Ophthalmic Imaging Systems and Robert J. Rossetti.
 
(10)
10.9
Ophthalmic Imaging Systems’ 1997 Nonstatutory Stock Option Plan and sample form of Nonstatutory Stock Option Agreement.
 
(11)+
 
 
 
 
 
 
II-11

 
 
 
 
Exhibit
Number
Description of Exhibit
 
Footnote
Reference
10.10
Form of Indemnification Agreement between Ophthalmic Imaging Systems and each of its directors, officers and certain key employees.
 
(12)
10.11
Cooperation and Project Funding Agreement dated January 21, 2001, among Israel- United States Binational Industrial Research and Development Foundation, MediVision and Ophthalmic Imaging Systems.
 
(13)
10.12
2000 Stock Option Plan.
 
(7)+
10.13
2003 Stock Option Plan.
 
(14)+
10.14
Loan and Security Agreement dated as of February 28, 2005 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd.
 
(15)
10.15
Promissory Note dated as of February 28, 2005 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd.
 
(8)
10.16
Secured Debenture dated as of July 20, 2005 by and between Ophthalmic Imaging Systems and United Mizrahi Bank Ltd.
 
(15)
10.17
Research and Development Services Agreement dated as of January 1, 2004 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd.
 
(15)
10.18
Distribution Agreement dated as of February 14, 2006 by and between Ophthalmic Imaging Systems and CCS Pawlowski GmbH.
 
(15)
10.19
Distribution Agreement dated as of January 1, 2004 by and between Ophthalmic Imaging Systems and MediVision Medical Imaging Ltd. and Addendum thereto dated December 9, 2005.
 
(15)
10.20
Services Agreement dated as of January 1, 2004 by and between Ophthalmic Imaging Systems, MediStrategy Ltd. and Noam Allon and Addendum thereto dated September 30, 2005.
 
(15)
10.21
Employment Agreement dated December 1, 2001 between Ophthalmic Imaging Systems and Gil Allon.
 
(17)
10.22
Amendment to Employment Agreement dated April 12, 2006 between Ophthalmic Imaging Systems and Gil Allon.
 
(17)
10.23
Employment Agreement dated July 11, 2002, between Ophthalmic Imaging Systems and Ariel Shenhar.
 
(17)
10.24
Amendment to Employment Agreement dated December 3, 2003, between Ophthalmic Imaging Systems and Ariel Shenhar.
 
(17)
10.25
Amendment to Employment Agreement dated February 29, 2004, between Ophthalmic Imaging Systems and Ariel Shenhar.
 
(17)
10.26
Amendment to Employment Agreement dated April 12, 2006, between Ophthalmic Imaging Systems and Ariel Shenhar.
 
(17)
10.27
Purchase Agreement dated October 29, 2007 by and among Ophthalmic Imaging Systems, the Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc.
 
(16)
10.28
Confidential Settlement and Mutual Release Agreement dated May 3, 2009, by and between Ophthalmic Imaging Systems, Steven Verdooner, OPKO Health, Inc. and The Frost Group, LLC
 
(22)
10.29
 
*
10.30
Form of Indemnification Agreement.
 
(23)
10.31
 
*
10.32
Escrow Agreement dated June 24, 2009, by and among Ophthalmic Imaging Systems, MediVision Medical Imaging Ltd. and Stephen L. Davis, Esq.
 
(24)
10.33
Letter Agreement dated June 24, 2009, by and between Ophthalmic Imaging Systems and Mizrahi Tefahot Bank Ltd.
 
(25)
10.34
Extension Agreement dated June 24, 2009, by and between Ophthalmic Imaging Systems, The Tail Wind Fund Ltd. and Solomon Strategic Holdings.
 
(26)
 
 
 
II-12

 
 
 
 
Exhibit
Number
Description of Exhibit
 
Footnote
Reference
10.35
Secured Debenture dated October 23, 2009, by and between Ophthalmic Imaging Systems and Mizrahi Tefahot Bank Ltd.
 
(28)
10.36
Warrant dated October 23, 2009, issued to Mizrahi Tefahot Bank Ltd.
 
(29)
10.37
2009 Stock Option Plan
 
(27)
10.38
2010 Stock Option Plan
 
(33)
14
Code of Ethics
 
(8)
23.1
 
*
23.2
Consent of Troutman Sanders LLP (included in Exhibit 5.1)
 
**
24.1
Powers of Attorney (included on the signature page of the initial filing of this registration statement)
 
(30)
_________________________
*
Filed herewith.
**
To be filed by amendment.
+
Management contract or compensatory plan or arrangement.
(1)
Incorporated by reference to Ophthalmic Imaging Systems’ Registration Statement on Form S-18, number 33-46864-LA.
(2)
Incorporated by reference to Exhibit A of Exhibit 1 of Ophthalmic Imaging Systems’ Form 8-K, filed on January 2, 1998.
(3)
Incorporated by reference to Exhibit 3.1 of Ophthalmic Imaging Systems’ Form 8-K, filed on November 24, 1999.
(4)
Incorporated by reference to Exhibit 3.1 of Ophthalmic Imaging Systems’ Form 10-K filed on March 29, 2010.
(5)
Incorporated by reference to Exhibit 4.3 of Ophthalmic Imaging Systems’ Form 8-K, filed on April 29, 2004.
(6)
Incorporated by reference to Ophthalmic Imaging Systems’ Form 8-K filed on October 31, 2007.
(7)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001, filed on March 26, 2002.
(8)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004, filed on March 18, 2005.
(9)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended August 31, 1993, filed on November 26, 1993.
(10)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the fiscal year ended August 31, 1994, filed on November 29, 1994.
(11)
Incorporated by reference to Ophthalmic Imaging Systems’ Quarterly Report on Form 10-QSB for the quarterly period ended November 30, 1997, filed on January 14, 1998.
(12)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended August 31, 1998, filed on December 15, 1998.
(13)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the transition period from September 1, 2000 to December 31, 2000, filed on March 29, 2001.
(14)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 25, 2004.
(15)
Incorporated by reference to Exhibit 99.2 of Ophthalmic Imaging Systems’ Form 8-K filed on July 25, 2005.
(16)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005, filed on March 28, 2006.
(17)
Incorporated by reference to Ophthalmic Imaging Systems’ Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, filed on March 29, 2006.
(18)
Incorporated by reference to Exhibit 10.2 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(19)
Incorporated by reference to Exhibit 10.3 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(20)
Incorporated by reference to Exhibit 10.10 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
 
 
 
 
 
 
II-13

 
 
 
(21)
Incorporated by reference to Exhibit 10.4 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(22)
Incorporated by reference to Ophthalmic Imaging Systems’ Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009, filed on May 15, 2009.
(23)
Incorporated by reference to Exhibit 10.5 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(24)
Incorporated by reference to Exhibit 10.7 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(25)
Incorporated by reference to Exhibit 10.8 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(26)
Incorporated by reference to Exhibit 10.9 of Ophthalmic Imaging Systems’ Form 8-K filed on June 29, 2009.
(27)
Incorporated by reference to Ophthalmic Imaging Systems’ Schedule 14A filed on April 15, 2009.
(28)
Incorporated by reference to Exhibit 10.2 of Ophthalmic Imaging Systems’ Form 8-K filed on October 27, 2009.
(29)
Incorporated by reference to Exhibit 10.3 of Ophthalmic Imaging Systems’ Form 8-K filed on October 27, 2009.
(30)
Incorporated by reference to Ophthalmic Imaging Systems’ Registration Statement, Registration Number 333-161778 filed on September 8, 2009.
(31)
Incorporated by reference to Exhibit 3.4 of Ophthalmic Imaging Systems’ Form 10-K filed on March 29, 2010.
(32)
Incorporated by reference to Exhibit 10.10 of Ophthalmic Imaging Systems’ Form 8-K filed on May 27, 2010.
(33)
Incorporated by reference to Exhibit A of Ophthalmic Imaging Systems’ Schedule 14A filed on July 26, 2010.

 
II-14
 

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Exhibit 10.29
 
 

 
 
PURCHASE AGREEMENT
 
 
THIS AGREEMENT is made as of the 24 day of June, 2009, by and between Ophthalmic Imaging Systems (the “Company”), a corporation organized under the laws of the State of California, with its principal offices at 221 Lathrop Way, Suite I, Sacramento, CA 95815 and the purchaser whose name and address is set forth on the signature page hereof (the “Purchaser”).
 
IN CONSIDERATION of the mutual covenants contained in this Agreement, the Company and the Purchaser agree as follows:
 
SECTION 1.     Authorization of Sale of the Shares and Warrants. Subject to the terms and conditions of this Agreement, the Company has authorized the issuance and sale of up to 13,214,317 shares of common stock, no par value (the “Common Stock”), of the Company, and warrants to purchase up to 4,404,772 shares of Common Stock, in one or more transactions that are exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(2) thereof and Rule 506 of Regulation D thereunder.
 
SECTION 2.     Agreement to Sell and Purchase the Shares and the Warrants.
 
2.1       Closing. At the Closing (as defined in Section 3.1), the Company will, subject to the terms of this Agreement, issue and sell to the Purchaser, and the Purchaser will buy from the Company, upon the terms and conditions hereinafter set forth:
 
(a)       9,633,228 shares of Common Stock (the “1st Installment Shares”) for a purchase price per share equal to $0.41522 resulting in an aggregate purchase price of $3,999,908.90 (the “< font style="DISPLAY: inline; FONT-SIZE: 10pt; FONT-WEIGHT: bold; TEXT-DECORATION: underline">1st Installment”), which reflects a pre-money valuation of the Company of $7,200,000 as of the Closing Date, taking into account all outstanding shares of the Company and assuming the conversion or exercise of all outstanding notes and warrants (calculating their conversion at the maximum number of underlying shares), options, convertible securities or loans, which in any event, can only be exercised on a price per share lower than $0.41522 (such calculation shall be referred as the “Fully Diluted Basis”); at the Closing, the 1st Installment Shares shall represent 36.35% of the Company’s issued and outstanding shares on a Fully Diluted Basis; and
 
(b)       a warrant to purchase up to 3,211,076 shares of Common Stock (i.e., 33% of the 1st Installment Shares) (the “1st Installment Warrant Shares”) exercisable at $1.00 per share for a period of three years commencing upon the Closing Date (the “1st Installment Warrant”), which warrant shall be substantially in the form set forth in Exhibit A-1 hereto.
 
2.2       Deferred Closing. At the Deferred Closing (as defined in Section 3.2), the Company will, subject to the terms of this Agreement, issue and sell to the Purchaser, and the Purchaser will buy from the Company, upon the terms and conditions hereinafter set forth:
 
(a)       3,581,089 shares of Common Stock (the “2nd Installment Shares” and, together with 1st Installment Shares, the Shares”) for a purchase price per share equal to $0.55848 (subject to adjustment for reverse and forward stock splits and similar transactions) resulting in an aggregate purchase price of $1,999,966.50 (the “2nd Installment”), which reflects
 
 
 
 

 
 
a pre-money valuation of the Company of $10,800,000 as of the Deferred Closing Date, on a Fully Diluted Basis; and
 
(b)       a warrant to purchase up to 1,193,696 shares of Common Stock (i.e., 33% of the 2nd Installment Shares) (the “2nd Installment Warrant Shares” and, together with the 2nd Installment Warrant Shares, the “Warrant Shares”) exercisable at $1.00 per share, for a period of three years from the Closing Date (the “2nd Installment Warrant” and, together with the 1st Installment Warrant, the “Warrants”,and the Shares, the Warrants and the Warrant Shares shall be collectively referred to as, the “Securities”), which warrant shall be substantially in the form set forth in Exhibit A-2 hereto.
 
(c)       If at the time of the Deferred Closing Date, the Company’s Board of Directors determines in good faith that the Company’s financial situation requires the Company to raise additional funds in a capital raising transaction (in addition to 2nd Installment), the Purchaser (in its capacity as a shareholder in the Company) hereby agrees not to object to such capital raising transaction and will agree to waive its participation right (as set forth in Section 8.14 below) in connection therewith; provided, that such capital raising transaction is with Persons who are shareholders of MediVision Medical Imaging Ltd., the parent entity of the Company (“MediVision”), on the date hereof, in an aggregate amount not to exceed $1,500,000, at a price per share not less than $0.55848 (subject to adjustment for reverse and forward stock splits and similar transactions), and without the provision of any special rights to such investors. For avoidance of doubt, nothing herein shall be deemed as an obligation of any Purchaser Director (as defined below) to vote in any manner at any meeting of the Company’s Board of Directors (the “Board”) concerning this matter and each such director shall serve his duties in accordance with applicable law.
 
 
SECTION 3.
Delivery of the Shares at the Closing and at the Deferred Closing.

 
3.1
Closing
 
(a)       The completion of the purchase and sale of the 1st Installment Shares (the “Closing”) shall occur at the offices of Troutman Sanders LLP, 405 Lexington Avenue, New York, New York 10174 as soon as practicable and as agreed to by the parties hereto, within three business days following the execution of this Agreement, or on such later date or at such different location as the parties shall agree in writing, but not prior to the date that the conditions f or Closing set forth in Sections 3.1(b) and 3.1(c) below have been satisfied or waived by the appropriate party (the “Closing Date”).
 
(b)       The Company’s obligation to complete the purchase and sale of the 1st Installment Shares and deliver such stock certificate to the Purchaser at the Closing shall be subject to the following conditions, any one or more of which may be waived by the Company:
 
(i)
receipt by the Company of the 1st Installment; and
 
(ii)       each of the representations and warranties of the Purchaser made herein shall be true and correct in all respects as of the date of this Agreement and as of the Closing Date as though made at that time.
 
(c)       The Purchaser’s obligation to accept delivery of the 1st Installment Shares, such stock certificate and the 1st Installment Warrant, and to pay the 1st Installment at the
 
 
 
2

 
 
Closing shall be subject to the following conditions, any one or more of which may be waived by the Purchaser:
 
(i)        the delivery to the Purchaser by counsel to the Company of a legal opinion dated as of the Closing Date in the form set forth in Exhibit B;
 
(ii)       each of the representations and warranties of the Company set forth herein are true and correct in all respects as of the date of this Agreement and as of such Closing Date as though made at that time and that the Company shall have complied in all respects with all the agreements and satisfied in all respects all the conditions herein on its part to be performed or satisfied on or prior to such Closing Date, and the Purchaser shall have received a certificate executed by the chief executive officer and chief financial officer of the Company, dated as of the Closing Date, to the foregoing effect, in the form set forth in Exhibit C-1;
 
(iii)      the execution by the Company of a written agreement (copy of each shall be delivered to the Purchaser at the Closing) with each of the Company’s lenders, United Mizrachi Bank (“United Bank”) and The Tail Wind Fund Ltd. (“Tail Wind”) which agreement is binding on the parties thereto, and pursuant to which each of United Bank and Tail Wind agree to forgo any principal payments payable by the Company (or any of its subsidiaries) under any United Bank or Tail Wind indebtedness outstanding on the Closing Date until January 1, 2011, and in the case of United Bank, the United Bank consents to and approves the MediVision Assets Transaction (as defined below) and the transaction contemplated thereunder. Notwithstanding the foregoing, if the Company makes a principal payment to United Bank in 2010 in amount higher than the Company’s Earnings Before Interest, Taxes and Amortization (“EBITDA”) for the year ended December 31, 2010, then within three business days after the filing with the SEC (as defined below) of the Company’s audited financial statements for the year ended December 31, 2010, the Company will issue shares of Common Stock to the Purchaser free of charge and without payment of any consideration by the Purchaser, in an amount equal to the amount of principal payments made to United Bank minus EBITDA divided by 0.41522 (the “Additional Shares”); the provisions of Section 7.1 shall apply, mutatis mutandis, to the Additional Shares, and the Company shall take all required actions set forth in Section 7.1 in order to register the Additional Shares;
 
(iv)      the execution by the Company and MediVision of a written agreement (a copy of which shall be delivered to the Purchaser at the Closing) (the “Assets Purchase Agreement”), which agreement is binding on the Company and the parties thereto, for the purchase of certain assets of MediVision in a manner and under terms reasonably satisfactory to the Purchaser (the “MediVision Assets Transaction”);
 
(v)       the deposit by MediVision of 3,793,452 shares of Common Stock, currently owned by MediVision, in escrow with Stephen L. Davis, Esq. and the execution of the escrow agreement by all parties thereto (copy of which shall be delivered to the Purchaser at the Closing), pursuant to the terms of Section 8.7(b) herein;
 
(vi)      the execution by MediVision and the receipt by the Purchaser at the Closing of a copy of a binding and irrevocable proxy, substantially in the form set forth in Exhibit D, appointing Gil Allon as its true and lawful attorney-in-fact and proxy with respect to all shares of Common Stock owned by MediVision (i.e, 9,380,843 shares) to vote FOR the Stockholder Approvals (as defined below) at the Company’s 2010 Annual Meeting of
 
 
 
3

 
 
Shareholders; provided that MediVision may transfer up to 2,000,000 shares of Common Stock free and clear of this irrevocable proxy; and
 
(vii)     the execution by Agfa Gevaert N.V., Delta Trading and Services (1986) Ltd, Gil Allon, Noam Allon, Ariel Shenhar and Yuval Shenhar (collectively, the “Principal MV Shareholders,” and together with MediVision, the “MediVision/Principal MV Shareholders Group) and the receipt by the Purchaser at the Closing of copies of binding and irrevocable proxies, substantially in the form of set forth in Exhibit E, appointing Noam Allo n as their true and lawful attorney-in-fact and proxy with respect to all shares of MediVision owned by such entities or persons to vote FOR the MediVision Assets Transaction and any other matters for which MediVision’s shareholders are asked to grant their vote or consent in connection with the consummation of the MediVision Assets Transaction.
 
(viii)    the receipt by the Purchaser from the Company of a copy of resolutions adopted by the Board approving the execution of the Transaction Documents, the consummation of the transactions contemplated therein, the appointment of Uri Geiger and Moshe Arkin to the Board as of the Closing and the delivery of a director indemnification agreement to each of them.
 
(ix)      the delivery to the Purchaser of a duly executed secretary certificate, dated as of the Closing Date, in the form of Exhibit F-1.
 
3.2
Deferred Closing.
 
(a)       The completion of the purchase and sale of the 2nd Installment Shares (the “Deferred Closing”) shall occur at the offices of Troutman Sanders LLP, 405 Lexington Avenue, New York, New York 10174 as soon as practicable and as agreed to by the parties hereto, within 14 days from the Company’s filing with the United States Securities and Exchange Commission (the “SEC”) of its Form 10-Q for the fiscal quarter ended March 31, 2010 (the “Q1 Financial Statements”), or on such later date or at such different location as the parties shall agree in writing, but not prior to the date that the conditions for Deferred Closing set forth in Sections 3.2(b) and 3.2(c) below have been satisfied or waived by the appropriate party (the “Deferred Closing Date”).
 
(b)       The Company’s obligation to complete the purchase and sale of the 2nd Installment Shares and the 2nd Installment Warrant, and deliver the stock certificate and the 2nd Installment Warrant to the Purchaser at the Deferred Closing shall be subject to the following conditions, any one or more of which may be waived by the Company:
 
(i)
receipt by the Company of the 2nd Installment; and
 
(ii)       each of the representations and warranties of the Purchaser made herein shall be true and correct in all material respects (except for those representations and warranties that are qualified by Material Adverse Effect, which shall be true and correct in all respects) as of the Deferred Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specific date.
 
(c)       The Purchaser’s obligation to accept delivery of the 2nd Installment Shares, the stock certificate and the 2nd Installment Warrant, and to pay the 2nd Installment at the Deferred Closing, shall be subject to the completion of the Closing in all respects, and to the following conditions, any one or more of which may be waived by the Purchaser:
 
 
 
4

 
 
 
 
(i)        The Company shall have generated, for the period from January 1, 2009 to March 31, 2010, consolidated aggregate revenues (calculated in accordance with “generally accepted accounting principles” as shall be defined in the Q1 Financial Statements) of at least $2,000,000 from the sale of EMR Products (as defined below), of which at least $1,000,000 is generated (as shall be evidenced in writing to the Purchaser prior to the Deferred Closing Date) from sales of the Company (excluding sales by Abraxas Medical Solutions Ltd., a subsidiary of the Company (“Abraxas Medical”)) to the ophthalmology segment (the “Milestone”). If the Milestone shall not be achieved in full, the Purchaser shall not be obligated to invest any portion of the 2nd Installment; provided, that the Purchaser shall be entitled at its sole discretion to invest all or any portion of the 2nd Installment on the terms set forth herein. For the purpose of this Section 3.2, “EMR Product” shall mean all software, installation training, service and maintenance of the Electronic Medical Records and Practice Management;
 
(ii)       the delivery to the Purchaser by counsel to the Company of a legal opinion dated as of the Deferred Closing Date in the form set forth in Exhibit B; and
 
(iii)      each of the representations and warranties of the Company set forth herein shall be true and correct in all material respects (except for those representations and warranties that are qualified by Material Adverse Effect, which shall be true and correct in all respects) as of the Deferred Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specific date) and that the Company has complied in all respects with all the agreements and satisfied in all respects all the conditions herein on its part to be performed or satisfied on or prior to such Deferred Closing Date, and the Purchaser shall have received a certificate executed by the chief executive officer and chief financial officer of the Company, dated as of the Deferred Closing Date, to the foregoing effect in the form set forth in Exhibit C-2.
 
(iv)      the delivery to the Purchaser of a duly executed secretary certificate, dated as of the Deferred Closing Date, in the form of Exhibit F-2.
 
3.3       At each of the Closing and the Deferred Closing, the Purchaser shall deliver, in immediately available funds, the full amount of the purchase price for the Shares being purchased hereunder by wire transfer to an account designated by the Company, and the Company shall deliver to the Purchaser one or more stock certificates and Warrants registered in the name of the Purchaser, or in such nominee name(s) as designated by the Purchaser in writing, representing the number of Shares and the number of the Warrant Shares set forth in Section 2 above and bearing an appropriate legend referring to the fact that the Shares and the Warrants were sold in reliance upon the exemption from registration under the Securities Act provided by Section 4(2) thereof and Rule 506 of Regulation D promulgated thereunder. The name(s) in which the stock certificates are to be registered are set forth in the Stock Certificate Questionnaire attached hereto as part of Appendix I.
 
SECTION 4.   Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, the Purchaser as follows:
 
 
 
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4.1       Organization and Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation with corporate power and authority to own or lease its properties and conduct its business in all material respects as described in the SEC Reports (as defined below) and the Company is qualified to do business as a foreign corporation in each jurisdiction in which qualification is required, except where failure to so qualify would not have a Material Adverse Effect (as defined herein). The Company’s subsidiaries (each a “Subsidiary” and collectively the “Subsidiaries”) are listed on Exhibit G to this Agreement and are the only subsidiaries, direct or indirect, of the Company. Each Subsidiary is a direct or indirect wholly owned subsidiary of the Company (except as otherwise set forth in Exhibit G). Each Subsidiary is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with corporate power and authority to own or lease its properties and conduct its business, and is qualified to do business as a foreign corpora tion in each jurisdiction in which qualification is required, except where failure to so qualify would not have a Material Adverse Effect.
 
4.2       Reporting Company; Registration Statement. The Company is not an “ineligible issuer” (as defined in Rule 405 promulgated under the Securities Act) and is eligible to register the Shares and the Warrant Shares for resale by the Purchaser on a registration statement under the Securities Act.
 
4.3       Authorized Capital Stock. The Company has the authorized and the issued and outstanding capitalization as set forth on Schedule 4.3(i); all of the issued and outstanding securities of the Company have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and conform in all material respects to the description thereof contained in the SEC Reports. Except as set forth on Schedule 4.3(ii), the Company does not have outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. With respect to each of the Subsidiaries (i) all the issued and outstanding shares of such Subsidiary’s capital stock is owned and held by the Company, and have been duly authorized and validly issued, are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and (ii) there are no outstanding options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contract s or commitments to issue or sell, shares of such Subsidiary’s capital stock or any such options, rights, convertible securities or obligations.
 
4.4       Issuance, Sale and Delivery of the Shares. The Shares and the Warrants issuable on each of the Closing Date and the Deferred Closing Date, as the case may be, have been duly authorized and, when issued, delivered and paid for in the manner set forth in this Agreement, will be validly issued, fully paid and nonassessable, and will conform in all material respects to the description of the Common Stock set forth in the Company’s Form 8-A filed with the Commission on May 13, 1993 (the “Form 8-A”). No preemptive rights or other rights to subscribe for or purchase any shares of Common Stock of the Company exist with respect to the
 
 
 
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issuance and sale of the Shares and Warrant Shares by the Company pursuant to this Agreement. The Warrant Shares have been duly authorized and, upon exercise in accordance with the applicable Warrants, the Warrant Shares will be validly issued, fully paid and nonassessable, and will conform in all material respects to the description of the Common Stock set forth in the Form 8-A. No stockholder of the Company has any right (which has not been waived or has not expired by reason of lapse of time following notification of the Company’s intention to file the Registration Statement (as hereinafter defined)) to require the Company to register the sale of any capital stock owned by such stockholder under the Registration Statement (other than rights granted to the Tail Wind Fund, Ltd. and Solomon Strategic Holdings, Inc.).
 
4.5       Due Execution, Delivery and Performance of the Agreements; No Conflicts; No Consents. The Company has the requisite corporate power and authority to enter into this Agreement, the Voting Agreement and the Warrants (collectively, the “Transaction Documents”) and to consummate the transactions contemplated hereby and thereby. The Transaction Documents have been duly authorized and when delivered in accordance with the terms of this Agreement, will be duly executed and delivered by the Company, and will constitute legal, valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors’ rights and the application of equitable principles relating to the availability of remedies, and except as rights to indemnity or contribution, including but not limited to, indemnification provisions set forth in Sections 7.4 and 8.7 below, this Agreement may be limited by federal or state securities law or the public policy underlying such laws. The execution and performance of the Transaction Documents by the Company and the consummation of the transactions herein and therein contemplated (including the issuance of the Shares, the Warrants and the Warrant Shares) will not: (i) violate any provision of the articles of incorporation or bylaws of the Company or the organizational documents of any Subsidiary; (ii) result in the creation of any lien, charge, security interest or encumbrance upon any asset s of the Company or any Subsidiary pursuant to the terms or provisions of, or will not conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which any of the Company or any Subsidiary is a party or by which any of the Company or any Subsidiary or their respective properties may be bound; or (iii) result in a violation of any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental agency or body applicable to the Company or any Subsidiary or any of their respective properties, except in the case of (ii) and (iii), such as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect. No consent, approval, authorization or other order of any court, regulatory bod y, administrative agency or other governmental agency or body is required for the execution and delivery of the Transaction Documents or the consummation of the transactions contemplated herein or therein, except for compliance with the Blue Sky laws and federal securities laws applicable to the offering of the Securities. For the purposes of this Agreement, the term “Material Adverse Effect” shall mean a material adverse effect on the condition (financial or otherwise), properties, business, prospects or results of operations of the Company and/or its Subsidiaries, individually or taken as a whole.
 
 
 
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4.6       Accountants. Perry-Smith LLP, who has expressed its opinion with respect to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, which will be incorporated by reference into the Registration Statement and the Prospectus (as defined herein) that forms a part thereof, are registered independent public accountants as required by the Securities Act and the rules and regulations promulgated thereunder (the “1933 Act Rules and Regulations”) and by the rules of the Public Accounting Oversight Board.
 
4.7       Contracts. The material contracts to which the Company is a party that are filed with, or incorporated by reference to, the Company’s Annual Report on Form 10-K or and Exchange Act report filed by the Company with the Commission after December 31, 2008 have been duly and validly authorized, executed and delivered by the Company and constitute the legal, valid and binding agreements of the Company, enforceable by and against the Company in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws relating to enforcement of creditors’ rights generally, and general equitable principles relating to the availability of rem edies, and except as rights to indemnity or contribution may be limited by federal or state securities laws and the public policy underlying such laws.
 
4.8       No Actions. Except as disclosed in the SEC Reports, there are no legal or governmental actions, suits or proceedings pending or, to the Company’s knowledge, threatened against the Company or any Subsidiary before or by any court, regulatory body or administrative agency or any other governmental agency or body, domestic, or foreign, which actions, suits or proceedings, individually or in the aggregate, might reasonably be expected to have a Material Adverse Effect; and no labor disturbance by the employees of the Company exists or is imminent, that might reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary is a party to or subject to the provisions of any injunction, judgment, dec ree or order of any court, regulatory body, administrative agency or other governmental agency or body that might have a Material Adverse Effect.
 
4.9       Properties. Except as disclosed in the SEC Reports, the Company and each Subsidiary have good and marketable title to all the properties and assets described as owned by it in the consolidated financial statements included in the SEC Reports, free and clear of all liens, mortgages, pledges, or encumbrances of any kind except (i) those, if any, reflected in such consolidated financial statements, or (ii) those that are not material in amount and do not adversely affect the use made and proposed to be made of such property by the Company or its Subsidiaries. Except as disclosed in the SEC Reports, the Company and each Subsidiary holds its leased properties under valid and binding leases. The Company and any Subsidiary own s or leases all such properties as are necessary to their respective operations as described in the SEC Reports.
 
4.10     No Material Adverse Change. Since December 31, 2008: (i) the Company and its Subsidiaries have not incurred any material liabilities or obligations, indirect, or contingent, or entered into any material agreement or other transaction that is not in the ordinary course of business or that could reasonably be expected to result in a material reduction in the future earnings of the Company; (ii) the Company and its Subsidiaries have not sustained any material loss or interference with their businesses or properties from fire, flood, windstorm, accident or other calamity not covered by insurance; (iii) the Company and its Subsidiaries have
 
 
 
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not paid or declared any dividends or other distributions with respect to their capital stock and none of the Company or any Subsidiary is in default in the payment of principal or interest on any outstanding debt obligations; (iv) there has not been any change in the capital stock of the Company or its Subsidiaries other than the sale of the Shares hereunder and shares or options issued pursuant to employee equity incentive plans or purchase plans approved by the Company’s Board of Directors, or indebtedness material to the Company or its Subsidiaries (other than in the ordinary course of business and any required scheduled payments); and (v) there has not occurred any event that has caused or could reasonably be expected to cause a Material Adverse Effect.
 
4.11     Intellectual Property. Except as disclosed in the SEC Reports, (i) the Company and each Subsidiary owns or has obtained valid and enforceable licenses or options for the inventions, patent applications, patents, trademarks (both registered and unregistered), trade names, copyrights and trade secrets necessary for the conduct of its respective business as described in the SEC Reports (collectively, the “Intellectual Property”); and (ii) (a) there are no third parties who have any ownership rights to any Intellectual Property that is owned by, or has been licensed to, the Company or each Subsidiary for the products described in the S EC Reports that would preclude the Company or any Subsidiary from conducting its business as currently conducted and have a Material Adverse Effect, except for the ownership rights of the owners of the Intellectual Property licensed or optioned by the Company or any Subsidiary; (b) to the Company’s knowledge, there are currently no sales of any products that would constitute an infringement by third parties of any Intellectual Property owned, licensed or optioned by the Company or any Subsidiary, which infringement would have a Material Adverse Effect; (c) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the rights of the Company or any Subsidiary in or to any Intellectual Property owned, licensed or optioned by the Company or any Subsidiary, other than claims which could not reasonably be expected to have a Material Adverse Effect; (d) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any Intellectual Property owned, licensed or optioned by the Company or any Subsidiary, other than non-material actions, suits, proceedings and claims; and (e) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company or any of any Subsidiaries infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary right of others, other than non-material actions, suits, proceedings and claims.
 
4.12     Compliance. None of the Company nor its Subsidiaries has been advised, nor do any of them have any reason to believe, that it is not conducting business in compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, including, without limitation, all applicable local, state and federal environmental laws and regulations, except where failure to be so in compliance would not have a Material Adverse Effect.
 
4.13     Taxes. The Company and each Subsidiary has filed on a timely basis (giving effect to extensions) all federal, state and foreign income and franchise tax returns and has paid or accrued all taxes that shown as due thereon, and the Company has no knowledge of a tax deficiency that has been or might be asserted or threatened against it that could have a Material Adverse Effect. All tax liabilities accrued through the date hereof have been adequately provided for on the books of the Company.
 
 
 
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4.14     Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income taxes) that are required to be paid in connection with the sale and transfer of the Shares to be sold to the Purchaser hereunder will have been, fully paid or provided for by the Company and all laws imposing such taxes will have been fully complied with.
 
4.15     Investment Company. The Company is not an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for an investment company, within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission promulgated thereunder.
 
4.16     Insurance. The Company maintains insurance underwritten by insurers of recognized financial responsibility, of the types and in the amounts that the Company reasonably believes is adequate for its business, including, but not limited to, insurance covering all real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, with such deductibles as are customary for companies in the same or similar business, all of which insurance is in full force and effect.
 
4.17     Additional Information. In the past 12 calendar months, the Company has filed all documents required to be filed by it prior to the date hereof with the Commission pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (all of the foregoing filed prior to the Closing Date and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Reports”). The Company has made available to the Pu rchaser or its representatives true, correct and complete copies of the SEC Reports not available on the SEC’s EDGAR system, if any. As of their respective filing dates, the SEC Reports complied in all material respects with the requirements of the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder (the “1934 Act Rules and Regulations” and, together with the 1933 Act Rule and Regulations, the “Rules and Regulations”) applicable to the SEC Reports, and none of the SEC Reports, at the time they were filed with the Commission, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
 
4.18     Price of Common Stock. The Company has not taken, and will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or that might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of the Common Stock to facilitate the sale or resale of the Securities.
 
4.19     Use of Proceeds. The Company shall use the proceeds from the sale of the Securities pursuant to the Company’s budget and a strategic work plan in the form attached on Schedule 4.19.
 
4.20     Non-Public Information. The Company has not disclosed to the Purchaser information that would constitute material non-public information as of the Closing Date other than the existence of the transaction contemplated hereby.
 
4.21     Use of Purchaser Name. Except as otherwise required by applicable law or regulation, the Company shall not use the Purchaser’s name or the name of any of its affiliates in any advertisement, announcement, press release or other similar public communication unless it
 
 
 
 
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has received the prior written consent of the Purchaser for the specific use contemplated which consent shall not be unreasonably withheld.
 
4.22     Related Party Transactions. No transaction has occurred between or among the Company, on the one hand, and its affiliates, officers or directors on the other hand, that is required to have been described under applicable securities laws in its SEC Reports and is not so described in such reports.
 
4.23     Off-Balance Sheet Arrangements. There is no transaction, arrangement or other relationship between the Company and an unconsolidated or other off-balance sheet entity that is required to be disclosed by the Company in its SEC Reports and is not so disclosed or that otherwise would be reasonably likely to have a Material Adverse Effect. There are no such transactions, arrangements or other relationships with the Company that may create contingencies or liabilities that are not otherwise disclosed by the Company in its SEC Reports.
 
4.24     Governmental Permits, Etc. The Company and each Subsidiary has all franchises, licenses, certificates and other authorizations from such federal, state or local government or governmental agency, department or body that are currently necessary for the operation of the business of the Company as described in the SEC Reports, except where the failure to posses currently such franchises, licenses, certificates and other authorizations is not reasonably expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any such permit that, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have a Mater ial Adverse Effect.
 
4.25     Financial Statements. The consolidated financial statements of the Company and the related notes and schedules thereto included in the SEC Reports fairly present the financial position, results of operations, stockholders’ equity and cash flows of the Company and its consolidated Subsidiaries at the dates and for the periods specified therein. Such financial statements and the related notes and schedules thereto have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise noted therein) and all adjustments necessary for a fair presentation of results for such periods have been made; prov ided, however, that the unaudited financial statements are subject to normal year-end audit adjustments (which are not expected to be material) and do not contain all footnotes required under generally accepted accounting principles.
 
4.26     Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Com pany has disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under the Exchange Act) that are designed to ensure that material information relating to the Company is made known to the Company’s principal executive officer and the Company’s principal financial officer or persons performing similar functions. The Company is otherwise in compliance in all material respects
 
 
 
 
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with all applicable provisions of the Sarbanes-Oxley Act of 2002, as amended and the rules and regulations promulgated thereunder.
 
4.27     Foreign Corrupt Practices. Neither the Company, nor any Subsidiary, nor, to the knowledge of the Company, any director, officer, agent, employee or other Person acting on behalf of the Company or any Subsidiary has, in the course of its actions for, or on behalf of, the Company: (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment , kickback or other unlawful payment to any foreign or domestic government official or employee.
 
4.28     Employee Relations. Neither the Company nor any Subsidiary is a party to any collective bargaining agreement or employs any member of a union. The Company and each Subsidiary believe that their relations with their employees are good. The Company is not engaged in any unfair labor practice except for matters which would not, individually or in the aggregate, have a Material Adverse Effect, (i) there is (A) no unfair labor practice complaint pending or, to the Company’s knowledge, threatened against the Company before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under collective bargaining agreements is pending or threatened, (B) no strike, labor dispute, slowdown or st oppage pending or, to the Company’s knowledge, threatened against the Company and (C) no union representation dispute currently existing concerning the employees of the Company, and (ii) to the Company’s knowledge, (A) no union organizing activities are currently taking place concerning the employees of the Company and (B) there has been no violation of any federal, state, local or foreign law relating to discrimination in the hiring, promotion or pay of employees or any applicable wage or hour laws. No executive officer of the Company (as defined in Rule 501(f) promulgated under the Securities Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer’s employment with the Company. No executive officer of the Company is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any o ther agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any Subsidiary to any liability with respect to any of the foregoing matters.
 
4.29     ERISA. The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder (herein called “ERISA”); no “reportable event” (as defined in ERISA) has occurred with respect to any “pension plan” (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under: (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “pension plan”; or (ii) Sections 412 or 4971 of th e Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the “Code”); and each “Pension Plan” for which the Company would have liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.
 
 
 
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4.30     Environmental Matters. There has been no storage, disposal, generation, manufacture, transportation, handling or treatment of toxic wastes, hazardous wastes or hazardous substances by the Company or to its knowledge, any Subsidiary (or, to the knowledge of the Company, any of their predecessors in interest) at, upon or from any of the property now or previously owned or leased by the Company or any Subsidiary in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or that would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit; there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind into such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by the Company or any Subsidiary or with respect to which the Company or any Subsidiary have knowledge; the terms “hazardous wastes,” “toxic wastes,” “hazardous substances,” and “medical wastes” shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection.
 
4.31     Integration; Other Issuances of Shares. Neither the Company nor its subsidiaries or any affiliates, nor any person acting on its or their behalf, has issued any shares of Common Stock or shares of any series of preferred stock or other securities or instruments convertible into, exchangeable for or otherwise entitling the holder thereof to acquire shares of Common Stock which would be integrated with the sale of the Securities to the Purchaser for purposes of the Securities Act or of any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated, nor will the Company or its subs idiaries or affiliates take any action or steps that would require registration of any of the Securities under the Securities Act or cause the offering of the Securities to be integrated with other offerings. Assuming the accuracy of the representations and warranties of the Purchaser, the offer and sale of the Securities by the Company to the Purchaser pursuant to this Agreement will be exempt from the registration requirements of the Securities Act.
 
4.32     Money Laundering Laws. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving t he Company or any of its Subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened, except, in each case, as would not reasonably be expected to have a Material Adverse Effect.
 
4.33     Foreign Assets Controls. Neither the Company nor any of its Subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions a dministered by OFAC.
 
 
 
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4.34     Shareholders Rights Plan. No claim will be made or enforced by the Company that the Purchaser is an “Acquiring Person” under any shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving the Securities.
 
4.35     No General Solicitation; Offering Materials. Neither the Company nor, to the Company’s knowledge, any person acting on behalf of the Company, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. Each of the Company, its directors and officers has not distributed and will not distribute prior to the Closing Date or the Deferred Closing Dates any offering material, including any “free writing prospectus” (as defined in Rule 405 promulgated under the Securities Act), in connection with the offering and sale of the Shares other than the SEC Reports or any amendment or supplement thereto.
 
SECTION 5.   Representations, Warranties and Covenants of the Purchaser. The Purchaser represents and warrants to, and covenants with, the Company that:
 
5.1       Investment Experience. The Purchaser can bear the economic risk and complete loss of its investment in the Securities and is knowledgeable, sophisticated and experienced in financial and business maters, in making, and is qualified to make, decisions with respect to investments representing an investment decision like that involved in the purchase of the Securities.
 
5.2       Investment Intent. The Purchaser is acquiring the Securities in the ordinary course of its business and for its own account for investment only not with a view to distribution (within the meaning of Section 2(11) of the Securities Act) (this representation and warranty not limiting the Purchaser’s right to sell pursuant to the Registration Statement or in compliance with the Securities Act and the Rules and Regulations, or, other than with respect to any claims arising out of a breach of this representation and warranty, the Purchaser’s right to indemnification under Section 7.4). Prior to the Closing, the Purchaser was not an affiliate of the Company. Neither the Purchaser nor any of its affiliates is a register ed broker dealer or an entity engaged in the business of being a broker dealer. The Purchaser does not have any agreement or understanding, directly or indirectly, with any person to distribute the Securities.
 
5.3       Shareholder Questionnaire. The Purchaser has completed or caused to be completed the Registration Statement Questionnaire attached hereto as part of Appendix I, for use in preparation of the Initial Registration Statement (as defined below), and the answers thereto are true and correct as of the date hereof and will be true and correct as of the effective date of the Registration Statement and the Purchaser will notify the Company immediately of any material change in any such information provided in the Registration Statement Questionnaire until such time as the Purchaser has sold all of its Shares and Warrant Shares or until the Company is no lo nger required to keep the Initial Registration Statement effective.
 
5.4       Disclosure of Information. The Purchaser has had an opportunity to receive documents related to the Company and to ask questions of and receive answers from the Company regarding the Company, its business, finances and operations and the terms and conditions of the offering of the Securities. Neither such inquiries nor any other due diligence investigation conducted by the Purchaser (or on its behalf) shall modify, amend, limit or affect
 
 
 
 
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the Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or made pursuant to this Agreement or the Company’s obligation to indemnify the Purchaser indemnitees pursuant to Section 8.7 herein. The Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities.
 
5.5       Accredited Investor. At the time the Purchaser was offered the Shares and Warrants it was, at the date hereof it is, on each of the Closing Date and Deferred Closing Date it will be, and on each date on which it exercises Warrants it will be, either (i) an “accredited investor” within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A promulgated under the Securities Act.
 
5.6       General Solicitation. The Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.
 
5.7       Governmental Review. The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.
 
5.8       Brokers and Finders. The Purchaser has not retained any finder, broker or like agent in connection with the transactions contemplated by this Agreement.
 
5.9       Reliance on Exemptions. The Purchaser understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of the Securities Act, the Rules and Regulations and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Securities.
 
5.10     Confidentiality. For the benefit of the Company, the Purchaser previously agreed with the Company to keep confidential all information concerning this private placement. The Purchaser acknowledges that it is prohibited from reproducing or distributing this Agreement or any other offering materials or other information provided by the Company in connection with the Purchaser’s consideration of its investment in the Company, in whole or in part, or divulging or discussing any of their contents, except to its partners, officers, directors, or financial, investment, business or legal advisors in connection with its proposed investment in the Securities. Further, the Purchaser understands that the existence and nature of all conversations and presentations, if any, regarding the Company and this offering must be kept strictly confidential. The Purchaser understands that the federal securities laws impose restrictions on trading based on information regarding this offering. In addition, the Purchaser hereby acknowledges that unauthorized disclosure of information regarding this offering may result in a violation of Regulation D. This obligation will terminate upon the filing by the Company of a Current Report on Form 8-K in accordance with Section 7.1 hereof describing this
 
 
 
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offering. In addition to the above, the Purchaser shall maintain in confidence the receipt and content of any notice of a Suspension (as defined in Section 5.17 below). The foregoing agreements shall not apply to any information that is or becomes publicly available through no fault of the Purchaser, or that the Purchaser is legally required to disclose; provided, however, that if the Purchaser is requested or ordered to disclose any such information pursuant to any court or other government order or any other applicable legal procedure, it shall use commercially reasonable efforts to provide the Company with prompt notice of any such request or order in time sufficient to enable the Company to seek an app ropriate protective order.
 
5.11     Investment Decision. The Purchaser understands that nothing in the Agreement or any other materials presented to the Purchaser in connection with the purchase and sale of the Securities constitutes legal, tax or investment advice. The Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities.
 
5.12     Restricted Securities. The Purchaser understands that the Securities are “restricted securities” under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable state laws and regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. The Purchaser understands that the Securities have not been and, except as contemplated in Section 7 hereof, are not required to be, registered for resale under the Securities Act or any state securities laws, and may not be offered for resale, assigned or transferred unless (A) subsequently registered thereunder or (B) pursuant to an exemption from such registration, to the extent reasonably requested, including pursuant to Section 4(1) under the Securities Act or Rule 144 promulgated under the Securities Act, as amended, or a successor rule thereto (“Rule 144”).
 
5.13     Legend. The Purchaser understands that, except as set forth in Section 5.14, the certificates representing the Shares or Warrant Shares will bear a restrictive legend in substantially the following form:
 
“[NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED] [THESE SECURITIES HAVE NOT BEEN REGISTERED] WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.” 
 
 
 
 
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The Purchaser understands that the Warrants will bear a restrictive legend in substantially the same form.
 
5.14     Removal of Legend; Transfer Agent Instructions. The Company hereby covenants with the Purchaser to, no later than three trading days following the delivery by the Purchaser to the Company of a legended certificate representing Shares or Warrant Shares (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer), and either (i) Purchaser’s Certificate of Subsequent Sale (A) in the form of Appendix II hereto, (B) executed by an officer of, or other authorized person designated by, the Purchaser, and (C) to the effect that the Shares or Warrant Shares have been sold in accordance with a Registration Statement or in a transaction exempt from the registration requirements of the Securities Act and any applicable state securities or Blue Sky laws or (ii) an opinion of counsel reasonably satisfactory to the Company that the Shares or Warrant Shares are freely transferable and that the legend is no longer required on such stock certificate, deliver or cause the Company’s transfer agent to deliver to the transferee of the Shares or Warrant Shares or to the Purchaser, as applicable, a new stock certificate representing such Shares or Warrant Shares that is free from all restrictive and other legends. The Company acknowledges that the remedy at law for a breach of its obligations under this Section 5.14 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5.14, that the Purchaser shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.
 
5.15     Stop Transfer. The certificates representing the Shares and Warrant Share will be subject to a stop transfer order with the Company’s transfer agent that restricts the transfer of such shares except upon receipt by the transfer agent of a written confirmation from the Purchaser to the effect that the Purchaser has satisfied its prospectus delivery requirements, in the form attached as Appendix II hereto.
 
5.16     Residency. The Purchaser’s principal executive offices are in the jurisdiction set forth immediately below the Purchaser’s name on the signature pages hereto.
 
5.17     Public Sale or Distribution. The Purchaser hereby covenants with the Company not to make any sale of the Shares or Warrant Shares under any Registration Statement without complying with the provisions of this Agreement and without effectively causing the prospectus delivery requirement under the Securities Act to be satisfied (whether physically or through compliance with Rule 172 under the Securities Act or any similar rule), and the Purchaser acknowledges and agrees that such Shares or Warrant Shares are not transferable on the books of the Company unless the certificate submitted to the transfer agent evidencing the Shares is accompanied by a separate Purchaser’s Certificate of Subsequent Sale: (i) in the form of Appendix II hereto, (ii) executed by an officer of, or other authorized person designated by, the Purchaser, and (iii) to the effect that (A) the Shares or Warrant Shares have been sold in accordance with the Registration Statement, the Securities Act and any applicable state securities or Blue Sky laws and (B) the prospectus delivery requirement effectively has been satisfied. The
 
 
 
 
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Purchaser acknowledges that there may occasionally be times when the Company must suspend the use of the prospectus (the “Prospectus”) forming a part of the Registration Statement (a “Suspension”) until such time as an amendment to the Registration Statement has been filed by the Company and declared effective by the Commission, or until such time as the Company has filed an appropriate report with the Commission pursuant to the Exchange Act. Without the Company’s prior written consent, which consent shall not be unreasonably withheld or delayed, the Purchaser shall not use any written materials to offer the Shares for resale other than the Pro spectus, including any “free writing prospectus” as defined in Rule 405 under the Securities Act. The Purchaser covenants that it will not sell any Shares or Warrant Shares pursuant to said Prospectus during the period commencing at the time when Company gives the Purchaser written notice of the suspension of the use of said Prospectus and ending at the time when the Company gives the Purchaser written notice that the Purchaser may thereafter effect sales pursuant to said Prospectus. Notwithstanding the foregoing, the Company agrees that no Suspension shall be for a period of longer than 60 consecutive days, and no Suspension shall be for a period longer than 90 days in the aggregate in any 365 day period. The Purchaser further covenants to notify the Company promptly of the sale of all of its Shares or Warrant Shares.
 
5.18     Organization; Validity; Enforcements. The Purchaser further represents and warrants to, and covenants with, the Company that: (i) the Purchaser has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement; (ii) the making and performance of this Agreement by the Purchaser and the consummation of the transactions herein contemplated will not violate any provision of the organizational documents of the Purchaser or conflict with, result in the breach or violation of, or constitute, either by itself or upon notice or the passage of time or both, a default under any material agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit or other instrument to which the Purchaser is a party or, any statute or any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body, administrative agency or other governmental agency or body applicable to the Purchaser; (iii) no consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental agency or body is required on the part of the Purchaser for the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement; (iv) upon the execution and delivery of this Agreement, this Agreement shall constitute a legal, valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or t he enforcement of creditor’s rights and the application of equitable principles relating to the availability of remedies, and except as rights to indemnity or contribution, including, but not limited to, the indemnification provisions set forth in Section 7.3 and 8.7 of this Agreement, may be limited by federal or state securities laws or the public policy underlying such laws; and (v) there is not in effect any order enjoining or restraining the Purchaser from entering into or engaging in any of the transactions contemplated by this Agreement.
 
5.19     Short Sales. Prior to the date hereof, the Purchaser has not taken, and prior to the public announcement of the transaction after the Closing the Purchaser shall not take, any action that has caused or will cause the Purchaser to have, directly or indirectly, sold or agreed to sell any shares of Common Stock, effected any short sale, whether or not against the box,  established any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange Act with respect to the Common Stock, granted any other right (including, without limitation, any put or call option) with respect to the Common Stock or with respect to any security that includes, relates to or derived any significant part of its value from the Common Stock.
 
 
 
 
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SECTION 6.   Survival of Agreements; Survival of Company Representations and Warranties. Notwithstanding any investigation made by any party to this Agreement, all covenants and agreements made by the Company and the Purchaser herein and in the certificates for the Shares and the Warrants delivered pursuant hereto shall survive the execution of this Agreement, the Closing and the Deferred Closing (as the case may be), the delivery to the Purchaser of the Shares and Warrants being purchased and the payment therefor. All representations and warranties, made by the Company and the Purchaser herein and in the certificates for the Shares and Warrants delivered pursuant hereto shall survive (a) with respect to the transaction consummated at the Closing - for a peri od of two years following the later of the execution of this Agreement, the delivery to the Purchaser of the 1st Installment Shares and 1st Installment Warrant being purchased at the Closing and the payment therefor, and (b) with respect to the transaction consummated at the Deferred Closing - for a period of two years following the later of the Deferred Closing, the delivery to the Purchaser of the 2nd Installment Shares and 2nd Installment Warrant being purchased at the Deferred Closing and the payment therefor.
 
 
SECTION 7.
Registration of the Shares; Compliance with the Securities Act.

 
7.1
Registration Procedures and Expenses. The Company shall:
 
(a)       as soon as practicable, but in no event later than 60 days following the Closing Date (the “Initial Registration Statement Filing Deadline”), prepare and file with the Commission a Registration Statement on Form S-1 or Form S-3 (or such other form appropriate for such purpose) (the “Initial Registration Statement”), relating to the resale of the 1st Installment Shares, the 1st Installment Warrant Shares and any shares of Common Stock issued or issuable, directly or indirectly upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing by the Purchaser from time to time.
 
(b)       as soon as practicable, but in no event later than 60 days following the Deferred Closing Date (the “Deferred Closing Filing Deadline”), prepare and file with the Commission a Registration Statement on Form S-1 or Form S-3 (or such other form appropriate for such purpose) (the “Deferred Closing Registration Statement”), relating to the resale of the 2nd Installment Shares, the 2nd Installment Warrant Shares and any shares of Common Stock issued or issuable, directly or indirectly upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing by the Purchaser from time to time. For purposes of this Agreement, the term, “Registration Statement” shall include each of the Initial Registration Statement, the Deferred Closing Registration Statement and any registration Statement filed pursuant to Section 7.2 and the term “Registrable Securities” shall mean, collectively, 1st Installment Shares, the 1st Installment Warrant Shares, 2nd Installment Shares, the 2nd Installment Warrant Shares and any shares of Common Stock issued or issuable, directly or indirectly upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.
 
 
 
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(c)       use its commercially reasonable efforts, subject to receipt of necessary information from the Purchaser, to cause the Commission to declare each of the Initial Registration Statement and the Deferred Closing Registration Statement effective within 180 days after the Closing Date or the Deferred Closing Date (as the case may be) (the “Effectiveness Deadline”);
 
(d)       promptly prepare and file with the Commission such amendments and supplements to each Registration Statement and the prospectus used in connection therewith as may be necessary to keep each Registration Statement effective until such time as all of the Registrable Securities covered by the Registration Statement become eligible for resale by the Purchaser without any volume or other restrictions under Rule 144 or any other rule of similar effect; provided, that for the avoidance of doubt, in no event shall the Company have any obligation to keep any Registration Statement effective after such time as all of the Registrable Securities covered by such Registration Statement have been sold pursuant to the Registration Statemen t or Rule 144;
 
(e)       furnish to the Purchaser with respect to the Registrable Securities registered under any Registration Statement (and to each underwriter, if any), such number of copies of prospectuses and such other documents as the Purchaser may reasonably request, in order to facilitate the public sale or other disposition of all Registrable Securities under such Registration Statement by the Purchaser (or its valid transferees);
 
(f)        file documents required of the Company for normal Blue Sky clearance in states specified in writing by the Purchaser; provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented;
 
(g)       bear all expenses in connection with the procedures in paragraphs (a) through (f) of this Section 7.1 and the registration of the Registrable Securities pursuant to any Registration Statement, other than fees and expenses, if any, of counsel or other advisers to the Purchaser or underwriting discounts, brokerage fees and commissions incurred by the Purchaser, if any, in connection with the offering of the Registrable Securities pursuant to any Registration Statement;
 
(h)       file a Form D with respect to the 1st Installment Shares and the 1st Warrants and the 2nd Installment Shares and the 2nd Installment Warrants (as the case may be) as required under Regulation D;
 
(i)        file a Current Report on Form 8-K with the Commission describing the transactions contemplated by this Agreement on each of the Closing Date and the Deferred Closing Date (as the case may be); and
 
(j)        in order to enable the Purchaser to sell the Registrable Securities under Rule 144 under the Securities Act, use its commercially reasonable efforts to comply with the requirements of Rule 144, including without limitation, use its commercially reasonable efforts to comply with the requirements of Rule 144(c)(1) with respect to current public information about the Company and to timely file all reports required to be filed by the Company under the Exchange Act until the Purchaser is no longer an affiliate of the Company, but in any
 
 
 
 
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event for at least one year from the Closing Date or the Deferred Closing Date (as the case may be).
 
The Company understands that the Purchaser disclaims being an underwriter, but the Purchaser being deemed an underwriter shall not relieve the Company of any obligations it has hereunder. A draft of the proposed Registration Statement Questionnaire to be completed by the Purchaser is attached hereto as Appendix I.
 
 
7.2
Commission Comments.
 
(a)       If the Commission informs the Company that all of the Registrable Securities required to be registered under any Registration Statement cannot be included in such Registration Statement due to Commission Comments (as defined below), then the Company shall, from, time to time, (i) inform the Purchaser of the receipt of the Commission Comments and use its commercially reasonable efforts to file amendments to such Registration Statement as required by the Commission and/or (ii) withdraw such Registration Statement and file a new registration statement (a “New Registration Statement”), in either case covering the maximum number of Registrable Securities permitted to be registered by the Commission, on Form S-1 or S-3 or such other form available to register for resale the Registrable Securities as a secondary offering; provided, however, that prior to filing such amendment or New Registration Statement, the Company shall be obligated to use its commercially reasonable efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the Commission Comments. Notwithstanding any other provision of this Agreement, if any Commission Comments sets forth a limitation of the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater number of Registrable Securities), unless otherwise directed in writing by the Purchaser as to its Registrable Securities, the number of Registrable Securities to be registered on such Registration Statement will first be reduced by Warrant Shares. In the event the Company amends a Registration Statement or files a New Registration Statement, as the case may be, under clauses (i) or (ii) above, the Company will use its commercially reasonable efforts to file with the Commission, as promptly as allowed by the Commission or Commission Comments provided to the Company or to registrants of securities in general, one or more registration statements on Form S-1 or Form S-3 or such other form available to register for resale those Registrable Securities that were not registered for resale on the Registration Statement, as amended, or the New Registration Statement.
 
(b)       For purposes of this Agreement, “Commission Comments” means written comments pertaining solely to Rule 415 under the Securities Act which are received by the Company from the Commission with respect to a filed Registration Statement which requires the Company to limit the amount of Registrable Securities which may be included therein to a number of shares which is less than such amount sought to be registered under such Registration Statement.
 
(c)       For purposes of this Agreement, the Filing Deadline of any Registration Statement filed pursuant to this Section 7.2, shall be 30 days after the receipt of the Commission Comments which required the filing of such Registration Statement.
 
 
 
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(d)       For purposes of this Agreement, the Effectiveness Deadline of any Registration Statement filed pursuant to this Section 7.2, shall be 90 days after the receipt of the Commission Comments which required the filing of such Registration Statement.
 
(e)       The Company agrees that it will, subject to receipt of necessary information from the Purchaser, file each New Registration Statement as soon as practicable after it becomes aware that the filing of such New Registration Statement will be required, but in any event by its Filing Deadline, and it will use commercially reasonable efforts to cause the Commission to declare each New Registration Statement effective within by its respective Effectiveness Deadline.
 
(f)        The Company agrees that it will use commercially reasonable efforts to respond to any comments received from the SEC with respect to any Registration Statement, including but not limited to Commission Comments, as soon as practical but in any event within 14 business days (United States) from the receipt thereof.
 
 
7.3
Transfer of Shares After Registration.
 
(a)       The Purchaser agrees that it will not effect any disposition of the Shares or Warrant Shares or its right to purchase the Shares or Warrant Shares that would constitute a sale within the meaning of the Securities Act or pursuant to any applicable state securities laws, except as contemplated in the Registration Statement referred to in Section 7.1 or as otherwise permitted by law, and that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Purchaser or its plan of distribution.
 
(b)       The Company acknowledges and agrees that the Purchaser may from time to time pledge, and/or grant a security interest in, some or all of the legended Shares and Warrant Shares in connection with applicable securities laws, pursuant to a bona fide margin agreement in compliance with a bona fide margin loan. Such a pledge would not be subject to approval or consent of the Company and no legal opinion of legal counsel to the pledgee, secured party or pledgor shall be required in connection with the pledge, but such legal opinion shall be required in connection with a subsequent transfer or foreclosure following default by the Purchaser transferee of the pledge. No notice shall be required of such pledge, but Purchaser’s transferee shall promptly notify the Company of any such subsequent tr ansfer or foreclosure. The Purchaser acknowledges that the Company shall not be responsible for any pledges relating to, or the grant of any security interest in, any of the Shares or Warrant Shares or for any agreement, understanding or arrangement between the Purchaser and its pledgee or secured party. At the Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Shares or Warrant Shares may reasonably request in connection with a pledge or transfer of the Shares, including the preparation and filing of any required prospectus supplement under Rule 424(b)(3) of the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder. Each Purchaser acknowledges and agrees that, except as otherwise provided in Section 5.17 and in this Section 7.3, any Shares or Warrant Shares subject to a pledge or security interest as contemplated by this Section 7.3(b) shall continue to bear the legend set forth in Section 5.13 and be subject to the restrictions on transfer set forth in Section 5.17 and in this Section 7.3.
 
 
7.4
Indemnification.  For the purpose of this Section 7.4:
 
 
 
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(i)        the term “Purchaser/Affiliate” shall mean any affiliate of the Purchaser, including a transferee who is an affiliate of the Purchaser, and any person who controls the Purchaser or any affiliate of the Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act; and
 
(ii)       the term “Registration Statement” shall include any preliminary prospectus, final prospectus, free writing prospectus, exhibit, supplement or amendment included in or relating to, and any document incorporated by reference in, any Registration Statement referred to in Section 7.1 and 7.2.
 
(a)       The Company agrees to indemnify and hold harmless the Purchaser and each Purchaser/Affiliate, against any losses, claims, damages, liabilities or expenses, joint or several, to which the Purchaser or Purchaser/Affiliates may become subject, under the Securities Act, the Exchange Act, or any other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, including the Prospectus, financial statements and schedules, and all other documents filed as a part thereof, as amended at the time of effectiveness of the Registration Statement, including any information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rules 430B, 430C or 434, of the Rules and Regulations, or the Prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations, or filed as part of the Registration Statement at the time of effectiveness if no Rule 424(b) filing is required or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state in any of them a material fact required to be stated therein or necessary to make the statements in the Registration Statement or any amendment or supplement thereto not misleading or in the Prospectus or any amendment or supplement thereto not misleading in light of the circumstances under which they were made, in each cas e to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, the Prospectus, or any amendment or supplement thereto, and will promptly reimburse the Purchaser and each Purchaser/Affiliate for any legal and other expenses as such expenses are reasonably incurred by the Purchaser or such Purchaser/Affiliate in connection with investigating, defending or preparing to defend, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the Company will not be liable for amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, and the Company will not be liable in any such case to the ext ent that any such loss, claim, damage, liability or expense arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Prospectus or any amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Purchaser expressly for use therein, or (ii) the failure of such Purchaser to comply with the covenants and agreements contained in Sections 5.17 or 7.3 hereof respecting the sale of the Shares or Warrant Shares, or (iii) the inaccuracy of any representation or warranty made by such Purchaser herein or (iv) any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Purchaser prior to the pertinent sale or sales by the Purchaser.
 
 
 
 
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(b)       Each Purchaser will indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any losses, claims, damages, liabilities or expenses to which the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person may become subject, under the Securities Act, the Exchange Act, or any other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, but only if such settlement is effected with the written consent of such Purchaser) insofar as such losses, claims, damages, l iabilities or expenses (or actions in respect thereof as contemplated below) arise out of or are based upon: (i) any failure to comply with the covenants and agreements contained in Sections 5.10 or 7.2 hereof respecting the sale of the Shares; (ii) the inaccuracy of any representation or warranty made by such Purchaser herein; or (iii) any untrue or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements in the Registration Statement or any amendment or supplement thereto not misleading or in the Prospectus or any amendment or supplement thereto not misleading in the light of the circumstances under which they were made, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or all eged omission was made in the Registration Statement, the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Purchaser expressly for use therein; and will reimburse the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person for any legal and other expense reasonably incurred by the Company, each of its directors, each of its officers who signed the Registration Statement or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that each Purchaser’s aggregate liability under this Section 7 shall not exceed the amount of proceeds received by such Purchaser on the sale of the Shares pursua nt to the Registration Statement.
 
(c)       Promptly after receipt by an indemnified party under this Section 7.4 of notice of the threat or commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 7.4 promptly notify the indemnifying party in writing thereof, but the omission to notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party for contribution or otherwise under the indemnity agreement contained in this Section 7.4 to the extent it is not prejudiced as a result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitle d to participate in, and, to the extent that it may wish, jointly with all other indemnifying parties similarly notified, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party, and the indemnifying party and the indemnified party shall have reasonably concluded, based on an opinion of counsel reasonably satisfactory to the indemnifying party, that there may be a conflict
 
 
 
 
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of interest between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 7.4 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless: (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with the proviso to the preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel, reasonably satisfactory to such indemnifying party, representing all of the indemnified parties who are parties to such action); or (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of action, in each of which cases the reasonable fees and expenses of counsel shall be at the expense of the indemnifying party. The indemnifying party shall not be liable for any settlement of any action without its written consent. In no event shall any indemnifying party be liable in respect of any amounts pa id in settlement of any action unless the indemnifying party shall have approved in writing the terms of such settlement; provided, that such consent shall not be unreasonably withheld. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnification could have been sought hereunder by such indemnified party from all liability on claims that are the subject matter of such proceeding.
 
(d)       If the indemnification provided for in this Section 7.4 is required by its terms but is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party under paragraphs (a), (b) or (c) of this Section 7.4 in respect to any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any losses, claims, damages, liabilities or expenses referred to herein: (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Purchaser from the private placement of Common Stock hereunder; or (ii) if the allocation provided by clause (i) above is not pe rmitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but the relative fault of the Company and the Purchaser in connection with the statements or omissions or inaccuracies in the representations and warranties in this Agreement and/or the Registration Statement that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Purchaser on the other shall be deemed to be in the same proportion as the amount paid by the Purchaser to the Company pursuant to this Agreement for the Shares purchased by the Purchaser that were sold pursuant to the Registration Statement bears to the difference (the “Difference”) between the amount the Purchaser paid for the Shares that were sold pursuant to the Registra tion Statement and the amount received by such Purchaser from such sale. The relative fault of the Company on the one hand and the Purchaser on the other shall
 
 
 
 
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be determined by reference to, among other things, whether the untrue or alleged statement of a material fact or the omission or alleged omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or warranty relates to information supplied by the Company or by the Purchaser and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in paragraph (c) of this Section 7.4, any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set fort h in paragraph (c) of this Section 7.4 with respect to the notice of the threat or commencement of any threat or action shall apply if a claim for contribution is to be made under this paragraph (d); provided, however, that no additional notice shall be required with respect to any threat or action for which notice has been given under paragraph (c) for purposes of indemnification. The Company and the Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 7.4 were determined solely by pro rata allocation (even if the Purchaser were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this paragraph. Notwithstanding the provisions of this Section 7.4, the Purchaser shall not be required to contribute any amount in exce ss of the amount by which the Difference exceeds the amount of any damages that the Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
 
7.5       Information Available. The Company, upon the reasonable request of the Purchaser, shall make available for inspection during normal business hours by the Purchaser, any underwriter participating in any disposition pursuant to any Registration Statement and any attorney, accountant or other agent retained by the Purchaser or any such underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, employees and independent accountants to supply all information reasonably requested by the Purchaser or any such underwriter, attorney, accountant or agent in connection with any Registration Statement.
 
7.6       Assignment of Registration Rights. The right to cause the Company to register Registrable Securities granted to the Purchaser by the Company under this Agreement may be assigned in full by the Purchaser (or a subsequent holder of any Registrable Securities (a “Holder”)) in connection with a transfer by the Purchaser or a Holder of its Registrable Securities, but only if: (i) such transfer may otherwise be effected in accordance with applicable securities laws; (ii) the Purchaser or the Holder gives written notice of the proposed transfer to the Company including the name and address of such transferee and a copy of the transfer documen ts and agreements; and (iii) such transfer is otherwise in compliance with this Agreement.
 
 
SECTION 8.
Covenants.

 
8.1
Proxy Statement.
 
(a)       In connection with (i) the Company’s 2010 Annual Meeting of Shareholders or (ii) or any other special meeting of the Company’s shareholders duly convened prior to the Company’s 2010 Annual Meeting of Shareholders, the Company shall prepare and file with the Commission a proxy statement
 
 
 
 
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meeting in accordance with the requirements of Section 14 of the Exchange Act and the related rules and regulations thereunder promulgated by the Commission (the “Proxy Statement”) to solicit the approval by stockholders holding a majority of the outstanding voting stock of the Company present, in person or by proxy, at the Stockholders’ Meeting (as defined below) of an amendment to the Company’s articles of incorporation providing for an increase in the amount of authorized Common Stock equal to 100,000,000 shares or in any greater amount such that in any event, the Company shall have at the Deferred Closing sufficient amount of authorized Common Stock to enable it to perform its obligations under this Agreement (the “Stockholder Approval[s]”). The Company shall use its best efforts to (i) file the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 10-K”) as soon as possible after such date, (ii) file the Proxy Statement immediately after it files the 2009 10-K, (iii) cause the Proxy Statement to be declared effective under the Exchange Act as soon as possible promptly as reasonably practicable after such filing (if the first filing is a preliminary proxy statement) and (iv) mail the Proxy Statement to the stockholders of the Company as soon as practicable.
 
(b)       The Company shall keep the Purchaser apprised of the status of matters relating to the Proxy Statement and the Stockholders’ Meeting, including promptly furnishing the Purchaser and its counsel with copies of notices or other communications related to the Proxy Statement and the Stockholders’ Meeting received by the Company from the Commission or any other third party.
 
8.2       Stockholders’ Meeting. The Company shall, in accordance with the laws of the State of California and the Company’s articles of incorporation and bylaws, use its commercially reasonable efforts to convene a meeting of holders of Common Stock to consider and vote upon giving the Stockholder Approval (the “Stockholders’ Meeting”) as soon as practicable after the filing of a definitive proxy statement in connection with the Stockholders’ Meeting, but in any event by May 15, 2010. Subject to fiduciary obligations under applicable law, the Board shall recommend such Stockholder Approval, shall not withdraw or modify s uch recommendation and shall solicit such Stockholder Approval. Without limiting the generality of the foregoing, if the Board withdraws or modifies its recommendation, the Company shall nonetheless cause the Stockholders’ Meeting to be convened and a vote to be taken, and the Board may communicate to the Company’s stockholders its basis for such withdrawal or modification.
 
8.3       Election of Directors.
 
(a)       The Company shall take all necessary actions (including, if necessary, amend its by-laws) following the Closing to adjust the size of the Board to nine members, to elected as follows:
 
(i)        two “Independent Directors” as defined under the listing standards of The Nasdaq Capital Market, regardless of whether the Common Stock is then listed on the Nasdaq Capital Market, the identity of one shall be nominated by the Purchaser, and the identity of the other shall be nominated by the MediVision/Principal MV Shareholders Group (which two directors are currently Mr. William Greer and Mr. Jonathan R. Phillips);
 
(ii)       three directors to be nominated by the Purchaser (the “Purchaser Directors”). One of the Purchaser Directors shall be appointed as the Chairman of  the Company’s Audit Committee. The Company shall ensure the appointment of the Purchaser Directors at the Closing, and shall use its commercially reasonable efforts to cause (i) the Purchaser Directors to be nominated and elected to the Board in each election of directors and (ii) if any Purchaser Director who has been so elected to the Board shall cease for any reason to be a member of the Board during such person’s term as a director, the Company shall use its best efforts, subject to applicable laws and regulations, to cause such va cancy to be filled by a replacement designated by the Purchaser;
 
 
 
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(iii)      three directors to be nominated by MediVision or the Principal MV Shareholders (the “MediVision Directors”); and
 
(iv)     one director to be nominated by the Purchaser and MediVision or the Principal MV Shareholders who shall be a reputable individual from the Company’s industry, and who shall act as the Chairman of the Board;
 
provided, that at the first annual meeting of the Company’s shareholders following the execution of this Agreement, (1) the Purchaser shall nominate Mr. Ariel Shenhar, pursuant to Section 8.3(a)(ii), to serve as a director until the next annual meeting, subject to his continuance service as the Company’s chief financial officer during such period and (ii) MediVision or the Principal MV Shareholders shall nominate Mr. Gill Allon, pursuant to Section 8.2(a)(iii), to serve as a director until the next annual meeting, subject to his continuance service as the Company’s chief executive officer during such period.
 
In addition, Noam Allon, in the sole discretion of the Board of Directors of the Company, shall attend all meetings of the Board of Directors as an observer (the “Representative”) and, in this respect, the Company shall give the Representative copies of all notices, minutes, consents, and other materials that it provides to its directors; provided, however, that such representative shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets or a conflict of interest.
 
8.4       D&O Insurance. Promptly following the date hereof and prior to the applicable appointment, the Company shall cause each director appointed or elected to the Board pursuant to Section 8.3 to be fully covered by the Company’s existing directors’ and officers’ liability insurance, in an amount reasonably acceptable to the Purchaser to be not less than $10,000,000. The Company shall provide the Purchaser with a written approval of its insurance agent to the foregoing effect. The Company shall maintain such insurance valid and in place in all times thereafter during which the Purchaser is entitled to elect members of the Board.
 
8.5       Indemnification Agreements. At the Closing, the Company shall execute and deliver indemnification agreements substantially in the form attached hereto as Exhibit H (the “Indemnification Agreements”) with each of the Purchaser Directors.
 
8.6       Board of Directors; Powers; Committees. As of the Closing Date, the bylaws of the Company will have been amended in accordance with its terms, to provide the following:
 
 
 
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(a)       The Board will have nine members.
 
(b)       The Board shall have an audit committee, the composition and duties of which shall be in compliance with all applicable federal and state securities laws and the rules of the OTC Bulletin Board, and which shall consist of at least three members of the Board. One of the Purchaser Directors shall be appointed as the Chairman of the Company’s Audit Committee.
 
(c)       The Board shall have a compensation committee, the composition and duties of which shall be in compliance with all applicable federal and state securities laws and rules of the OTC Bulletin Board, and which shall consist of three members of the Board. The duties of the compensation committee will include (i) authorizing the compensation of any executive officer, (ii) setting number of shares reserved under the Company’s option pool, and (iii) setting employee compensation guidelines. The Purchaser Director shall have a veto right with respect to any resolution adopted by the compensation committee with regards to any issuance of Abraxas options (as set forth in Section 8.17 below).
 
(d)       The Purchaser and MediVision shall have the right, but not the obligation, to cause one Purchaser Director and one MediVision Director to serve on each of the Audit Committee, the Compensation Committee and any other committee of the Board or any other committee of the Board of any subsidiary of the Company (if any).
 
8.7
Indemnification.
 
(a)       Indemnification for breach representations, warranties or covenants. The Company will, to the fullest extent permitted by law, defend the Purchaser, and each of its Affiliates, directors, officers, agents and employees (the “Purchaser Indemnitees”) or settle (provided that the Company will not agree to any settlement without the applicable Purchaser Indemnitee’s prior written consent, which consent shall not be unreasonably withheld or delayed) at the Company’s expense any Action or Proceeding and indemnify them for all Losses and Expenses (both as defined below) arising out of or in connection with a breach of any represe ntations, warranties or covenants of the Company in this Agreement. The Company will indemnify and hold harmless the Purchaser Indemnitees from and against any and all damages, costs, liabilities and attorneys’ fees, incurred in defending and/or resolving such Action or Proceeding; provided, that (i) the Company is promptly notified in writing of such Action or Proceeding (provided, that any failure to deliver such notice will not relieve the Company of liability under this Section 8.7), (ii) the Company will have the sole control of the defense and/or settlement thereof (provided, that if representation of the Purchaser Indemnitees by counsel retained by the Company would be inappropriate due to any actual or potential differing interest between the Purchaser Indemnitee and the Company or any third party repre sented by such counsel, the Purchaser Indemnitees will have the right to retain one separate counsel, with reasonable fees and expenses to be paid by the Company), (iii) the Purchaser Indemnitees furnish to the Company, on request, information available to the Purchaser Indemnitees for such defense, and (iv) the Purchaser Indemnitees reasonably cooperate in any defense and/or settlement thereof as long as the Company pays all of the Purchaser Indemnitees’ reasonable out of pocket expenses and attorneys’ fees. The Purchaser Indemnitees will not admit any such Action or Proceeding or any allegations made in such Action or Proceeding without, to the extent practicable, the prior written consent of the Company (which will not be unreasonably withheld or delayed). For purposes of this Agreement, an “Action or Proceeding” means any claim,
 
 
 
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action, suit, judgments, settlements, litigation, proceeding, mediation, arbitration or investigation or audit by any Person, and “Losses and Expenses,” means damages, expenses, losses, costs, liabilities (including without limitation, incident to any Action or Proceeding.
 
(b)       Special Indemnification for the MediVision Assets Transaction. The Company will, to the fullest extent permitted by law, defend the Purchaser Indemnitees or settle (provided that the Company will not agree to any settlement without the applicable Purchaser Indemnitee’s prior written consent, which consent shall not be unreasonably withheld or delayed) at the Company’s expense any Action or Proceeding and indemnify them for all Losses and Expenses (both as defined below) arising out of or in connection with any liability, indebtedness, restriction or obligation imposed on the Company or any subsidiary of the Company or any Material Adverse Effect suffered by the Company or any subsidiary of the Company as a result of or in connection with the MediVision Assets Transaction (including without limitation, any liability related to the obligations of MediVision to the Israeli Office of the Chief Scientist (the “OCS Claims”) or any approval required to be provided by it in connection with such transaction (the “OCS Approval”). In order to secure certain obligations of MediVision to the Company under the Asset Purchase Agreement and to secure the indemnification obligation of the Company to the Purchaser set forth in this Section 8.7(b), MediVision shall comply with the escrow provisions set forth in Section 10.5 of the Asset Purchase Agreement. The Company hereby undertakes to take all required actions and to enforce any and all rights and remedies granted to it or to which it is entitled under the Assets Purchase Agreement, by applicable law, or otherwise, in order to perform its indemnification obligation set forth in this Section 8.7(b), including without limitation, (i) Company’s right to purchase and sell certain shares of Common Stock for the repayment of the Elop Debt (as such term is defined and as further described Section 8.14 of the Asset Purchase Agreement), (ii) Company’s right to purchase and cancel and/or reclassify certain shares of Common Stock into treasury shares entitling their holder to no rights, in connection with the Untied Mizrachi Bank Loan (as such term is defined and as further described in Section 8.15 of the Asset Purchase Agreement); The Board of the Company shall adopt, on or prior to the Closing Date, a resolution (a copy of which shall be delivered to the Purchaser at the Closing) approving such cancellation and/or reclassification, subject to the occurrence of the relevant conditions, and (iii) Company’s rights purchase and sell certain shares of Common Stock for the repayment of the OCS D ebt and Obligations (as such term is defined and as further described Section 8.16 of the Asset Purchase Agreement).
 
8.8       Voting Agreement. At the Closing, MediVision and certain of its stockholders shall execute a voting agreement with the Purchaser pursuant to which they will undertake to vote all their shares in the Company for the appointment of the Purchasers Directors (as defined above) and will agree on other terms customary in such agreements.
 
8.9       Management Fee. In consideration for the Purchaser’s service on the Board (through its Purchasers Directors) and strategic consulting services, the Company shall pay the Purchaser an annual management fee of $20,000 plus VAT (to the extent applicable) per each director appointed by it which is not an employee of the Company.
 
8.10     Operation of Business. The Company agrees that, between the date of this Agreement and the earlier of the termination of this Agreement and the Closing Date, except as expressly contemplated by any provision of this Agreement, (i) the business of the Company
 
 
 
 
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shall be conducted only in, and the Company shall not take any action except in, the ordinary course of business consistent with past practice, and (ii) the Company shall use its commercially reasonable efforts to preserve its business organization intact, to keep available the services of its current officers and employees, and to maintain its existing relations with suppliers, creditors, business partners and others having business dealings with the Company, to the end that the Company’s goodwill and ongoing business shall be unimpaired at the Closing.
 
8.11     Exclusivity; Break-Up Fee. Until the Closing Date, the Company shall not, directly or indirectly, and shall direct its directors, officers, employees, representatives, Affiliates and agents, including investment bankers, financial advisors, attorneys and accountants (collectively, the “Representatives”) not to, directly or indirectly, solicit or encourage any offers, engage in any discussions (other than to inform any initiating party that it is subject to this provision) or enter into any agreements or commitments with respect to the purchase of, or the sale or transfer or issuance (whether by merger, consolidation or otherwise) of, (i) any shares of capital stock of the Company or another entity organized by affiliates or any securities convertible into or exchangeable for any such stock for the primary purpose of raising capital or (ii) all or substantially all of the assets, or any material assets, of the Company or any subsidiary thereof (“Acquisition Proposals”); provided, however, that nothing contained in this Section 8.11 shall prohibit the Board from providing information in connection with, and negotiating, another unsolicited, bona fide written proposal regarding an Acquisition Proposal that the Board shall have determined in good faith, after considering applicable law, and after consulting with independent outside counsel, that such action is required in order for the Board to comply with its fiduciary duties to the Company’s stockholders under applicable law; provided, further, that if (a) the Board determines to enter into an Acquisition Proposal prior to the Closing, (b ) the Stockholder Approvals are not obtained prior to the Deferred Closing Date, the Closing is not consummated due to failure to obtain any consent of any third party on part of the Company (including any governmental approvals), (c) the Stockholder Approvals are not obtained prior to the Deferred Closing Date, or (d) the Company breaches its exclusivity undertaking above, the Company shall pay to the Purchaser a break-up fee equal to $100,000 within seven days of the Purchaser’s written request. The Company shall notify the Purchaser promptly if any proposal or offer, or any inquiry or contact with any Person with respect thereto, regarding an Acquisition Proposal is made, such notice to include the identity of the Person making such proposal, offer, inquiry or contact, and the terms of such Acquisition Proposal. In addition, if the Company receives an Acquisition Proposal that would require the Board, in exercising its fiduciary duties as described above, to determine not to consummate the transacti ons contemplated hereby prior to the Closing, the Company shall endeavor to negotiate with the Purchaser, for a period not to exceed 10 days, a new transaction with the Purchaser that is comparable to such Acquisition Proposal.
 
8.12     Reasonable Efforts; Notification; Representations. Subject to the other terms and conditions of this Agreement, each of the parties to this Agreement shall use reasonable efforts to take promptly, or cause to be taken, all actions, and to do promptly, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including the issuance of Warrant Shares upon the exercise of Warrants. Each party to this Agreement shall give prompt notice to each other party to this Agreement upon becoming aware that any representation or warranty made by such party in this Agreement has become untrue or
 
 
 
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inaccurate or that such party has failed to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by such party under this Agreement, in each case such that the conditions set forth in this Agreement would not be satisfied. No party to this Agreement shall take any action that would cause any representation or warranty made by such party in this Agreement to be untrue if made at Closing.
 
8.13     Approval Rights. For so long as the Purchaser owns more than 20% of the issued and outstanding shares of Common Stock (giving effect to the Warrant Shares underlying the Warrants held by the Purchaser) the Company must obtain prior written approval from the Purchaser to:
 
(i)        Merge into or consolidate with any other person or entity or permit any other person or entity to merge or consolidate with it; sell all or substantially all of the assets of the Company; liquidate, dissolve or wind-up the Company; acquire any interest in any business from any person or entity; sell, transfer, lease or otherwise dispose of (in one or more transactions) any of its material assets; purchase, lease or otherwise acquire (in one or more transactions) any material asset or more;
 
(ii)       Authorize, offer, sell or issue any (a) security or security converted into equity for a purchase price or exercise price, as the case may be, lower than the average purchase price to be paid by the Purchaser for the two installments (or lower than the 1st Installment purchase price, if the 2nd Installment was not paid), and (b) debt security, provided that following two years from the Closing, the Company may issue debt security in an aggregate amount lower than $2,000,000 per year without the Purchaser’s consent, and in any event, excluding the issuance of options to employees, including directors;
 
(iii)      Incur indebtedness for borrowed money or guarantee or act as a surety for any debt from financial institutions in excess of $100,000 other then in the ordinary course of business;
 
(iv)      Grant a security interest in an asset or combination of assets of the Company valued individually or in the aggregate at $250,000 or more;
 
(v)       Sell, lease, sublease, license or otherwise transfer any of the rights, title and interest in any Company intellectual property valued individually or in the aggregate at $250,000 or more;
 
(vi)      Purchase, license or otherwise acquire any of the rights, title or interest in any intellectual property of any third party valued individually or in the aggregate at $250,000 or more;
 
(vii)     Any deviation of $250,000 or more from the Company’s budget for 2009 and 2010 as disclosed to the Purchaser prior to the Closing (the 2010 budget can only be approved with the Purchaser’s consent); or
 
(viii)    Hire or terminate any executive officer of the Company, including the Chief Executive Officer and Chief Financial Officer; or
 
(ix)      Approval of interested parties transaction(s) (excluding grant of options), to include without limitation, transactions, directly or indirectly, between the
 
 
 
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Company and any of its directors and officers and any transaction with MediVision (including its directors and officers).
 
8.14     Participation Rights. The Purchaser, for so long as it holds a number of shares of Common Stock equal to 15% or more of the 1st Installment Shares it purchased pursuant to this Agreement, will have the right to purchase its pro rata share (based on the Purchaser’s beneficial ownership of the Company’s outstanding shares of Common Stock on a fully diluted basis, including the Warrant(s) or the Warrant(s) Shares (as the case may be) of any future equity offering by the Company.
 
8.15     Most Favorite Nation. In the event that any current or future investor in the Company shall be granted more favorable rights than or in preference over the Purchaser (including but not limited to issuance of superior type of shares or rights for liquidation preference, anti dilution protection, board nomination, voting, registration of securities, approval rights, participation rights, or management fee), the purchaser shall receive rights or parity with such rights and the terms applicable to the Securities shall be amended accordingly, only for so long as the Purchaser beneficially owns at least 20% of the Company’s issued and outstanding Common Stock on a fully diluted basis (including the Warrant Shares). This Section 8.15 will no t apply if the terms granted to a future investor were agreed by the Purchaser in its capacity as a stockholder, and the Purchaser waived its Most Favorite Nation right in connection therewith.
 
8.16     Access Rights. From the date hereof until the Closing, the Company will permit access to, and will make available to the Purchaser’s representatives, consultants and their respective counsels for inspection, such information and documents as the Purchaser reasonably request, and will make available at reasonable times and to a reasonable extent officers and employees of the Company to discuss the business and affairs of the Company.
 
8.17     Abraxas Options. All options promised to Gil Allon and/or Ariel Shenhar for shares of Abraxas shall be re-discussed at the compensation committee of the Board of Directors of the Company at its first meeting of the compensation committee following the Closing and in any event no later than thirty days following the Closing Date, with the participation of the Purchaser Directors. It is agreed that the Purchaser shall have a veto right with regards to any such issuance of Abraxas options.
 
8.18     Company’s Auditors. The Company shall appoint, no later than thirty days following the Closing Date, Ernst & Young (Israel office) as channel II accountant for the Company and its subsidiaries.
 
SECTION 9.   Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed by first-class registered or certified airmail, e-mail, confirmed facsimile or nationally recognized overnight express courier postage prepaid, and shall be deemed given when so mailed and shall be delivered as addressed as follows:
 
 
 
 
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(a)
if to the Company, to:
 
 
Ophthalmic Imaging Systems
221 Lathrop Way, Suite 1
Sacramento, CA 95815
Attention: Gil Allon
Facsimile: 916-646-0207
Email: Info@oisi.com
 
 
with a copy to:
 
 
Troutman Sanders LLP
405 Lexington Avenue
New York, New York 10174
Attention: Henry I. Rothman
Facsimile: 212-704-5950
E-mail: Henry.rothman@troutmansanders.com
 
 
or to such other person at such other place as the Company shall designate to the Purchaser in writing; and
 
(b)       if to the Purchaser, at its address as set forth at the end of this Agreement, or at such other address or addresses as may have been furnished to the Company in writing.
 
SECTION 10. Changes. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and the Purchaser. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding, each future holder of all such securities, and the Company.
 
SECTION 11. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement.
 
SECTION 12. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.
 
SECTION 13. Governing Law; Venue. This Agreement is to be construed in accordance with and governed by the federal law of the United States of America and the internal laws of the State of California without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. Each of the Company and the Purchaser submits to the exclusive jurisdiction of the state and federal courts sitting in the city of Sacramento, State of California, for purposes of all legal proceedings arising out of or relating to this Agreement and the transactions contemplated hereby. Each of the Company and the Purchaser irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.
 
 
 
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SECTION 14. Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. Facsimile signatures shall be deemed original signatures.
 
SECTION 15. Entire Agreement. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters. Each party expressly represents and warrants that it is not relying on any oral or written representations, warranties, covenants or agreements outside of this Agreement.
 
SECTION 16. Fees and Expenses. The Company shall reimburse the Purchaser, at the Closing Date, for all expenses incurred by the Purchaser in connection with this Agreement, including financial and legal due diligence and negotiation of the transaction, financial and legal due diligence and negotiation of the MediVision Assets Transaction, and other professional services retained by the Purchaser, in an aggregate amount equal to $100,000 plus VAT (to the extent applicable); provided, however, that the Purchaser hereby acknowledges that as of the date of this Agreement, the Company has reimbursed the Purchaser $40,000 pursuant to this Section 16 and at the Closing Date, the Company is only required to reimburse the Purchaser $60,000 plus VAT (to the extent applicable) for all expenses incurred by the Purchaser in connection with this Agreement.
 
SECTION 17. Parties. This Agreement is made solely for the benefit of and is binding upon the Purchaser and the Company and to the extent provided in Section 7.4, any person controlling the Company or the Purchaser, the officers and directors of the Company, and their respective executors, administrators, successors and assigns and subject to the provisions of Section 7.4, no other person shall acquire or have any right under or by virtue of this Agreement. The term “successor and assigns” shall not include any subsequent purchaser, as such purchaser, of the Shares sold to the Purchaser pursuant to this Agreement. Notwithstanding the foregoing, the obligation of the Company to register the Shares and the Warrant Shares granted to the Purchaser und er this Agreement may be assigned in full by the Purchaser in connection with a valid transfer by the Purchaser of its Shares and the Company agrees to promptly file any required prospectus supplement electing such transfer and naming the transferee as a selling stockholder therein, if applicable, enabling the transferee to sell all Shares required by it; provided, however, that (i) such transfer may otherwise be expected in accordance with applicable securities laws; (ii) such Holder gives prior written notice to the Company; and (iii) such transferee agrees to comply with the terms and provisions of this Agreement to the extent applicable, and such transfer is otherwise in compliance with this Agreement.
 
SECTION 18. Further Assurances. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurance as may be reasonably requested by any other party to evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement.
 
 
[Remainder of Page Left Intentionally Blank]
 
 
 
 
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written.
 
OPHTHALMIC IMAGING SYSTEMS
By:
/s/ Gil Allon
 
Name:
Gil Allon
 
Title:
Chief Executive Officer
 
 
 
By:
/s/ Ariel Shenhar
 
Name:
Ariel Shenhar
 
Title:
Chief Financial Officer
 
 
 
 
U. M. ACCELMED, LIMITED PARTNERSHIP
 
by A.M ACCELMED MANAGEMENT G(2009) LTD.,
its General Partner
By:
/s/ Uri Geiger
 
Name:
Uri Geiger
 
Title:
Chairman
 
 
6 Hachoshlim St.
Herzliya Pituach
46120, Israel
P.O.Box 12006
Attention: Dr. Uri Geiger
Facsimile: 972-9-9588594
E-mail: Uri@accelmed.co.il
with a copy to (which shall not constitute a notice):
Shenhav & Co. Law Offices
4 Ha’nechoshet St., Ramat Ha’chayal, Tel Aviv 69710, Israel
Attention: Dr. Ayal Shenhav, Adv.
Facsimile: 972-3-6110788
E-mail: ayal@shenhavlaw.co.il
 
 
Signature Page to Purchase Agreement


 
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List of Exhibits, Appendices and Schedules
 
Exhibits
 
Exhibit A-1 and Exhibit A-2 – Form of Warrants
 
Exhibit B – Legal Opinion
 
Exhibit C-1 and Exhibit C-2 – Officer Certificates
 
Exhibit D – Form of Irrevocable Proxy by MediVision
 
Exhibit E – Form of Irrevocable Proxy by MediVision shareholders
 
Exhibit F-1 and Exhibit F-2 – Secretary Certificates
 
Exhibit G – List of Subsidiaries
 
Exhibit H – Director Indemnification Agreements
 
Exhibit I – Escrow Agreement
 
 
 
Appendices
 
Appendix I – Stock Certificate Questionnaire
 
Appendix II – Certificate of Subsequent Sale
 
 
 
Schedules
 
Schedule 4.3(i) – Outstanding Capitalization
 
Schedule 4.3(ii) – Outstanding Options to Purchase, Preemptive Rights and Other Rights
 
Schedule 4.19 – Company Budget and Strategic Work Plan
 
 
 
 
 

 
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EXHIBIT A-1
 
FORM OF 1st WARRANTS
 
 
 
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.  SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED (A) EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND THE SECURITIES LAWS OF OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE COMPANY HAS RECEIVED AN OPINION O F COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS, OR (B) UNLESS SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.  NOTWITHSTANDING THE FOREGOING, SUCH SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
 
OPHTHALMIC IMAGING SYSTEMS
 
WARRANT
 
Warrant No. [__] Dated:  [_______ __], 2009
 
Ophthalmic Imaging Systems, a California corporation (the “Company”), hereby certifies that, for value received, U.M. Accelmed, Limited Partnership or its registered assigns (the “Holder”), is entitled to purchase from the Company up to a total of 3,211,076 shares of common stock, no par value (the “Common Stock”), of the Company (each such share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal to $1.00 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”), at any time and on or after the date hereof (the “Initial Exercise Date) and through and including the date that is 36 (thirty-six) months from the date hereof (being June [l], 2012) (the “Expiration Date”), subject to the following terms and conditions. This Warrant (this “Warrant”) was issued pursuant to that certain Purchase Agreement, dated as of June [l], 2009, by and among the Company and the Holder (the “Purchase Agreement”).
 
SECTION 1.                         Definitions.  In addition to the terms defined below and elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Purchase Agreement.
 

 
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SECTION 2.             Registration of Warrant.  The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of record of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
 
SECTION 3.             Registration of Transfers.  The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company at its address specified in the Purchase Agreement.  Upon any such registration of transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a “New Warrant”), evidencing the portion of this Warrant so transferred s hall be issued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder.  The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.
 
SECTION 4.             Exercise and Duration of Warrants.
 
4.1.               This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the Initial Exercise Date and including the Expiration Date.  At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value.
 
4.2.               A Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in the form attached hereto (the “Exercise Notice”), appropriately completed and duly signed, and (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice), and the date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an “Exercis e Date.”  The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.
 
SECTION 5.             Delivery of Warrant Shares.
 
5.1.               Upon exercise of this Warrant, the Company shall promptly issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends unless a legend is required to be placed on the certificate pursuant to the Purchase Agreement.  The Holder, or any Person so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the Exercise Date.  The Company shall, upon the written request of the Holder and provided that the Transfer Agent is participating in The Depository Trust Company (“ ;DTC”) Fast Automated Securities Transfer Program, use its
 

 
39

 

commercially reasonable efforts, to credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system (“DWAC”); provided, that the Holder provides the Company the reasonably necessary details to effect the foregoing DWAC delivery.
 
5.2.               This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares.  Upon surrender of this Warrant following one or more partial exercises, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.
 
5.3.               If within three Trading Days after the Company's receipt of an Exercise Notice the Company shall fail to issue and deliver a certificate to the Holder and register the shares of Common Stock issuable pursuant to the Exercise Notice on the Company's share register or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such exercise, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three Trading Days after the Holder's request and in the Holder's discretion, either (i) pay cash to the Holder in an amount equal to the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company's obligation to deliver such certificate (and to issue such shares of Common Stock) or credit such Holder's balance account with DTC shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit such Holder's balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Bi d Price on the date of exercise.  For purposes of this Warrant, “Closing Bid Price” shall mean, for any security as of any date, the last closing bid price for such security on the Trading Market, as reported by the Bloomberg Financial Markets (“Bloomberg”), or, if the Trading Market begins to operate on an extended hours basis and does not designate the closing bid price, then the last bid price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Trading Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the Eligible Market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not app ly, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Closing Bid Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  “Principal Market” means the OTC Bulletin Board® or, at any time that the Common Stock is not quoted on the OTC Bulletin Board, the Eligible Market on which the Common Stock is listed or quoted for trade.  “Eligible Marke t” means the Principal Market,
 

 
40

 

the American Stock Exchange, The New York Stock Exchange, Inc., The NASDAQ Capital Market, The NASDAQ Global Market or The NASDAQ Global Select Market.
 
5.4.               The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant S hares.  Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant  as required pursuant to the terms hereof.
 
SECTION 6.             Charges, Taxes and Expenses.  Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder.  The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
 
SECTION 7.             Replacement of Warrant.  If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable bond or indemnity, if requested.  Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe .  If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.
 
SECTION 8.             Reservation of Warrant Shares.  The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (after giving effect to the adjustments and restrictions of Section 9, if any).  The Company covenants tha t all Warrant Shares so issuable and deliverable shall,
 

 
41

 

upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.  The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Stock may be listed.
 
SECTION 9.             Certain Adjustments.  The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9.
 
9.1.               Stock Dividends and Splits.  If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock (which for the avoidance of doubt, shall not include shares of Common Stock issued by the Company pursuant to this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the numer ator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.
 
9.2.               Fundamental Transactions.  If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected (each a “Fundamental Transaction”), then, as a condition of such Fundamental Transaction, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and r eceive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such Fundamental Transaction not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof (including, without limitations, provision for adjustment of the Exercise Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise hereof. The Company shall not effect any such Fundamental Transaction unless prior to or simultaneously with the consummation thereof the successor co rporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Company (a copy of which shall be
 

 
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delivered to the Holder), the obligation to deliver to the holder of the Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase and the other obligations under this Warrant. The provisions of this paragraph (b) shall similarly apply to successive Fundamental Transactions.
 
9.3.               Subsequent Equity Sales.  If the Company at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise issue any Common Stock or Common Stock Equivalents (as defined below) entitling any person to acquire shares of Common Stock, at an effective price per share less than $1.00 per share of Common Stock (each such issuance, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any tim e, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than $1.00 per share of Common Stock, such issuance shall be deemed to have occurred for less than $1.00 per share of Common Stock on such date of the Dilutive Issuance), then if such Dilutive Issuance shall occur, the Exercise Price shall be reduced to be equal to the product of (A) the Exercise Price in effect immediately prior to such Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the Exercise Price in effect immediately prior to such Dilutive Issuance and the number of outstanding shares of Common Stock immediately prior to such Dilutive Issuance plus (II) the consideration, if any, received by t he Company upon such Dilutive Issuance, by (2) the product derived by multiplying (I) the Exercise Price in effect immediately prior to such Dilutive Issuance by (II) the number of shares of Common Stock outstanding immediately after such Dilutive Issuance.
 
The following formula illustrates the foregoing:
 
NP = OP x (OP x CS + C) / (OP x CSA)
 
WHERE
 
NP = the adjusted Exercise Price (after the Dilutive Issuance)
 
OP = Exercise Price in effect immediately prior to such Dilutive Issuance
 
CS = the number of outstanding shares of Common Stock immediately prior to such Dilutive Issuance
 
C = the consideration, if any, received by the Company upon such Dilutive Issuance
 
CSA = the number of outstanding shares of Common Stock immediately after such Dilutive Issuance
 
Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 9(c) in respect of an Exempt Issuance.  For purposes of this Warrant: “Common
 

 
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Stock Equivalents” shall mean securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, shares of Common Stock, or Preferred Stock; and “Exempt Issuance” shall mean the issuance of: (a) shares of Common Stock or Common Stock Equivalents to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose by the Board of Directors or a majority of the members of a committee established for such purpose by the Board of Directors; (b) securities upon the exercise of this Warrant (and any other securities issued pursuant to the Purchase Agreement) and/or the exercise or conversion of Common Stock Equivalents issued and outstanding on the date of this Warrant (as set forth in Schedule 4.3(i) of the Purchase Agreement); provided, that such securities have not been amended since the date of this Warrant to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities; or (c) securities issued in connection with any stock split, stock dividend, recapitalization or similar transaction by the Company.
 
9.4.               Number of Warrant Shares.  Simultaneously with any adjustment to the Exercise Price pursuant to Section 9(a), the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be adjusted proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares, as applicable, shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.
 
9.5.               Calculations.  All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
 
9.6.               Notice of Adjustments.  Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will promptly deliver a c opy of each such certificate to the Holder and to the Transfer Agent.
 
9.7.               Notice of Corporate Events.  If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms a nd conditions of such transaction, at least ten calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given
 

 
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the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.
 
SECTION 10.           Payment of Exercise Price.  The Holder shall pay the Exercise Price (i) in cash in immediately available funds or (ii) through a “cashless exercise,” in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:
 
 
X = Y [(A-B)/A]
where:
 
 
X = the number of Warrant Shares to be issued to the Holder.
   
 
Y = the number of Warrant Shares with respect to which this Warrant is being exercised.
   
 
A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date.
   
 
B = the Exercise Price.
 
Notwithstanding anything in this Warrant to the contrary, the Holder may only exercise this Warrant through a cashless exercise if no Registration Statement (as defined in the Purchase Agreement) is effective for more than 30 consecutive days that covers the Warrant Shares issuable upon the exercise of this Warrant.
 
For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement.
 
SECTION 11.           Fractional Shares.  The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant.  If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable
 

 
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upon exercise of this Warrant, the number of Warrant Shares to be issued will be rounded up to the nearest whole share.
 
SECTION 12.           Notices.  Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in the Purchase Agreement prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in the Purchase Agreement on a day that is not a Trading Day or later than 6:30 p.m . (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices or communications shall be as set forth in the Purchase Agreement with respect to the Company and, with respect to the Holder, the Holder’s last address as shown on the Warrant Register.
 
SECTION 13.           Warrant Agent.  The Company shall serve as warrant agent under this Warrant.  Upon 10 days’ notice to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or stockholder services business shall be a successor warrant agent under this Warrant without any further act.  Any such successor warrant agen t shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.
 
SECTION 14.           Investment Intent; Limited Transferability.
 
14.1.               If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder furnish to the Company a legal opinion of counsel to the Holder to such effect, the substance of which shall be reasonably acceptable to the Company and (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company representing that they are acquiring such Warrant Shares for investment purposes and that they are an accredite d investor as defined in Rule 501(a) under the Securities Act.  The Holder understands that it must bear the economic risk of its investment in this Warrant and any securities obtainable upon exercise of this Warrant for an indefinite period of time, as this Warrant and such securities have not been registered under Federal or state securities or blue sky laws.
 
14.2.               The Holder represents that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of this Warrant or the
 

 
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exercise of the Warrant and the finance operations and business of the Company; and (ii) the opportunity to request such additional information which the Company possesses or can acquire without unreasonable effort or expense.  Nothing contained in this Section 14(b) shall alter, amend or change the Holder’s reliance on the representations, covenants or warranties contained herein.
 
14.3.               The Holder represents that it is an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act and that it is acquiring the Warrants for its own account and not with a present view to, or for sale in connection with, any distribution thereof in violation of the registration requirements of the Securities Act, without prejudice, however, to such Holder’s right, subject to the provisions of this Warrant, at all times to sell or otherwise dispose of all or any part of the Warrant and Warrant Shares.
 
14.4.               The Holder represents that it, either by reason of such Holder’s business or financial experience or the business or financial experience of its professional advisors (who are unaffiliated with and who are not compensated by the Company or any affiliate, finder or selling agent of the Company, directly or indirectly), has such sophistication, knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment in the Company and the capacity to protect such Holder’s interests in connection with the transactions contemplated by this Warrant and the Purchase Agreement.
 
14.5.               The Holder represents that it has the ability to bear the economic risks of its investment for an indefinite period of time and could afford a complete loss of its investment.
 
14.6.               The Holder agrees and acknowledges that the representations made by the Holder in this Section 14 are conditions to the exercise of this Warrant.
 
SECTION 15.           Miscellaneous.
 
15.1.               Subject to the restrictions on transfer set forth on the first page hereof, this Warrant may be assigned by the Holder.  This Warrant may not be assigned by the Company except to a successor in the event of a Fundamental Transaction (subject to the provisions of Section 9(b) hereof).  This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns.  Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant.  This Warrant may be amended only in writing signed by the Company and the Holder and t heir successors and assigns.
 
15.2.               The Company will not, by amendment of its governing documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment.  Without limiting
 

 
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the generality of the foregoing, the Company (i) will not increase the par value of any Warrant Shares above the amount payable therefor on such exercise, (ii) will take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares on the exercise of this Warrant, and (iii) will not close its stockholder books or records in any manner which interferes with the timely exercise of this Warrant.
 
15.3.               All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the laws of the State of California.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the city of Sacramento, State of California, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the transaction documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any suc h court, or that such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under Section 12 hereof and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  The Company hereby waives all rights to a trial by jury.
 
15.4.               The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.
 
15.5.               In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.
 
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS
 

 
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.
 
 
OPHTHALMIC IMAGING SYSTEMS
 
 
By:    ____________________________                                                  
       Name:
       Title:

 
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FORM OF EXERCISE NOTICE
 
(To be executed by the Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
 
To Ophthalmic Imaging Systems:
 
The undersigned is the Holder of Warrant No. _______ (the “Warrant”) issued by Ophthalmic Imaging Systems, a California corporation (the “Company”).  As a condition to this exercise, the undersigned Holder hereby represents and warrants to the Company that the representations and warranties set forth in Section 14 of the Warrant are true and correct as of the date hereof as if they had been made on such date with respect to the Warrant Shares.  The undersigned Holder further acknowledges that the sale, transfer, assignment or hypothecation of the Warrant Shares to be issued upon exercise of t his Warrant is subject to the terms and conditions contained in Section 14 of this Warrant.  Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.
 
(1)      The Warrant is currently exercisable to purchase a total of ______________ Warrant Shares.
 
(2)      The undersigned Holder hereby exercises its right to purchase _________________ Warrant Shares pursuant to the Warrant.
 
(3)      The Holder intends that payment of the Exercise Price shall be made as (check one):
 
____           “Cash Exercise” under Section 10
 
____           “Cashless Exercise” under Section 10
 
(4)      If the holder has elected a Cash Exercise, the holder shall pay the sum of $____________ to the Company in accordance with the terms of the Warrant.
 
(5)      Pursuant to this exercise, the Company shall deliver to the holder _______________ Warrant Shares in accordance with the terms of the Warrant.
 
(6)      Following this exercise, the Warrant shall be exercisable to purchase a total of ______________ Warrant Shares.
 
     
     
Dated:   ______________, ___________
 
Name of Holder:
     

 
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(Print)      ________________________________
     
   
By:           ________________________________
   
Name:      ________________________________
   
Title:        ________________________________
     
   
(Signature must conform in all respects to name of holder as specified on the face of the Warrant)
     
    __________________________________ 
   
Taxpayer Identification Number
ACKNOWLEDGED AND AGREED TO this ___ day of ___________, 20__
 
OPHTHALMIC IMAGING SYSTEMS
 
 
By:
Name:   ______________________
Title:     ______________________
   
 
 
 
 

 
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FORM OF ASSIGNMENT
 
[To be completed and signed only upon transfer of Warrant]
 
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by Warrant to purchase ____________ shares of Common Stock of Ophthalmic Imaging Systems to which the Warrant relates and appoints ________________ attorney to transfer said right on the books of Ophthalmic Imaging Systems with full power of substitution in the premises.  As a condition to this assignment, the Holder acknowledges that its assignee must deliver a written instrument to the Company that the representations and warranties of Section 14 of the Warrant are true and correct as of the date hereof as if they had been made by such assignee on such date with respect to the Warrants.
 
   
   
Dated:                          ,
 
   
                    ______________________________________
 
(Signature must conform in all respects to name of holder as specified on the face of the Warrant)
   
                   ______________________________________
 
Address of Transferee
   
                    ______________________________________
   
                    ______________________________________
   
   
                   ______________________________________
 
                 Taxpayer Identification Number
In the presence of:
 
   
   
   
 

 
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EXHIBIT A-2
 
FORM OF 2nd WARRANTS
 
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.  SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED (A) EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND THE SECURITIES LAWS OF OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS THE COMPANY HAS RECEIVED AN OPINION O F COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH OTHER APPLICABLE LAWS, OR (B) UNLESS SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.  NOTWITHSTANDING THE FOREGOING, SUCH SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
 
OPHTHALMIC IMAGING SYSTEMS
 
WARRANT
 
Warrant No. [__] Dated:  [_______ __], 2010
 
Ophthalmic Imaging Systems, a California corporation (the “Company”), hereby certifies that, for value received, U.M. Accelmed, Limited Partnership or its registered assigns (the “Holder”), is entitled to purchase from the Company up to a total of 1,193,696 shares of common stock, no par value (the “Common Stock”), of the Company (each such share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal to $1.00 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”), at any time and on or after the Initial Exercise Date (as defined below) and through and including the date that is 36 (thirty-six) months from the date hereof (being June [l], 2012) (the R 20;Expiration Date”), subject to the following terms and conditions. This Warrant (this “Warrant”) was issued pursuant to that certain Purchase Agreement, dated as of June [l], 2009, by and among the Company and the Holder (the “Purchase Agreement”).
 
SECTION 16.           Definitions.  In addition to the terms defined below and elsewhere in this Warrant, capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Purchase Agreement.
 
Initial Exercise Date” shall mean the date that any of the following occurs: (i) the date that the Company consummates a merger with and into another corporation or the date the Company consummates a sale, transfer or other disposition of all or substantially all of its assets,

 
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(ii) the date that the average closing price per share of the Company’s Common Stock on the OTC Bulletin Board (or wherever the Common Stock is listed or quoted for trading on the date in question) for 10 consecutive Trading Days exceeds $2.00; (iii) the date the Company’s Board  of Directors authorizes a transaction pursuant to which the Company will raise at least $1,500,000 in capital raising transaction with persons who are shareholders of MediVision Medical Imaging Ltd., the parent entity of the Company, on the date hereof; and (iv) March __, 2012.
 
SECTION 17.           Registration of Warrant.  The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of record of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
 
SECTION 18.           Registration of Transfers.  The Company shall register the transfer of any portion of this Warrant in the Warrant Register, upon surrender of this Warrant, with the Form of Assignment attached hereto duly completed and signed, to the Company at its address specified in the Purchase Agreement.  Upon any such registration of transfer, a new warrant to purchase Common Stock, in substantially the form of this Warrant (any such new warrant, a “New Warrant”), evidencing the portion of this Warrant so transferred shall be iss ued to the transferee and a New Warrant evidencing the remaining portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder.  The acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Warrant.
 
SECTION 19.           Exercise and Duration of Warrants.
 
19.1.               This Warrant shall be exercisable by the registered Holder at any time and from time to time on or after the Initial Exercise Date and including the Expiration Date.  At 6:30 P.M., New York City time on the Expiration Date, the portion of this Warrant not exercised prior thereto shall be and become void and of no value.
 
19.2.               A Holder may exercise this Warrant by delivering to the Company (i) an exercise notice, in the form attached hereto (the “Exercise Notice”), appropriately completed and duly signed, and (ii) payment of the Exercise Price for the number of Warrant Shares as to which this Warrant is being exercised (which may take the form of a “cashless exercise” if so indicated in the Exercise Notice), and the date such items are delivered to the Company (as determined in accordance with the notice provisions hereof) is an “Exerci se Date.”  The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice shall have the same effect as cancellation of the original Warrant and issuance of a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.
 

 
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SECTION 20.           Delivery of Warrant Shares.
 
20.1.               Upon exercise of this Warrant, the Company shall promptly issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends unless a legend is required to be placed on the certificate pursuant to the Purchase Agreement.  The Holder, or any Person so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the Exercise Date.  The Company shall, upon the written request of the Holder and provided that the Transfer Agent is participating in The Depository Trust Company (̶ 0;DTC”) Fast Automated Securities Transfer Program, use its commercially reasonable efforts, to credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system (“DWAC”); provided, that the Holder provides the Company the reasonably necessary details to effect the foregoing DWAC delivery.
 
20.2.               This Warrant is exercisable, either in its entirety or, from time to time, for a portion of the number of Warrant Shares.  Upon surrender of this Warrant following one or more partial exercises, the Company shall issue or cause to be issued, at its expense, a New Warrant evidencing the right to purchase the remaining number of Warrant Shares.
 
20.3.               If within three Trading Days after the Company's receipt of an Exercise Notice the Company shall fail to issue and deliver a certificate to the Holder and register the shares of Common Stock issuable pursuant to the Exercise Notice on the Company's share register or credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such exercise, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three Trading Days after the Holder's request and in the Holder's discretion, either (i) pay cash to the Holder in an amount equal to the Holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company's obligation to deliver such certificate (and to issue such shares of Common Stock) or credit such Holder's balance account with DTC shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit such Holder's balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing B id Price on the date of exercise.  For purposes of this Warrant, “Closing Bid Price” shall mean, for any security as of any date, the last closing bid price for such security on the Trading Market, as reported by the Bloomberg Financial Markets (“Bloomberg”), or, if the Trading Market begins to operate on an extended hours basis and does not designate the closing bid price, then the last bid price of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg, or, if the Trading Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the Eligible Market where such security is listed or traded as reported by Bloomberg, or if the foregoing
 

 
55

 

do not apply, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Closing Bid Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  “Principal Market” means the OTC Bulletin Board® or, at any time that the Common Stock is not quoted on the OTC Bulletin Board, the Eligible Market o n which the Common Stock is listed or quoted for trade.  “Eligible Market” means the Principal Market, the American Stock Exchange, The New York Stock Exchange, Inc., The NASDAQ Capital Market, The NASDAQ Global Market or The NASDAQ Global Select Market.
 
20.4.               The Company's obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Warrant Shares.  Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant  as required pursuant to the terms hereof.
 
SECTION 21.           Charges, Taxes and Expenses.  Issuance and delivery of certificates for shares of Common Stock upon exercise of this Warrant shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificates, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Warrant Shares or Warrants in a name other than that of the Holder.  The Holder shal l be responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
 
SECTION 22.           Replacement of Warrant.  If this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable bond or indemnity, if requested.  Applicants for a New Warrant under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe.  0;If a New Warrant is requested as a result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the Company as a condition precedent to the Company’s obligation to issue the New Warrant.
 

 
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SECTION 23.           Reservation of Warrant Shares.  The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other contingent purchase rights of persons other than the Holder (after giving effect to the adjustments and restrictions of Section 9, if any).  The Company covenants that all Warra nt Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.  The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Stock may be listed.
 
SECTION 24.           Certain Adjustments.  The Exercise Price and number of Warrant Shares issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in this Section 9.
 
24.1.               Stock Dividends and Splits.  If the Company, at any time while this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock (which for the avoidance of doubt, shall not include shares of Common Stock issued by the Company pursuant to this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Exercise Price shall be multiplied by a fraction of which the nume rator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination.
 
24.2.               Fundamental Transactions.  If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected (each a “Fundamental Transaction”), then, as a condition of such Fundamental Transaction, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such Fundamental Transaction not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof
 

 
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(including, without limitations, provision for adjustment of the Exercise Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise hereof. The Company shall not effect any such Fundamental Transaction unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume, by written instrument executed and delivered to the Company (a copy of which shall be delivered to the Holder), the obligation to deliver to the holder of the Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase and the other obligations under this Warrant. The provisions of this paragraph (b) shall similarly apply to successive Fundamental Transactions.
 
24.3.               Subsequent Equity Sales.  If the Company at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise issue any Common Stock or Common Stock Equivalents (as defined below) entitling any person to acquire shares of Common Stock, at an effective price per share less than $1.00 per share of Common Stock (each such issuance, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any ti me, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than $1.00 per share of Common Stock, such issuance shall be deemed to have occurred for less than $1.00 per share of Common Stock on such date of the Dilutive Issuance), then if such Dilutive Issuance shall occur, the Exercise Price shall be reduced to be equal to the product of (A) the Exercise Price in effect immediately prior to such Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the Exercise Price in effect immediately prior to such Dilutive Issuance and the number of outstanding shares of Common Stock immediately prior to such Dilutive Issuance plus (II) the consideration, if any, received by the Company upon such Dilutive Issuance, by (2) the product derived by multiplying (I) the Exercise Price in effect immediately prior to such Dilutive Issuance by (II) the number of shares of Common Stock outstanding immediately after such Dilutive Issuance.
 
The following formula illustrates the foregoing:
 
NP = OP x (OP x CS + C) / (OP x CSA)
 
WHERE
 
NP = the adjusted Exercise Price (after the Dilutive Issuance)
 
OP = Exercise Price in effect immediately prior to such Dilutive Issuance
 
CS = the number of outstanding shares of Common Stock immediately prior to such Dilutive Issuance
 

 
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C = the consideration, if any, received by the Company upon such Dilutive Issuance
 
CSA = the number of outstanding shares of Common Stock immediately after such Dilutive Issuance
 
Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 9(c) in respect of an Exempt Issuance.  For purposes of this Warrant: “Common Stock Equivalents” shall mean securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, shares of Common Stock, or Preferred Stock; and “Exempt Issuance” shall mean the issuance of: (a) shares of Common Stock or Common Stock Equivalents to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose by the Board of Directors or a ma jority of the members of a committee established for such purpose by the Board of Directors; (b) securities upon the exercise of this Warrant (and any other securities issued pursuant to the Purchase Agreement) and/or the exercise or conversion of Common Stock Equivalents issued and outstanding on the date of this Warrant (as set forth in Schedule 4.3(i) of the Purchase Agreement); provided, that such securities have not been amended since the date of this Warrant to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities; or (c) securities issued in connection with any stock split, stock dividend, recapitalization or similar transaction by the Company.
 
24.4.               Number of Warrant Shares.  Simultaneously with any adjustment to the Exercise Price pursuant to Section 9(a), the number of Warrant Shares that may be purchased upon exercise of this Warrant shall be adjusted proportionately, so that after such adjustment the aggregate Exercise Price payable hereunder for the increased or decreased number of Warrant Shares, as applicable, shall be the same as the aggregate Exercise Price in effect immediately prior to such adjustment.
 
24.5.               Calculations.  All calculations under this Section 9 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable.  The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.
 
24.6.               Notice of Adjustments.  Upon the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly compute such adjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment, including a statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other securities issuable upon exercise of this Warrant (as applicable), describing the transactions giving rise to such adjustments and showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder and to the Transfer Agent.
 
24.7.               Notice of Corporate Events.  If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe
 

 
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for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction, at least ten calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to exercise this Warrant prior to such time so as to participate in or vote with respect to such tran saction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice.
 
SECTION 25.           Payment of Exercise Price.  The Holder shall pay the Exercise Price (i) in cash in immediately available funds or (ii) through a “cashless exercise,” in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows:
 
 
X = Y [(A-B)/A]
where:
 
 
X = the number of Warrant Shares to be issued to the Holder.
   
 
Y = the number of Warrant Shares with respect to which this Warrant is being exercised.
   
 
A = the average of the Closing Prices for the five Trading Days immediately prior to (but not including) the Exercise Date.
   
 
B = the Exercise Price.
 
Notwithstanding anything in this Warrant to the contrary, the Holder may only exercise this Warrant through a cashless exercise if no Registration Statement (as defined in the Purchase Agreement) is effective for more than 30 consecutive days that covers the Warrant Shares issuable upon the exercise of this Warrant.
 
For purposes of Rule 144 promulgated under the Securities Act, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed
 

 
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to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Purchase Agreement.
 
SECTION 26.           Fractional Shares.  The Company shall not be required to issue or cause to be issued fractional Warrant Shares on the exercise of this Warrant.  If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon exercise of this Warrant, the number of Warrant Shares to be issued will be rounded up to the nearest whole share.
 
SECTION 27.           Notices.  Any and all notices or other communications or deliveries hereunder (including without limitation any Exercise Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in the Purchase Agreement prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in the Purchase Agreement on a day that is not a Trading Day or later than 6:30 p.m . (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices or communications shall be as set forth in the Purchase Agreement with respect to the Company and, with respect to the Holder, the Holder’s last address as shown on the Warrant Register.
 
SECTION 28.           Warrant Agent.  The Company shall serve as warrant agent under this Warrant.  Upon 10 days’ notice to the Holder, the Company may appoint a new warrant agent.  Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or stockholder services business shall be a successor warrant agent under this Warrant without any further act.  Any such successor warrant agen t shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the Warrant Register.
 
SECTION 29.           Investment Intent; Limited Transferability.
 
29.1.               If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder furnish to the Company a legal opinion of counsel to the Holder to such effect, the substance of which shall be reasonably acceptable to the Company and (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company representing that they are acquiring such Warrant Shares for investment purposes and that they are an accredite d investor as defined in Rule 501(a) under the Securities Act.  The Holder understands that it must bear the economic risk of its
 

 
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investment in this Warrant and any securities obtainable upon exercise of this Warrant for an indefinite period of time, as this Warrant and such securities have not been registered under Federal or state securities or blue sky laws.
 
29.2.               The Holder represents that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of this Warrant or the exercise of the Warrant and the finance operations and business of the Company; and (ii) the opportunity to request such additional information which the Company possesses or can acquire without unreasonable effort or expense.  Nothing contained in this Section 14(b) shall alter, amend or change the Holder’s reliance on the representations, covenants or warranties contained herein.
 
29.3.               The Holder represents that it is an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act and that it is acquiring the Warrants for its own account and not with a present view to, or for sale in connection with, any distribution thereof in violation of the registration requirements of the Securities Act, without prejudice, however, to such Holder’s right, subject to the provisions of this Warrant, at all times to sell or otherwise dispose of all or any part of the Warrant and Warrant Shares.
 
29.4.               The Holder represents that it, either by reason of such Holder’s business or financial experience or the business or financial experience of its professional advisors (who are unaffiliated with and who are not compensated by the Company or any affiliate, finder or selling agent of the Company, directly or indirectly), has such sophistication, knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment in the Company and the capacity to protect such Holder’s interests in connection with the transactions contemplated by this Warrant and the Purchase Agreement.
 
29.5.               The Holder represents that it has the ability to bear the economic risks of its investment for an indefinite period of time and could afford a complete loss of its investment.
 
29.6.               The Holder agrees and acknowledges that the representations made by the Holder in this Section 14 are conditions to the exercise of this Warrant.
 
SECTION 30.           Miscellaneous.
 
30.1.               Subject to the restrictions on transfer set forth on the first page hereof, this Warrant may be assigned by the Holder.  This Warrant may not be assigned by the Company except to a successor in the event of a Fundamental Transaction (subject to the provisions of Section 9(b) hereof).  This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns.  Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and the Holder any legal or equitable right, remedy or cause of action under this Warrant.  This Warrant may be amended only in writing signed by the Company and the Holder and t heir successors and assigns.
 

 
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30.2.               The Company will not, by amendment of its governing documents or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment.  Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any Warrant Shares above the amount payable therefor on such exercise, (ii) will take all such action as may be reasonably ne cessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares on the exercise of this Warrant, and (iii) will not close its stockholder books or records in any manner which interferes with the timely exercise of this Warrant.
 
30.3.               All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the laws of the State of California.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the city of Sacramento, State of California, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the transaction documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any suc h court, or that such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under Section 12 hereof and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  The Company hereby waives all rights to a trial by jury.
 
30.4.               The headings herein are for convenience only, do not constitute a part of this Warrant and shall not be deemed to limit or affect any of the provisions hereof.
 
30.5.               In case any one or more of the provisions of this Warrant shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Warrant.
 
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS
 

 
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized officer as of the date first indicated above.
 
 
OPHTHALMIC IMAGING SYSTEMS
 
 
By: ___________________________                                                  
       Name:
       Title:

 
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FORM OF EXERCISE NOTICE
 
(To be executed by the Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
 
To Ophthalmic Imaging Systems:
 
The undersigned is the Holder of Warrant No. _______ (the “Warrant”) issued by Ophthalmic Imaging Systems, a California corporation (the “Company”).  As a condition to this exercise, the undersigned Holder hereby represents and warrants to the Company that the representations and warranties set forth in Section 14 of the Warrant are true and correct as of the date hereof as if they had been made on such date with respect to the Warrant Shares.  The undersigned Holder further acknowledges that the sale, transfer, assignment or hypothecation of the Warrant Shares to be issued upon exercise of t his Warrant is subject to the terms and conditions contained in Section 14 of this Warrant.  Capitalized terms used herein and not otherwise defined have the respective meanings set forth in the Warrant.
 
(1)      The Warrant is currently exercisable to purchase a total of ______________ Warrant Shares.
 
(2)      The undersigned Holder hereby exercises its right to purchase _________________ Warrant Shares pursuant to the Warrant.
 
(3)      The Holder intends that payment of the Exercise Price shall be made as (check one):
 
____           “Cash Exercise” under Section 10
 
____           “Cashless Exercise” under Section 10
 
(4)      If the holder has elected a Cash Exercise, the holder shall pay the sum of $____________ to the Company in accordance with the terms of the Warrant.
 
(5)      Pursuant to this exercise, the Company shall deliver to the holder _______________ Warrant Shares in accordance with the terms of the Warrant.
 
(6)      Following this exercise, the Warrant shall be exercisable to purchase a total of ______________ Warrant Shares.
 
     
     
Dated:   ______________, ___________
 
Name of Holder:
     
 
 

 
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(Print)      ________________________________
     
   
By:           ________________________________
   
Name:      ________________________________
   
Title:        ________________________________
     
   
(Signature must conform in all respects to name of holder as specified on the face of the Warrant)
     
    __________________________________ 
   
Taxpayer Identification Number
ACKNOWLEDGED AND AGREED TO this ___ day of ___________, 20__
 
OPHTHALMIC IMAGING SYSTEMS
 
 
By:
Name:   ______________________
Title:     ______________________
   
 
 

 
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++
FORM OF ASSIGNMENT
 
[To be completed and signed only upon transfer of Warrant]
 
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ________________________________ the right represented by Warrant to purchase ____________ shares of Common Stock of Ophthalmic Imaging Systems to which the Warrant relates and appoints ________________ attorney to transfer said right on the books of Ophthalmic Imaging Systems with full power of substitution in the premises.  As a condition to this assignment, the Holder acknowledges that its assignee must deliver a written instrument to the Company that the representations and warranties of Section 14 of the Warrant are true and correct as of the date hereof as if they had been made by such assignee on such date with respect to the Warrants.
 
 
   
   
Dated:                          ,
 
   
                    ______________________________________
 
(Signature must conform in all respects to name of holder as specified on the face of the Warrant)
   
                   ______________________________________
 
Address of Transferee
   
                    ______________________________________
   
                    ______________________________________
   
   
                   ______________________________________
 
                 Taxpayer Identification Number
In the presence of:
 
   
   
   
 
 
 
 

 
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EXHIBIT B
 
FORM OF LEGAL OPINION
 
1.           The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California, with authority to own, lease and operate its properties and conduct its business as described in the SEC Reports. The Company is duly qualified to transact business as a foreign corporation and to own, lease and operate its properties in such states as required, except for such jurisdictions where the failure to so qualify would not, individually or in the aggregate, have a Material Adverse Effect.
 
2.           The Transaction Documents have been duly authorized, executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company.
 
3.           The Company has the corporate power and authority to enter into and perform its obligations under the Transaction Documents, including, without limitation, to issue, sell and deliver the Securities as contemplated by the Transaction Documents.
 
4.           The Shares and Warrants have been duly authorized and, when paid for as provided in the Purchase Agreement, will be validly issued, fully paid and nonassessable free of any preemptive or similar rights contained in (i) the Articles of Incorporation or Bylaws of the Company or (ii) in any agreement filed as an exhibit to the SEC Reports.  The Warrant Shares have been duly authorized, and when issued and delivered in accordance with the terms of the respective Warrants, will be validly issued, fully paid, non-assessable and free of any preemptive or similar rights contained in (a) the Articles of Incorporation or Bylaws of the Company or (b) in any agreement filed as an exhibit to the SEC Reports.
 
5.           The Company has an authorized capitalization as set forth in Section ___of the Purchase Agreement.
 
6.           The Common Stock of the Company, including the Shares, conform in all material respects to the description thereof contained under the Company’s Form 8-A filed with the Commission on May 13, 1993.
 
7.           The execution and delivery of the Purchase Agreement by the Company and the performance by the Company of its obligations thereunder: (i) will not result in any violation of the provisions of the Articles of Incorporation or By-laws of the Company; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement filed as an exhibit to the SEC Reports, or (iii) any federal, New York or California law, applicable to the Company and applicable for transactions of the type contemplated by the Purchase Agreement.
 

 
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8.           The execution and delivery of the Purchase Agreement by the Company and the performance by the Company of its obligations thereunder will not require any authorization, approval or consent of any court or governmental authority or agency or filing with any federal, New York or California government or regulatory commission, board, authority or agency, or with any self-regulatory organization or other non-governmental regulatory authority, or approval of the stockholders of the Company, except (i) the filing of the Registration Statements pursuant to Section 7 of the Purchase Agreement, (ii) the filing of a Current Report on Form 8-K with the Commission, (iii) the filing of a Form D in accordance with Regulation D under the Securities Act and (iv) as required by state securities laws.
 
9.           Assuming the continued accuracy and completeness of the representations, warranties and covenants of the Company and the Purchaser contained in the Purchase Agreement at the time of issuance of the relevant securities, the Company’s offer, sale and issuance of the Shares, Warrants and Warrant Shares in the manner contemplated by the Transaction Documents, will be exempt from the registration requirements of the Securities Act.
 
10.           The Company is not, and, immediately after giving effect to the offering and sale of the Shares, will not be an “investment company” as such term is defined in the Investment Company Act.
 
11.           To our knowledge, there are no rights to have securities of the Company registered under the Registration Statement contemplated by the Purchase Agreement which have not been waived by the holders of such rights or which have not expired by reason of lapse of time or otherwise.
 
 
 

 
69

 

EXHIBIT C-1
 
FORM OF OFFICER CERTIFICATE
 
 
 
OPHTHALMIC IMAGING SYSTEMS
 
OFFICER’S CERTIFICATE
 
The undersigned, Chief Executive Officer and Chief Financial Officer of Ophthalmic Imaging Systems, a California corporation (the “Company”), pursuant to Section 3.1(c)(ii) of the Purchase Agreement, dated as of June ___, 2009 (the "Purchase Agreement"), by and between the Company and U.M. AccelMed, Limited Partnership. (the “Purchaser”), hereby represents , warrants and certifies to the Purchaser as follows (capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Purchase Agreement):
 
 
1.           Each of the representations and warranties of the Company set forth in the Purchase Agreement were true and correct in all respects when made and are true and correct in all respects as of the date hereof as though made at that time; and
 
2.           The Company has complied in all respects with all the agreements and satisfied in all respects all the conditions in the Purchase Agreement on its part to be performed or satisfied on or prior to the Closing Date
 
 
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ___ day of June, 2009.
 
 
 
 
 
Gil Allon
 
Chief Executive Officer
 
 
 
 
 
Ariel Shenhar
 
Chief Financial Officer

 
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EXHIBIT C-2
 
FORM OF OFFICER CERTIFICATE
 
 
 
OPHTHALMIC IMAGING SYSTEMS
 
OFFICER’S CERTIFICATE
 
 
The undersigned, Chief Executive Officer and Chief Financial Officer of Ophthalmic Imaging Systems, a California corporation (the “Company”), pursuant to Section 3.2(c)(iii) of the Purchase Agreement, dated as o ___, 2010 (the "Purchase Agreement"), by and between the Company and U.M. AccelMed, Limited Partnership (the “Purchaser”), hereby represents, warrants and certifies to the Purchaser as follows (capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Purchase Agr eement):
 
 
1.           Each of the representations and warranties of the Company set forth in the Purchase Agreement are true and correct in all material respects (except for those representations and warranties that are qualified by Material Adverse Effect, which shall be true and correct in all respects) as of the Deferred Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specific date).
 
2.           The Company has complied in all respects with all the agreements and satisfied in all respects all the conditions in the Purchase Agreement on its part to be performed or satisfied on or prior to the Deferred Closing Date.
 
 
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ___ day of __________, 20___.
 
 
 
____________________________________
Gil Allon
 
Chief Executive Officer
 
 
 
 
 
____________________________________
Ariel Shenhar
 
Chief Financial Officer
 
 
 
 

 
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EXHIBIT D
 
FORM OF MV PROXY
 
IRREVOCABLE PROXY
 
MediVision Medical Imaging Ltd. (the “Stockholder”), an Israeli corporation and a stockholder of Ophthalmic Imaging Systems, a California corporation (the “Company”), hereby irrevocably (to the fullest extent permitted by law) appoints and constitutes Gil Allon (the “Proxy Holder”), a resident of the State of California, as a true and lawful at torney-in-fact and proxy of the Stockholder, with full power and authority to act, including full power of substitution, in the name, place and stead of the Stockholder, and on behalf and for the use and benefit of the Stockholder, to the full extent of the Stockholder’s rights with respect to __________ shares of the Company’s common stock, no par value (the “Common Stock”), owned by the Stockholder as of the date of this proxy and with respect to any and all shares of the Common Stock hereafter and prior to the 2010 Annual Meeting (as defined below) purchased by the Stockholder (the “Shares”).
 
Upon the execution hereof, all prior proxies given by the Stockholder with respect to any of the Shares are hereby revoked, and no subsequent proxies will be given with respect to any of the Shares so long as this proxy is in full force and effect.
 
At the 2010 annual meeting of the stockholders of the Company (the “2010 Annual Meeting”), to be held at 221 Lathrop Way, Suite I, Sacramento, California 95815, or at any other location selected by the Company’s Board of Directors, the Proxy Holder has the full power and authority to and is hereby instructed to act, in the name, place and stead of the Stockholder, and on behalf and for the use and benefit of the Stockholder, to vote the Shares FOR the approval of an amendment to the Company’s restated articles of incorporation providing for an increase in th e amount of authorized Common Stock equal to 100,000,000 shares (the “Proposal”).
 
This proxy shall terminate immediately following the later of (x) the conclusion of the meeting at which the Company acts with respect to the Proposal and in which the Proposal has been approved by the Company’s stockholders or (y) any adjournments thereof.
 
This proxy shall be binding upon the heirs, estate, executors, personal representatives and assigns of the Stockholder (including any transferee of any of the Shares).  No Shares shall be transferred, assigned or pledged by the Stockholder prior to the termination of this Proxy unless such transferee or assignee has executed and delivered to the U.M. Accelmed, Limited Partnership (the “Purchaser”) a duly executed proxy in the form and substance set forth herein with respect to the purchased Shares.
 
The Stockholder, the Company’s largest stockholder, hereby affirms that this power of attorney is given in consideration for, among other things, the Purchaser’s execution and delivery of the Purchase Agreement.  THIS PROXY IS COUPLED WITH AN INTEREST AND IS IRREVOCABLE.
 

 
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This proxy shall be interpreted in accordance with the internal laws of the State of California, without giving effect to principles or conflicts of law.
 
 
  MEDIVISION MEDICAL IMAGING LTD.  
       
DATED: June ___, 2009
By:
   
    Name   
    Title   
       
 
 

 
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EXHIBIT E
 
Exhibit E –Form of Irrevocable Proxy by MediVision shareholders



IRREVOCABLE PROXY

The Undersigned does hereby irrevocably make, constitute and appoint any one of Messrs, Yigal Berman and/or Noam Allon, (in any such case, the “Proxyholder”), as the attorney and proxy of the Undersigned, with full power of substitution, including to receive notice on behalf of the Undersigned, to attend on behalf of the Undersigned, represent and vote, on his sole discretion, and/or to execute, on behalf of the Undersigned, any written resolution of MediVision Medical Imaging Ltd’s (the “Company”) shareholders, for all shares of the Company that the Undersigned holds of record, as indicted in the Company’s shareholders convened in order to approve the signing of the Asset Purchase Agreement between the Company and Ophthalmic Imaging Systems (the “APA”) and all schedules of an ancillary doc uments to the APA (the “Meeting”).

Proxyholder shall cast the votes which the Shares are entitled in favor of approval of the abovementioned APA and schedules.

The Undersigned agrees that this Irrevocable Proxy is made irrevocable by him and coupled with an interest by the Proxyholder in the Shares, all in accordance with the provisions of Israeli law.

The receipt of notice, attendance, vote and signature of the Proxy shall be deemed, for all intent and purpose, receipt of notice by, attendance of, vote and signature by the Undersigned, and shall have full force and effect as if received, attended, voted and executed by the Undersigned.

This Irrevocable Proxy shall automatically terminate in its entirety and be of no further force or effect immediately following the conclusion of the Meeting.

The Undersigned executes this Irrevocable Proxy this ____ day of June 2009.




Print Name _______________________

 
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EXHIBIT F-1
 
FORM OF SECRETARY CERTIFICATE
 
 
 
OPHTHALMIC IMAGING SYSTEMS
 
SECRETARY’S CERTIFICATE
 
The undersigned hereby certifies that he is the duly elected, qualified and acting Secretary of OPHTHALMIC IMAGING SYSTEMS, a California corporation (the “Company”), and that as such he is authorized to execute and deliver this certificate in the name and on behalf of the Company and in connection with the Purchase Agreement, dated as of___, 2009 (the “Purchase Agreement”), by and between the Company and ACCELMED L.P., and further certifies in his official capacity, in the name and on behalf of the Company, the items set forth below.  Capitalized terms used but not otherwise defined herein shall hav e the meaning set forth in the Purchase Agreement.
 
(b)
Attached hereto as Exhibit A is a true, correct and complete copy of the resolutions duly adopted by the Board of Directors of the Company at a meeting of the Board of Directors held on May ___, 2010.  Such resolutions have not in any way been amended, modified, revoked or rescinded, have been in full force and effect since their adoption to and including the date hereof and are now in full force and effect.
 
(c)
Attached hereto as Exhibit B is a true, correct and complete copy of the Restated Articles of Incorporation of the Company, together with any and all amendments thereto, and no action has been taken to further amend, modify or repeal such Restated Articles of Incorporation, the same being in full force and effect in the attached form as of the date hereof.
 
(d)
Attached hereto as Exhibit C is a true, correct and complete copy of the Amended and Restated Bylaws of the Company and any and all amendments thereto, and no action has been taken to further amend, modify or repeal such Amended and Restated Bylaws, the same being in full force and effect in the attached form as of the date hereof.
 
(e)
The following persons are the duly elected officers of the Company occupying the offices set forth opposite their respective names, each such officer is authorized to execute on behalf of the Company the Transaction Documents and any other documents required to be executed or delivered in connection therewith, and the signature set forth opposite each such officer’s respective name is his true signature.
 
Name
Office
Signature
 
Ariel Shenhar
 
Chief Financial Officer and Secretary
 
 
________________________
 
Gil Allon
 
Chief Executive Officer
 
________________________
 
 

 
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IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ___ day of May 2010.
 
 
 
 
 
_______________________________
Name: Ariel Shenhar
 
Title:  Secretary
 
 
I, Gil Allon, in my capacity as Chief Executive Officer of Ophthalmic Imaging Systems, a California corporation (the “Company”), hereby certify that Ariel Shenhar is the duly elected, qualified and acting Secretary of the Company and that the signature appearing above is his genuine signature.
 
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ___ day of May 2010.
 
 
 
_______________________________
Name: Gil Allon
 
Title:  Chief Executive Officer
 
 

 
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EXHIBIT F-2
 
FORM OF SECRETARY CERTIFICATE
 
 
 
OPHTHALMIC IMAGING SYSTEMS
 
SECRETARY’S CERTIFICATE
 
The undersigned hereby certifies that he is the duly elected, qualified and acting Secretary of OPHTHALMIC IMAGING SYSTEMS, a California corporation (the “Company”), and that as such he is authorized to execute and deliver this certificate in the name and on behalf of the Company and in connection with the Purchase Agreement, dated as of___, 2009 (the “Purchase Agreement”), by and between the Company and ACCELMED L.P., and further certifies in his official capacity, in the name and on behalf of the Company, the items set forth below.  Capitalized terms used but not otherwise defined herein shall hav e the meaning set forth in the Purchase Agreement.
 
(f)
Attached hereto as Exhibit A is a true, correct and complete copy of the resolutions duly adopted by the Board of Directors of the Company at a meeting of the Board of Directors held on May ___, 2010.  Such resolutions have not in any way been amended, modified, revoked or rescinded, have been in full force and effect since their adoption to and including the date hereof and are now in full force and effect.
 
(g)
Attached hereto as Exhibit B is a true, correct and complete copy of the Restated Articles of Incorporation of the Company, together with any and all amendments thereto, and no action has been taken to further amend, modify or repeal such Restated Articles of Incorporation, the same being in full force and effect in the attached form as of the date hereof.
 
(h)
Attached hereto as Exhibit C is a true, correct and complete copy of the Amended and Restated Bylaws of the Company and any and all amendments thereto, and no action has been taken to further amend, modify or repeal such Amended and Restated Bylaws, the same being in full force and effect in the attached form as of the date hereof.
 
(i)
The following persons are the duly elected officers of the Company occupying the offices set forth opposite their respective names, each such officer is authorized to execute on behalf of the Company the Transaction Documents and any other documents required to be executed or delivered in connection therewith, and the signature set forth opposite each such officer’s respective name is his true signature.
 
Name
Office
Signature
 
Ariel Shenhar
 
Chief Financial Officer and Secretary
 
 
 
Gil Allon
 
Chief Executive Officer
 
________________________
 
 

 
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IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ___ day of May 2010.
 
 
 
 
_______________________________
Name: Ariel Shenhar
 
Title:  Secretary
 

I, Gil Allon, in my capacity as Chief Executive Officer of Ophthalmic Imaging Systems, a California corporation (the “Company”), hereby certify that Ariel Shenhar is the duly elected, qualified and acting Secretary of the Company and that the signature appearing above is his genuine signature.
 
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ___ day of May 2010.
 
 
 
 
 
_______________________________
Name: Gil Allon
 
Title:  Chief Executive Officer
 

 
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EXHIBIT G
 
LIST OF SUBSIDIARIES
 
 
 
Name of Subsidiary
State or Other Jurisdiction of Incorporation/Organization
   
Abraxas Medical Solutions Ltd.
 
Delaware
OIS Global Ltd.
Israel
   
 

 
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EXHIBIT H
 
FORM OF INDEMNIFICATION AGREEMENT
 
INDEMNIFICATION AGREEMENT
 
THIS INDEMNIFICATION AGREEMENT (the “Agreement”), is made and entered into as of the ____ day of ____________, 2009, between Ophthalmic Imaging Systems, Inc., a California corporation (“Corporation”), and __________________ (“Director”).
 
WHEREAS, Director will be a member of the Board of Directors of Corporation, and in such capacity, will perform a valuable service for Corporation;
 
WHEREAS, in accordance with the authorization provided by subsections (a)(10) and (a)(11) of Section 204 of the California General Corporation Code, as amended (“Code”), Article Four and Five of the Corporation’s Amended and Restated Articles of Incorporation (the “Articles”) provides that the liability of directors of Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law and authorizes Corporation to provide indemnification to members of its Board of Directors through agreements with such members in excess of the indemnification otherwise permitted by Section 317 of the Code;
 
WHEREAS, Corporation recognizes that the indemnification provided by this Agreement is of great importance in attracting highly qualified individuals, such as Director, to serve as members of its Board of Directors; and
 
WHEREAS, in order to induce Director to serve as a member of the Board of Directors of Corporation, Corporation has determined and agreed to enter into this Agreement with Director for the purpose of fully implementing the provisions of Section 204 and Section 317 of the Code and Article Four and Five of the Articles.
 
NOW, THEREFORE, in consideration of Director’s service as a director after the date hereof, the parties hereto agree as follows:
 
Section 1.       Indemnity of Director.    Corporation hereby agrees to hold harmless and indemnify Director to the fullest extent authorized by the provisions of Section 317 of the Code, as it may be amended from time to time.
 
Section 2.       Additional Indemnity.   Subject only to the limitations set forth in Section 3 hereof, Corporation hereby further agrees to hold harmless and indemnify Director:
 
(a)           against any and all expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by Director in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of Corporation) to which Director is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Director is, was or at any time becomes a director, officer, employee or agent of Corporation, or is or was serving or at any time serves at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and
 
(b)           otherwise to the fullest extent as indemnification may be provided to Director by Corporation under the provisions of Article V of the Articles and Sections 204(a)(11) and 317 of the Code.
 

 
80

 

Section 3.       Limitations on Additional Indemnity.
 
(a)           No indemnification pursuant to Section 2 hereof shall be paid by Corporation for any of the following:
 
(i)           to the extent that Director is or has been indemnified or reimbursed pursuant to Section 1 hereof or any Directors and Officers Liability Insurance purchased and maintained by Corporation;
 
(ii)           with respect to remuneration paid to Director if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of applicable law;
 
(iii)           on account of any suit pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, and amendments thereto or similar provisions of any federal, state or local statutory law in which judgment is rendered against Director for an accounting of profits made from the purchase or sale by Director of securities of Corporation;
 
(iv)           if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful under applicable law; or
 
(v)           on account of any action, suit or proceeding (other than a proceeding referred to in Section 8(b) hereof) commenced by the Director against Corporation or against any officer, director or shareholder of Corporation unless authorized in the specific case by action of the Board of Directors;
 
(b)           In addition to those limitations set forth above in paragraph (a) of this Section 3, no indemnification pursuant to Section 2 hereof in an action brought by or in the right of Corporation for breach of the Directors duties to Corporation and its shareholders shall be paid by Corporation for any of the following:
 
(i)           on account of Director’s acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, unless Director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful;
 
(ii)           on account of acts or omissions that Director believes to be contrary to the best interests of Corporation or its shareholders or that involve the absence of good faith on the part of Director;
 
(iii)           to the extent prohibited by Section 310 of the Code (contracts in which a director has material financial interest);
 
(iv)           to the extent prohibited by Section 316 of the Code (corporate actions subjecting directors to joint and several liability for prohibited distributions, loans and guarantees); or,
 
(v)           in any circumstances in which indemnity is expressly prohibited by Section 317 of the Code;
 
(c)           Notwithstanding the foregoing, Corporation hereby acknowledges that Director may have certain rights to indemnification, advancement of expenses and/or insurance provided by AccelMed, L.P. or its affiliates (“AccelMed”)  Corporation hereby agrees that it (i) is, relative to AccelMed, the indemnitor of first resort (i.e., Corporation’s obligations to Director under this Agreement
 

 
81

 

are primary and any duplicative, overlapping or corresponding obligations of AccelMed are secondary), (ii) shall be required to make all advances and other payments under this Agreement, and shall be fully liable therefor, without regard to any rights Director may have against AccelMed, and (iii) irrevocably waives, relinquishes and releases AccelMed from any and all claims against AccelMed for contribution, subrogation or any other recovery of any kind in respect thereof.  Corporation further agrees that no advancement or payment by AccelMed on behalf of Director with respect to any claim for which Director has sought indemnification from Corporation shall affect the foregoing and AccelMed shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Director against Corporation.  Corporation and Director agree that AccelMed is an express third party beneficiary of the terms of this Section 3(c).
 
Section 4.       Contribution.   If the indemnification provided in Sections 1 and 2 is unavailable and may not be paid to Director for any reason other than those set forth in Section 3 (excluding Section 3(b)(v)), then in respect of any threatened, pending or completed action, suit or proceeding in which Corporation is jointly liable with Director (or would be if joined in such action, suit or proceeding), Corporation shall contribute to the amount of expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Director in such proportion as is appropriate to reflect (i) the relative bene fits received by Corporation on the one hand and Director on the other hand from the transaction from which such action, suit or proceeding arose, and (ii) the relative fault of Corporation on the one hand and of Director on the other in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of Corporation on the one hand and of Director on the other shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. Corporation agrees that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation or any other method of allocation that does not take account of the foregoing equitable considerations.
 
Section 5.       Continuation of Obligations.   All agreements and obligations of Corporation contained herein shall continue during the period Director is a director of Corporation (or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Director shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Director was a director of Corporation or serving in any other capacity referred to herein.
 
Section 6.               Notification and Defense of Claim.    Promptly after receipt by Director of notice of the commencement of any action, suit or proceeding, Director will, if a claim in respect thereof is to be made against Corporation under this Agreement, notify Corporation of the commencement thereof; but the omission so to notify Corporation will not relieve it from any liability which it may have to Director otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Director notifies Corporation of the commencement thereof:
 
(a)       Corporation will be entitled to participate therein at its own expense;
 
(b)       Except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel satisfactory to Director (such consent not to be unreasonably withheld). After notice from Corporation to Director of its election to assume the defense thereof, Corporation will not be liable to Director under this Agreement for any legal or other expenses subsequently incurred by Director in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided

 
82

 

below. Director shall have the right to employ counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from Corporation of its assumption of the defense thereof shall be at the expense of Director unless (i) the employment of counsel by Director has been authorized by Corporation, (ii) Director shall have reasonably concluded that there may be a conflict of interest between Corporation and Director in the conduct of the defense of such action, or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Director shall have made the conclusion provided for in (ii) above; and
 
(c)       Corporation shall not be liable to indemnify Director under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall not settle any action or claim in any manner that would impose any penalty or limitation on Director without Director’s written consent. Neither Corporation nor Director will unreasonably withhold or delay its consent to any proposed settlement.
 
Section 7.               Advancement and Repayment of Expenses.
 
(a)       In the event that Director employs his or her own counsel pursuant to Section 6(b)(i) through (iii) above, Corporation shall advance to Director, prior to any final disposition of any threatened or pending action, suit or proceeding, whether civil, criminal, administrative or investigative, any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending any such action, suit or proceeding within ten (10) days after receiving copies of invoices presented to Director for such expenses; and
 
(b)       Director agrees that Director will reimburse Corporation for all reasonable expenses paid by Corporation in defending any civil or criminal action, suit or proceeding against Director in the event and only to the extent it shall be ultimately determined by a final judicial decision (from which there is no right of appeal) that Director is not entitled, under applicable law, the Articles or the Corporation’s Bylaws or this Agreement, to be indemnified by Corporation for such expenses.
 
Section 8.               Enforcement
 
(a)       Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on Corporation hereby in order to induce Director to serve as a director of Corporation, and acknowledges that Director is relying upon this Agreement in serving in such capacity.
 
(b)       In the event Director is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, Corporation shall reimburse Director for all of Director’s reasonable fees and expenses in bringing and pursuing such action.
 
Section 9.               Severability.   Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof.
 
Section 10.             Non-Exclusivity of Rights.   The rights conferred on Director by this Agreement shall not be exclusive of any other right which Director may have or hereafter acquire under any statute, provision of the Articles, Corporation’s Bylaws, agreement, vote of shareholders or directors, or otherwise, both as to action in Director’s official capacity and as to action in another capacity while

 
83

 

holding office; provided, that this Agreement shall supersede any prior agreements or understandings, both written and oral, between Director and  Corporation, with respect to the subject matter hereof; provided, further, that, notwithstanding the foregoing proviso, and in light of the fact that this Agreement is generally intended to provide for indemnification to the fullest extent possible except as prohibited by law, this Agreement shall not be construed to deprive Director of any indemnification permitted by applicable law with respect to an act or omission to which Director would otherwise have been entitled under any such prior agreement.  To the extent that a change in the California Code permits greater indemnification by agreement than would be afforded currently under Corporation’s Articles of Incor poration and Bylaws and this Agreement, it is the intent of the parties hereto that Director shall enjoy by this Agreement the greater benefits so afforded by such change.  Corporation will not adopt any amendment to any of the corporate documents the effect of which would be to deny, diminish or encumber Directors’s right to indemnification under this Agreement.
 
Section 11.              Effective Date.  This Agreement shall apply beginning on Director’s first date of being elected as a director of Corporation.
 
Section 12.             Governing Law.   This Agreement shall be interpreted and enforced in accordance with the laws of the State of California.
 
Section 13.             Binding Effect.   This Agreement shall be binding upon Director and upon Corporation, and their respective successors and assigns, and shall inure to the benefit of Director, his or her heirs, personal representatives and assigns and to the benefit of Corporation, its successors and assigns.
 
Section 14.             Amendment and Termination.  No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto.
 
Section 15.             Subrogation.   In the event of payment under this Agreement, Corporation shall be subrogated to the extent of such payment to any right Director may have for recovery of the amounts so paid from any third party. Director agrees to execute all documents required and do all other acts necessary to effect the foregoing provisions and permit Corporation to enforce the rights so subrogated..
 
 
 

 
84

 

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set forth above.
 
 
 
OPHTHALMIC IMAGING SYSTEMS, INC.
By:
 
 
Name:
Gil Allon
 
Title:
Chief Executive Officer
 
 
By:
 
 
Name:
Ariel Shenhar
 
Title:
Chief Financial Officer
 
 
DIRECTOR:
 
 
_________________________
 Name:
 
 
 
 

 
85

 

APPENDIX I
 
SUMMARY INSTRUCTION SHEET FOR PURCHASER
 
(to be read in conjunction with the entire
Purchase Agreement which follows)
 
A.           Complete the following items on BOTH Purchase Agreements (Sign two originals):
 
1.           Signature Page:
 
 
(i)
Name of Purchaser (Individual or Institution)
 
 
(ii)
Name of Individual representing Purchaser (if an Institution)
 
 
(iii)
Title of Individual representing Purchaser (if an Institution)
 
 
(iv)
Signature of Individual Purchaser or Individual representing Purchaser
 
 
2.
Appendix I - Stock Certificate Questionnaire/Registration Statement Questionnaire:
 
Provide the information requested by the Stock Certificate Questionnaire and the Registration Statement Questionnaire.
 
 
3.
Return BOTH properly completed and signed Purchase Agreements including the properly completed Appendix I to (initially by facsimile with original by overnight delivery):
 
[Street Address]
[City, State ZIP]
Attention:
Facsimile:
 
B.           Instructions regarding the transfer of funds for the purchase of Shares will be sent by facsimile to the Purchaser by the Company at a later date.
 
C.           Upon the resale of the Shares by the Purchaser after the Registration Statement covering the Shares is effective, as described in the Purchase Agreement, the Purchaser:
 
 
(i)
must deliver a current prospectus of the Company to the buyer (prospectuses must be obtained from the Company at the Purchaser’s request); and
 
 
(ii)
must send a letter in the form of Appendix II to the Company so that the Shares may be properly transferred.
 

 
86

 

Appendix I
(Page 1 of 3)
 
 
OPHTHALMIC IMAGING SYSTEMS
 
STOCK CERTIFICATE QUESTIONNAIRE
 
Pursuant to Section 3 of the Agreement, please provide us with the following information:
 
1.
The exact name that your Shares are to be registered in (this is the name that will appear on your stock certificate(s)).  You may use a nominee name if appropriate:
 
 
 
 
_____________________________
 
2.
The relationship between the Purchaser of the Shares and the Registered Holder listed in response to item 1 above:
 
 
 
_____________________________
 
3.
The mailing address of the Registered Holder listed in response to item 1 above:
 
_____________________________
_____________________________
_____________________________
_____________________________
 
4.
The Social Security Number or Tax Identification Number of the Registered Holder listed in response to item 1 above:
 
 
 
_____________________________
 

 
87

 

Appendix I
(Page 2 of 3)
 
 
OPHTHALMIC IMAGING SYSTEMS
 
REGISTRATION STATEMENT QUESTIONNAIRE
 
In connection with the preparation of the Registration Statement, please provide us with the following information:
 
SECTION 1.      Pursuant to the “Selling Stockholder” section of the Registration Statement, please state your or your organization’s name exactly as it should appear in the Registration Statement:
 
 
 
 
SECTION 2.      Please provide the number of shares that you or your organization will own immediately after Closing, including those Shares purchased by you or your organization pursuant to this Purchase Agreement and those shares purchased by you or your organization through other transactions and provide the number of shares that you have or your organization has the right to acquire within 60 days of Closing:
 
 
 
 
 
SECTION 3.      Have you or your organization had any position, office or other material relationship within the past three years with the Company or its affiliates?
 
_____ Yes         _____ No
 
If yes, please indicate the nature of any such relationships below:
 
 
 
 
 
 
 
SECTION 4.      Are you (i) FINRA Member (see definition), (ii) a Controlling (see definition) shareholder of FINRA Member, (iii) a Person Associated with a Member of FINRA (see definition), or (iv) an Underwriter or a Related Person (see definition) with respect to the
 

 
88

 

proposed offering; or (b) do you own any shares or other securities of any FINRA Member not purchased in the open market; or (c) have you made any outstanding subordinated loans to any FINRA Member?
 
Answer:  o Yes    o No                                                      If “yes,” please describe below
 
 
 
 
 
 
 
SECTION 5.      If the Selling Stockholder is an entity, please disclose:
 
(i)
who for the entity has the sole or shared power to vote or direct the vote of any such securities?
 
 
________________________________
 
(ii)
who for the entity has the sole or shared power the dispose or direct the disposition of any such securities?
 
 
________________________________
 
(iii)
do any of the foregoing persons disclaim beneficial ownership of such securities
 
Answer:  o Yes    o No
If so, who?
 

 
89

 

Appendix I
(Page 3 of 3)
 
 
 
FINRA Member.  The term “FINRA member” means either any broker or dealer admitted to membership in the Financial Industry Regulatory Authority, Inc. (“FINRA”).  (FINRA Manual, By-laws of FINRA Regulation, Inc. Article I, Definitions)
 
Control.  The term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power, either individually or with others, to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.  (Rule 405 under the Securities Act of 1933, as amended)
 
Person Associated with a member of FINRA.  The term “person associated with a member of FINRA” means every sole proprietor, partner, officer, director, branch manager or executive representative of any FINRA Member, or any natural person occupying a similar status or performing similar functions, or any natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a FINRA Member, whether or not such person is registered or exempt from registration with FINRA pursuant to its bylaws.  (FINRA Manual, By-laws of FINRA Regulation, Inc. Article I, Definitions)
 
Underwriter or a Related Person.  The term “underwriter or a related person” means, with respect to a proposed offering, underwriters, underwriters’ counsel, financial consultants and advisors, finders, members of the selling or distribution group, and any and all other persons associated with or related to any of such persons.  (FINRA Interpretation)
 

 
90

 

APPENDIX II
 
CERTIFICATE OF SUBSEQUENT SALE
 
 
[Transfer Agent]
 
[Address]
 
Attention:
 
 
 
PURCHASER’S CERTIFICATE OF SUBSEQUENT SALE
 
 
 
 
The undersigned, [an officer of, or other person duly authorized by]
_____________________________________________________________ hereby certifies
[fill in official name of individual or institution]
that he/she [said institution] is the Purchaser of the shares evidenced by the attached certificate,
and as such, sold such shares on _______________ in accordance with the terms of the
[date]
Purchase Agreement and in accordance with Registration Statement
number ____________________________________________ or otherwise in accordance with
           [fill in the number of or otherwise identify Registration Statement]
the Securities Act of 1933, as amended, and, in the case of a transfer pursuant to the Registration
Statement, the requirement of delivering a current prospectus by the Company has been
complied with in connection with such sale.
 
 
 Print or Type:    
     
     
Name of Purchaser
(Individual or
 Institution):
   
   
Name of Individual
representing
Purchaser (if an
Institution)
   
   
Title of Individual
representing
Purchaser (if an
Institution):
   
Signature by:
 
Individual Purchaser
or Individual repre-
senting Purchaser:
   
 
 
 
 

 
91

 
 
SCHEDULE 4.3(i) and 4.3(ii)
 
OUTSTANDING CAPITALIZATION
AND
OUTSTANDING OPTIONS TO PURCHASE RIGHTS AND OTHER RIGHTS
 
Form
Source
 

Exercise
Price
Issue
Date
Expiration
Date
Current
Issued
%
Options
& Warrants
Granted
Available
For Grant
Convertible
Note
Agreements
Pending
Approval
Fully
Diluted
 
                           
Shares
Currently outstanding-MediVIsion
       
            9,380,843
55.6%
       
               9,380,843
40.2%
 
Currently outstanding - Open market
       
            7,485,988
44.4%
       
               7,485,988
32.1%
                           
Options
2000 Non Statutory Stock Option Plan
                          0.4060
9/6/2001
9/6/2011
   
150,000
     
                    150,000
0.6%
   
                       0.4060
10/23/2002
10/23/2012
   
80,000
     
                     80,000
0.3%
   
                      0.4060
4/10/2003
4/10/2013
   
590,000
     
                   590,000
2.5%
   
                    0.1000
1/2/2002
1/2/2012
   
20,000
     
                     20,000
0.1%
   
                      2.8300
3/7/2007
3/7/2017
   
8,000
     
                        8,000
0.0%
   
                       0.1600
1/6/2009
1/6/2019
   
312,836
     
                    312,836
1.3%
                       
                               -
0.0%
Options
2003 Stock Option Plan
                        0.6810
10/24/2004
10/24/2014
   
284,167
     
                    284,167
1.2%
   
                        1.9600
3/3/2006
3/3/2016
   
20,000
     
                     20,000
0.1%
   
                        1.8300
6/14/2006
6/14/2016
   
103,000
     
                    103,000
0.4%
   
                        0.1600
1/6/2009
1/6/2019
   
144,664
     
                    144,664
0.6%
                       
                               -
0.0%
Options
2005 Stock Option Plan
                        0.8200
12/19/2007
12/19/2015
   
335,000
     
                   335,000
1.4%
   
                        1.0500
12/19/2007
12/19/2015
   
335,000
     
                   335,000
1.4%
   
                        0.1600
1/6/2009
1/6/2019
   
80,000
     
                     80,000
0.3%
                       
                               -
0.0%
Options
2009 Stock Option Plan
 
 No options granted from this plan to date
     
        750,000
   
                   750,000
3.2%
                       
                               -
0.0%
Warrants
The Tail Wind Fund
                        1.8700
10/29/2007
12/10/2012
   
526,973
     
                   526,973
2.3%
Warrants
Solomon Strategic Holdings, Inc.
                        1.8700
10/29/2007
12/10/2012
   
89,698
     
                     89,698
0.4%
Ratchet on Warrants
The Tail Wind Fund
                        1.1528
10/29/2007
12/10/2012
   
244,452
     
                   244,452
1.0%
Ratchet on Warrants
Solomon Strategic Holdings, Inc.
                        1.1528
10/29/2007
12/10/2012
   
41,609
     
                      41,609
0.2%
                       
                               -
0.0%
Convertible note
The Tail Wind Fund
                         1.6500
10/29/2007
         
                   712,121
 
                      712,121
3.1%
Convertible note
Solomon Strategic Holdings, Inc.
                         1.6500
10/29/2007
         
                   121,212
 
                      121,212
0.5%
Ratchet on Convertible note
The Tail Wind Fund
                         0.9220
10/29/2007
         
                468,082
 
                   468,082
2.0%
Ratchet on Convertible note
Solomon Strategic Holdings, Inc.
                         0.9220
10/29/2007
         
                  79,674
 
                     79,674
0.3%
                           
Warrants
The Tail Wind Fund
                          1.0000
No signed agreement yet
       
                          427,273
                   427,273
1.8%
Warrants
Solomon Strategic Holdings, Inc.
                          1.0000
No signed agreement yet
       
                            72,727
                     72,727
0.3%
Warrants
United Mizrahi Bank
                         1.0000
No signed agreement yet
       
                          350,000
                   350,000
1.5%
Warrants
Broker
                          0.0100
No signed agreement yet
       
                           123,457
                    123,457
0.5%
                       
                               -
0.0%
                           
 
Totals
       
    16,866,831
100.0%
    3,365,399
  750,000
      1,381,089
              973,457
    23,336,775
100.0%
                         
100.0%
                     
AccelMed
               9,633,228
 
                     
AccelMed warrants
                 3,211,076
 
                       
              12,844,304
 
 
Extra 25% for tailwind
362,501
                   
                     
Fully Diluted
36,181,079
 
                           
                Reduce cap limitation as Tailwind caped at 1.4M shares  
(1,383,821)
 
                     
Total cap reserve
34,797,259
 
                     
Autorized
35,000,000
 
                     
Left over
202,741
 

 
92

 

SCHEDULE 4.19
 
Company Budget and Strategic Work Plan


       
Confidential Treatment Requested under 17 C.F.R. Sections 200.80(B)(4), 200.83 and 200.406
 
Certain portions of this Sechedule 4.19 have been redacted and a request for Confidential Treatment therefore has been requested.
Strictly Private and Confidential
           
 Schedule 4.19
             
Flag
 
Total
           
                 
 
OIS/MDV projection 2010
           
     
2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
2010
 
No.
Cash-Flow component
6
       
7
1
WinStation
 
S
Total Sales (K$)
*
*
*
*
*
*
 
M
Manufacturing Cost (K$)
*
*
*
*
*
*
   
Gross Margin (K$)
*
*
*
*
*
*
   
Gross Margin (%)
*
*
*
*
*
*
   
G&A (K$)
*
*
*
*
*
*
   
S&M (K$)
*
*
*
*
*
*
 
O
Sustained R&D (K$)
*
*
*
*
*
*
  D Extra R&D (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (%)
*
*
*
*
*
*
   
Operating Expenses (K$)
*
*
*
*
*
*
 
C
Capital Expenses (K$)
*
*
*
*
*
*
 
E
Depreciation (K$)
*
*
*
*
*
*
 
I
EBIT (K$)
*
*
*
*
*
*
     
*
*
*
*
*
*
0
IRI 1
 
S
Total Sales (K$)
*
*
*
*
*
*
 
M
Manufacturing Cost (K$)
*
*
*
*
*
*
   
Gross Margin (K$)
*
*
*
*
*
*
   
Gross Margin (%)
*
*
*
*
*
*
   
G&A (K$)
*
*
*
*
*
*
   
S&M (K$)
*
*
*
*
*
*
   
Sustained R&D (K$)
*
*
*
*
*
*
 
D
Extra R&D (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (%)
*
*
*
*
*
*
   
Operating Expenses (K$)
*
*
*
*
*
*
 
C
Capital Expenses (K$)
*
*
*
*
*
*
 
E
Depreciation (K$)
*
*
*
*
*
*
 
I
EBIT (K$)
*
*
*
*
*
*
 
0
IRI 2_Canon CR1+WS
 
S
Total Sales (K$)
*
*
*
*
*
*
 
M
Manufacturing Cost (K$)
*
*
*
*
*
*
   
Gross Margin (K$)
*
*
*
*
*
*
   
Gross Margin (%)
*
*
*
*
*
*
   
G&A (K$)
*
*
*
*
*
*
   
S&M (K$)
*
*
*
*
*
*
   
Sustained R&D (K$)
*
*
*
*
*
*
 
D
Extra R&D (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (%)
*
*
*
*
*
*
   
Operating Expenses (K$)
*
*
*
*
*
*
 
C
Capital Expenses (K$)
*
*
*
*
*
*
 
E
Depreciation (K$)
*
*
*
*
*
*
 
I
EBIT (K$)
*
*
*
*
*
*
                 
 

 
93

 
 
     
2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
2010
 
No.
Cash-Flow component
6
       
7
 
1
Symphony
 
S
Total Sales (K$)
*
*
*
*
*
*
 
M
Manufacturing Cost (K$)
*
*
*
*
*
*
   
Gross Margin (K$)
*
*
*
*
*
*
   
Gross Margin (%)
*
*
*
*
*
*
   
G&A (K$)
*
*
*
*
*
*
   
S&M (K$)
*
*
*
*
*
*
   
Sustained R&D (K$)
*
*
*
*
*
*
 
D
Extra R&D (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (%)
*
*
*
*
*
*
   
Operating Expenses (K$)
*
*
*
*
*
*
 
C
Capital Expenses (K$)
*
*
*
*
*
*
 
E
Depreciation (K$)
*
*
*
*
*
*
 
I
EBIT (K$)
*
*
*
*
*
*
     
*
*
*
*
*
*
   
1
EMR&PM
 
S
Total Sales (K$)
*
*
*
*
*
*
 
M
Manufacturing Cost (K$)
*
*
*
*
*
*
   
Gross Margin (K$)
*
*
*
*
*
*
   
Gross Margin (%)
*
*
*
*
*
*
   
G&A (K$)
*
*
*
*
*
*
   
S&M (K$)
*
*
*
*
*
*
   
Sustained R&D (K$)
*
*
*
*
*
*
 
D
Extra R&D (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (%)
*
*
*
*
*
*
   
Operating Expenses (K$)
*
*
*
*
*
*
 
C
Capital Expenses (K$)
*
*
*
*
*
*
 
E
Depreciation (K$)
*
*
*
*
*
*
 
I
EBIT (K$)
*
*
*
*
*
*
     
*
*
*
*
*
*
1
EyeScan
 
S
Total Sales (K$)
*
*
*
*
*
*
 
M
Manufacturing Cost (K$)
*
*
*
*
*
*
   
Gross Margin (K$)
*
*
*
*
*
*
   
Gross Margin (%)
*
*
*
*
*
*
   
Royalties (K$)
*
*
*
*
*
*
   
G&A (K$)
*
*
*
*
*
*
   
S&M (K$)
*
*
*
*
*
*
   
Sustained R&D (K$)
*
*
*
*
*
*
 
D
Extra R&D (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (%)
*
*
*
*
*
*
   
Operating Expenses (K$)
*
*
*
*
*
*
 
C
Capital Expenses (K$)
*
*
*
*
*
*
 
E
Depreciation (K$)
*
*
*
*
*
*
 
I
EBIT (K$)
*
*
*
*
*
*
     
*
*
*
*
*
*
 
 
94

 
 
     
2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
2010
 
No.
Cash-Flow component
6
       
7
 
0
DIH
 
S
Total Sales (K$)
*
*
*
*
*
*
 
M
Manufacturing Cost (K$)
*
*
*
*
*
*
   
Gross Margin (K$)
*
*
*
*
*
*
   
Gross Margin (%)
*
*
*
*
*
*
   
G&A (K$)
*
*
*
*
*
*
   
S&M (K$)
*
*
*
*
*
*
   
Sustained R&D (K$)
*
*
*
*
*
*
 
D
Extra R&D (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (K$)
*
*
*
*
*
*
   
Total R&D  Expenses (%)
*
*
*
*
*
*
   
Operating Expenses (K$)
*
*
*
*
*
*
 
C
Capital Expenses (K$)
*
*
*
*
*
*
 
E
Depreciation (K$)
*
*
*
*
*
*
 
I
EBIT (K$)
*
*
*
*
*
*
 
P&L View
   
Growth
*
*
*
*
*
*
 
S
Total Sales (K$)
*
*
*
*
*
*
 
M
Manufacturing Cost (K$)
*
*
*
*
*
*
   
Gross Margin (K$)
*
*
*
*
*
*
   
Gross Margin (%)
*
*
*
*
*
*
   
Royalties (K$)
*
*
*
*
*
*
 
O
G&A (K$)
*
*
*
*
*
*
   
G&A (%)
*
*
*
*
*
*
   
S&M (K$)
*
*
*
*
*
*
   
S&M (%)
*
*
*
*
*
*
   
Sustained R&D (K$)
*
*
*
*
*
*
   
Sustained R&D (%)
*
*
*
*
*
*
 
D
Amortization of R&D (K$)
*
*
*
*
*
*
   
Extra R&D (%)
*
*
*
*
*
*
   
Total R&D Expenses (K$)
*
*
*
*
*
*
   
R&D Expenses (%)
*
*
*
*
*
*
   
Operating Expenses + Extra R&D (K$)
*
*
*
*
*
*
   
Operating Expenses + Extra R&D (%)
*
*
*
*
*
*
 
I
EBIT (K$)
*
*
*
*
*
*
   
EBIT (%)
*
*
*
*
*
*
   
Financial Expenses (K$)
*
*
*
*
*
*
   
Other Income ($K)
*
*
*
*
*
*
 
T2
Taxable Income (K$)
*
*
*
*
*
*
 
T%
Income Tax Rate (%)
*
*
*
*
*
*
 
T
Income Tax (K$)
*
*
*
*
*
*
 
OF
Net Operating Income (K$/Yr.)
*
*
*
*
*
*
                 
                 
 
Cash Flow View
 
E
Depreciation (K$)
*
*
*
*
*
*
   
Amortization (R&D)$
*
*
*
*
*
*
   
Non-Cash Extraordinary Item (APA)
*
*
*
*
*
*
 
W%
Working Capital (% of sales change)
*
*
*
*
*
*
 
W
Working  Capital Change (K$)
*
*
*
*
*
*
 
C
Capital Expenses (K$)
*
*
*
*
*
*
   
Repayment of loans (K$)
*
*
*
*
*
*
   
New loans or capital raise (K$)
*
*
*
*
*
*
   
Loans at the end of the year ($K)
*
*
*
*
*
*
                 
 
V
Residual Value of Assets
*
*
*
*
*
*
 
AF
Total Cash Flow (K$)
*
*
*
*
*
*
 
CF
Total Cumulative Cash Flow (K$)
*
*
*
*
*
*
 
R
Annual Discount Rate (%)
*
*
*
*
*
*
 
DAF
Annual Discounted Cash Flow (K$)
*
*
*
*
*
*
 
DCF
Cumulative Discounted Cash Flow (K$)
*
*
*
*
*
*
 
IRR
Internal Rate of Return (%)
*
*
*
*
*
*
 
 
95

 
 
     
2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
2010
 
No.
Cash-Flow component
6
       
7
 
 
R&D Breakdown
   
WinStation
           
   
   Sustained R&D (K$)
*
*
*
*
*
*
   
   Extra R&D (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (%)
*
*
*
*
*
*
   
IRI 1
           
   
   Sustained R&D (K$)
*
*
*
*
*
*
   
   Extra R&D (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (%)
*
*
*
*
*
*
   
IRI 2_Canon CR1+WS
           
   
   Sustained R&D (K$)
*
*
*
*
*
*
   
   Extra R&D (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (%)
*
*
*
*
*
*
   
Symphony
           
   
   Sustained R&D (K$)
*
*
*
*
*
*
   
   Extra R&D (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (%)
*
*
*
*
*
*
   
EMR&PM
           
   
   Sustained R&D (K$)
*
*
*
*
*
*
   
   Extra R&D (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (%)
*
*
*
*
*
*
   
EyeScan
           
   
   Sustained R&D (K$)
*
*
*
*
*
*
   
   Extra R&D (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (%)
*
*
*
*
*
*
   
Total R&D
           
   
   Sustained R&D (K$)
*
*
*
*
*
*
   
   Extra R&D (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (K$)
*
*
*
*
*
*
   
   Total Development  Expenses (%)
*
*
*
*
*
*
                 
   
   Total Capitalized Development Exp (K$)
*
*
*
*
*
*
   
   Total Capitalized Development Exp (%)
*
*
*
*
*
*
                 
   
   Total Real Development Exp (K$)
*
*
*
*
*
*
   
   Total Real Development Exp (%)
*
*
*
*
*
*
                 
 
 
96 

 
EX-10.31 4 ex1031_s1a2-333161778.htm EXHIBIT 10.31 ex1031_s1a2-333161778.htm


Exhibit 10.31
 
 
 
 
 
 
 
ASSET PURCHASE AGREEMENT
 
Among
 
OPHTHALMIC IMAGING SYSTEMS
 
and
 
MEDIVISION MEDICAL IMAGING LTD.
 
Dated as of June 24, 2009
 
 
 
 
 
Article 1.
DEFINITIONS
1
1.1
Certain Definitions
1
1.2
Terms Defined Elsewhere in this Agreement
7
 
Article 2.
PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES
8
2.1
Purchase and Sale of Assets
8
2.2
Excluded Assets
10
2.3
Assumption of Liabilities
11
2.4
Excluded Liabilities
12
2.5
Further Conveyances and Assumptions; Consent of Third Parties
12
2.6
Purchase Price Allocation
13
 
Article 3.
SALE AND PURCHASE OF CAPITAL STOCK
13
3.1
Sale and Purchase of Shares
13
 
Article 4.
CONSIDERATION
13
4.1
Consideration
13
 
Article 5.
CLOSING AND TERMINATION
13
5.1
Closing Date
13
5.2
Termination of Agreement
14
5.3
Procedure upon Termination
15
5.4
Effect of Termination
15
 
Article 6.
REPRESENTATIONS AND WARRANTIES OF SELLER
15
6.1
Organization of Seller and its subsidiaries
16
6.2
Corporate Authority; Approval and Fairness
16
6.3
Consents of Third Parties; No Violations
17
6.4
Financial Statements
18
6.5
Accounts Receivable
20
6.6
Title to Purchased Assets; Intellectual Property
20
6.7
Ownership and Transfer of Shares
20
6.8
Intellectual Property
21
6.9
Seller Material Agreements and Governmental Contracts
22
6.10
Absence of Certain Developments
25
6.11
Litigation
26
6.12
Financial Advisors
27
6.13
Environmental Matters
27
6.14
Tax Returns and Payments
27
6.15
Tax Matters
29
6.16
Encryption and Other Restricted Technology
30
6.17
Warranties/Product Liability
30
6.18
Product certifications
30
6.19
Completeness of Disclosure
31
 
 
 
i
 
 
 

 
 
Article 7.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
31
7.1
Organization and Good Standing
31
7.2
Authorization of Agreement
31
7.3
Conflicts; Consents of Third Parties
32
7.4
Litigation
32
7.5
Financial Advisors
32
7.6
Condition of the Business; Disclaimer of Reliance
32
7.7
Restriction on Activities
33
7.6
Completeness of Disclosure
33
 
Article 8.
COVENANTS
33
8.1
Access to Information
33
8.2
Conduct of the Business Pending the Closing
34
8.3
Consents
37
8.4
Further Assurances
38
8.5
Confidentiality
38
8.6
Non Competition
38
8.7
Preservation of Records
39
8.8
Publicity
39
8.9
Disclosure Schedules; Supplementation and Amendment of Schedules
40
8.10
Control of Business
40
8.11
Foreign Tax Declarations
40
8.12
Exclusivity
40
8.12
Good Standing Certificates
40
8.12
Elop Payment
40
8.13
United Mizrachi Bank Loan
42
 
Article 9.
CONDITIONS TO CLOSING
41
9.1
Conditions Precedent to Obligations of Purchaser
41
9.2
Conditions Precedent to Obligations of Seller
42
9.3
Frustration of Closing Conditions
43
 
Article 10.
SURVIVAL
44
10.1
Survival of Representations and Warranties
44
10.2
Indemnification by Seller
44
10.3
Indemnification by Purchaser
45
10.4
Indemnification Procedures
46
10.4
Escrow
46
10.5
Exclusive Remedy
58
 
Article 11.
TAXES
48
11.1
Payment of Sales, Use or Similar Taxes
48
11.2
Cooperation on Tax Issues
48
11.3
Tax Refunds; Tax Benefit Amounts
51
11.4
Tax Matters
49
 
 
 
ii
 
 
 

 
 
Article 12.
MISCELLANEOUS
51
12.1
Modification or Amendment
51
12.2
Waiver of Conditions
51
12.3
Counterparts
51
12.4
Governing Law; Waiver of Jury Trial; Specific Performance
51
12.5
Dispute Resolution
52
12.6
Notices
52
12.7
Entire Agreement
54
12.8
No Third Party Beneficiaries
54
12.9
Obligations of OIS and MediVision
54
12.10
Transfer taxes
54
12.11
Severability
54
12.12
Interpretation; Construction
54
12.13
Assignment
55

 
iii
 
 
 
 

 
 
ASSET PURCHASE AGREEMENT
 
 
This ASSET PURCHASE AGREEMENT (hereinafter called this “Agreement”), dated June 24, 2009, among OPHTHALMIC IMAGING SYSTEMS, a California corporation (“OIS” or “Purchaser”), and MEDIVISION MEDICAL IMAGING LTD., an Israeli company (“MediVision” or “Seller”).
 
RECITALS
 
 
WHEREAS, Seller presently conducts the Business;
 
 
WHEREAS, Seller desires to sell, transfer and assign to Purchaser, and Purchaser desires to acquire and assume from Seller, all of the Purchased Assets and all of the Assumed Liabilities, all as more specifically provided herein;
 
 
WHEREAS, certain terms used in this Agreement are defined in Section 1.1; and
 
 
WHEREAS, Seller currently owns approximately 56% of the issued and outstanding shares of common stock of Purchaser.
 
 
NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows:
 
ARTICLE 1.
 
DEFINITIONS
 
 
1.1       Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings specified in this Section 1.1:
 
 
Agreement” means any written Agreement, agreement, indenture, note, bond, mortgage, loan, instrument, lease or license.
 
 
Affiliate” has the meaning defined in Rule 2b-2 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
 
 
BDO Fairness Opinion” means the opinion of BDO Seidman Ziv Haft Consulting Group obtained by MediVision as part of its assessment of the transactions contemplated by this Agreement, to the effect that the consideration to be received by MediVision under this Agreement is fair from a financial point of view, as of the date of such opinion. It is agreed and understood that this BDO Fairness Opinion is relied upon by MediVision and OIS.
 
 
Business” means (i) the activities, agreements, business, assets, operations and Intellectual Property of Seller directly related to IRI, including, without limitation, any activities, agreements, business. Assets, operations and Intellectual Property relating to the EyeScan products, if any, (ii) the activities, agreements, business, assets and operations of Seller’s branch
 
 
 
 
 

 
in Belgium (the “Belgium Activities”), and (iii) all rights of Seller under each of the Purchased Agreements.
 
 
Business Day” means any day (other than Friday, Saturday or Sunday) of the year on which national banking institutions in New York are open to the public for conducting business and are not required or authorized to close.
 
 
Cash” means cash, cash equivalents, bank deposits and similar cash items, excluding cash deposits which constitute Purchased Assets pursuant to Section 2.1(h).
 
 
CCS” means CCS Pawlowski GmbH.
 
 
CCS Deed” means a notarial deed of transfer of the Purchased Shares of CCS by Seller and Purchaser before a German civil law notary.
 
 
Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.
 
 
Commercially Reasonable Efforts” means the efforts, time and costs a prudent person desirous of achieving a result would use, expend or incur in similar circumstances to achieve such results as expeditiously as possible, provided that such person is not required to expend funds or assume liabilities beyond those that are reasonable in nature and amount in the context of the transaction.
 
 
Confidential Information” means any (i) confidential and non-public information, whether visually, in writing or otherwise concerning the strategies, ideas, policies, sub-contractors, suppliers, customers, vendors, competitors, business and affairs of the applicable Person, graphs, samples, inventions and ideas, past, current and planned marketing methods, processes, strategies and materials, supplier and customer lists, price lists, pricing policies and strategies, market studies, business plans, agreements with any Person, proposals, equipment purchase strategies, names or other information, strategies for business plans, plans, ideas, concepts, designs, drawings, specifications, techniques, models, data, Documentation, diagrams, fl ow charts, research, discoveries, development, processes, procedures and “know how”, and any information, however documented, that is proprietary, confidential and non-public, whether or not such information would be deemed a trade secret under applicable Law; (ii) confidential and non-public information concerning the business and affairs of the applicable Person and its respective Affiliates (which includes financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, the names and backgrounds of key personnel, proposed personnel and personnel training techniques and materials), however documented; and (iii) confidential and non-public information contained in all notes, analyses, compilations, studies, summaries and all other material prepared by the applicable Person or its respective representatives containing or based, in whole or in part, on any information included in any of the foregoing clauses (i) and (ii). Notwit hstanding anything to the contrary contained herein, Confidential Information of any party hereto shall not include any information that (A) is or was in the public domain at the time of its receipt, or subsequently came into the public domain through no fault of the receiving party; (B) was received by any party hereto from an unrelated third party, free of any obligation of confidence to the disclosing  party; (C) was already in the possession of the receiving party prior to receipt thereof, directly or indirectly, from such disclosing party; (D) is independently acquired or developed by the receiving party without violating any of its obligations to such other party under this Agreement or (E) is required to be disclosed by applicable Law.
 
 
 
2
 
 
 
 
 

 
 
 
Damages” means, collectively, any and all Liabilities, deficiencies, expenses, damages, Orders, costs and expenses, including reasonable attorneys’ fees and expert witness and consultant fees; provided, however, “Damages” shall not include any punitive or exemplary damages (collectively, “Extraordinary Damages”), except to the extent such Extraordinary Damages result from a Third Party Claim.
 
 
Documentation” means files, documents, instruments, papers, books, reports, records, tapes, microfilms, photographs, letters, budgets, forecasts, ledgers, journals, title policies, customer and supplier lists, regulatory filings, operating data and plans, technical documentation (including design specifications, functional requirements, operating instructions, logic manuals, flow charts, etc.), user documentation (including installation guides, user manuals, training materials, release notes, working papers, etc.), marketing documentation (including sales brochures, flyers, pamphlets, web pages, etc.), and other similar materials directly related to the Business and the Purchased Assets in each case whether or not in electronic form; provided, however, that “Documentation” shall not include duplicate copies of such Documentation retained by Seller or its Affiliates subject to the obligations relating to the use and disclosure thereof set forth in this Agreement.
 
 
Environment” means the natural and man-made environment, including all or any of the following media, namely air, water and land (including air within buildings and other material or man-made structures above or below the ground) and any living organisms (including man) or systems supported by those media.
 
 
Environmental Law” means any Law relating to the protection of the environment or human health and safety.
 
 
ERISA” means the Employment Retirement Income Security Act of 1974, as amended.
 
 
Excluded Agreements” means, except for the Purchased Agreements, each of the Agreements to which Seller is a party, including, for the avoidance of doubt, this Agreement and the rights of Seller pursuant hereto.
 
 
Former Employee” means any Employee who has separated from service with MediVision or any of its Subsidiaries prior to the Closing.
 
 
GAAP” means generally accepted accounting principles in the United States as of the date hereof.
 
 
Governmental Body” means any government or governmental or regulatory body thereof, or political subdivision thereof, whether foreign, federal, state, or local, or any agency, commission, instrumentality or authority thereof, or any quasi governmental or private body exercising any regulatory or Taxing Authority thereunder or any court, tribunal, judicial body, administrative officer, magistrate or panel, or arbitrator (public or private).
 
 
 
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Hazardous Material” means any mixture or material containing any material that is listed, classified or regulated by any government authority or any Environmental Law, including any petroleum products, asbestos or polychlorinated biphenyls.
 
 
Indebtedness” of any Person means, without duplication, (i) the principal of and, accreted value and accrued and unpaid interest in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments the payment of which such Person is responsible or liable; (ii) all obligations of such Person issued or assumed as the deferred purchase price of property or services, all conditional sale obligations of such Person, and all obligations of such Person under any title retention agreement (but excluding trade accounts payable and other accrued current liabilities incurred in the Ordinary Course of Business) and all obligations of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases; (iii) all obligations of the type referred to in clauses (i) and (ii) of any other Persons the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise; and (iv) all obligations of the type referred to in clauses (i) through (iii) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person).
 
 
Indemnified Party” means any Person claiming indemnification under any provision of Article 10.
 
 
Indemnifying Party” means any Person against whom a claim for indemnification is being asserted under any provision of Article 10.
 
 
Intellectual Property” means (i)(A) trademarks, service marks, brand names, certification marks, collective marks, d/b/a’s, Internet domain names, logos, trade names, and other indicia of origin, all applications and registrations for the foregoing; (B) all patents, registrations, invention disclosures and applications therefor, including divisions, continuations, continuations-in-part and renewal applications, and including renewals, extensions and reissues; (C) copyrightable published works of authorship including without limitation databases and other compilations of information), copyrights therein and thereto, and registrations and applications therefor, and all renewals, extensions, restorations and reversions th ereof; and (D) all know-how, trade secrets, confidential or proprietary information, customer lists, technical information, plans drawings and blue prints; and (ii) all rights referred to in clauses (A) through (D) whether registered or not registered.
 
 
Intentional Misrepresentation” means an intentional misrepresentation (including the intentional omission of a material fact) made (i) in Article 6, which any of the Persons identified on Schedule 1.1(a) actually knew to be false on the date hereof, or (ii) in the certificate(s) delivered to Purchaser pursuant to Section 9.1(c) hereof, which any of the Persons identified on Schedule 1.1(a) actually knew to be false on the Closing Date or (iii) in Article 7, which any of the Persons identified on Schedule 1.1(b) actually knew to be false on the date hereof, or (iv) in the certificate(s) delivered to Purchaser pursuant to Section 9.2(c) hereof, which any of the Persons identified on  Schedule 1.1(b) actually knew to be false on the Closing Date.
 
 
 
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IRI” means the Integrated Retina Imager.
 
 
IRS” means the United States Internal Revenue Service and, to the extent relevant, the United States Department of Treasury.
 
 
Knowledge of Purchaser” means the actual knowledge of each Person identified on Schedule 1.1(b).
 
 
Knowledge of Seller” means the actual knowledge of each Person identified on Schedule 1.1(a).
 
 
Law” means any foreign, federal, state, provincial or local law, statute, code, ordinance, rule, regulation, order, requirement or rule of law (including common law), by-laws, legislations, directives, treaties, decisions of court or tribunal and judgments.
 
 
Legal Proceeding” means any judicial, administrative or arbitral actions, suits or proceedings (public or private) by or before a Governmental Body.
 
 
Liability” means any debt (including Indebtedness), liability or obligation (whether direct or indirect, secured or unsecured, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due), and including all costs and expenses relating thereto.
 
 
Lien” means any lien, encumbrance, pledge, mortgage, deed of trust, security interest, claim, lease, charge, option, right of pre-emption, right to acquire, covenant, right of first offer or refusal, easement, assignment, retention or other security agreement or arrangement, servitude or transfer restriction or other encumbrance.
 
 
OCS” means the office of the Chief Scientist of the Israeli Ministry of Industry, Trade & Labor.
 
 
OCS Debt” means all Seller’s (directly or through any subsidiary) Indebtedness owed to OCS having an outstanding balance ($1,800,000) together with any and all ancillary amounts thereon (interest, fees, fine, levies, adjustments, etc.).
 
 
OIS Loan” means all Seller’s Indebtedness owed to Purchaser having an outstanding balance not to exceed Four Million Two Hundred Thousand Dollars ($4,200,000) in principal amount immediately prior to the Closing Date, as described in Section 2.3(a).
 
 
Order” means any order, injunction, judgment, decree, ruling, writ, assessment, award or other decision issued, promulgated or entered by or with any Governmental Body of competent jurisdiction.
 
 
Ordinary Course of Business” means the ordinary and usual course of normal day-to-day operations of the Business, as conducted by Seller or its subsidiaries.
 
 
 
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Permits” means the approvals, authorizations, consents, licenses, permits or certificates of a Governmental Body.
 
 
Permitted Exceptions” means (i) statutory Liens for current Taxes, assessments or other governmental charges not yet delinquent or the amount or validity of which is being contested in good faith by appropriate proceedings; (ii) mechanics’, carriers’, worker’s, repairers’ and similar Liens arising or incurred in the Ordinary Course of Business; (iii) zoning, entitlement and other land use regulations by any Governmental Body; (iv) title of a lessor under a capital or operating lease; and (v) such other imperfections in title, charges, easements, restrictions and encumbrances which would not be material to the Business of Seller or its subsidiaries.
 
 
Person” means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Body or other entity.
 
 
Products” means the products or services developed, manufactured, marketed, provided or sold by either Seller, as it relates to the Business, or by any Subsidiary, including those set forth on Schedule 1.1(b).
 
 
Purchased Agreements” refers to the Distributor Agreements, service agreements and other agreements as specified in Schedule 2.1(a).
 
 
Purchased Intellectual Property” means all the Intellectual Property of IRI, including all the know-how and prototypes associated thereto and including the know-how accumulated by Seller during the IRI Project set forth on Schedule 2.1(d) that shall be transferred by Seller to Purchaser under this Agreement; provided however, that “Purchased Intellectual Property” shall not include any OCS Funded Technology.
 
 
Purchaser Material Adverse Effect” means the ability of Purchaser to perform its obligations under this Agreement or to consummate the transactions contemplated hereby.
 
 
Reference Date” means June 24, 2009.
 
 
Software” means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code; and (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise.
 
 
Subsidiary” has the meaning ascribed thereto in Section 6.1.
 
 
Tax” or “Taxes” means any and all taxes, charges, levies, deficiencies or other assessments of whatever kind or nature including, without limitation, all net income, gross income, profits, gross receipts, excise, real or personal property, sales, ad valorem, goods and services, withholding, social security, retirement, excise, employment, unemployment, minimum, estimated, severance, stamp, property, occupation, environmental, recycling, waste disposal, windfall profits, use, service, net worth, payroll, franchise, license, gains, customs, transfer, recording and other taxes, customs duty, assessments or charges of any kind whatsoever, impos ed by any Taxing Authority, together with any interest, penalties or additions to tax relating thereto.
 
 
 
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Taxing Authority” means the IRS, Israel Tax Authority and any other Governmental Body responsible for the administration or collection of any Tax.
 
 
Third Party Claim” means any claim or the commencement of any Legal Proceeding by any Person who is not a party to this Agreement or an Affiliate of a party to this Agreement.
 
 
Transfer Documents” means the Bill of Sale, in such form as attached as Exhibit A hereto, the Assignment and Assumption Agreement, in such form as attached as Exhibit B hereto, and the CCS Deed.
 
 
Treasury Regulations” means the United States Treasury Regulations (including Temporary and Proposed Regulations) promulgated by the Internal Revenue Service, as such regulations may be amended from time to time (including corresponding provisions of succeeding Regulations).
 
 
United Mizrachi Bank Loan” means Seller’s Indebtedness owed to United Mizrachi Bank having an outstanding balance of One and a Half Million Dollars ($1,500,000) in principal amount immediately prior to the Closing Date.
 
 
1.2       Terms Defined Elsewhere in this Agreement. For purposes of this Agreement, the following terms have meanings set forth in the sections indicated:
 
 
Term
Section
AAA
Accounts Receivable
12.5
2.1(i)
Agreement
Preamble
Arbitrator
12.5
Assumed Liabilities
2.3
Belgian Activities
1.1 (in Business definition)
Closing
5.1(a)
Closing Date
5.1(a)
Confidentiality Agreement
12.7
Covenant Survival Period
10.1(b)
Decision
Disputes
Elop
12.5
12.5
6.8(ii)
Escrow Agent
10.5
Escrow Agreement
10.5
Escrow Fund
10.5
Exchange Act
1.1 (in Affiliate definition)
Excluded Assets
2.2
 
 
 
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Excluded Liabilities
2.4
Extraordinary Damages
Financial Statements
1.1 (in Damages definition)
6.4(a)
Foreign Tax Withholding Certificate
8.11
IAS
6.4(v)
Indemnification Claim
10.4(b)
IRI Project
6.8(ii)
ISA
6.4(iii)
MediVision ESE Report
6.4(i)
MediVision Product
6.17
MediVision Product Certifications
6.18
MediVision Recommendation
6.2(ii)
OCS Funded Technology
6.15(i)
Post-Closing Covenants
10.1(b)
Pre-Closing Covenants
10.1(b)
Pre-Closing Tax Period
11.3(a)
Purchased Assets
2.1
Purchased Shares
3.1
Purchased Trade Secrets
6.8(iii)
Purchaser
Preamble
Purchaser Documents
7.2(i)
Purchaser Indemnified Parties
10.2(a)
Seller
Preamble
Seller Disclosure Letter
6
Seller Documents
6.2(i)
Seller Indemnified Parties
10.3(a)
Seller Material Adverse Effect
6.1
Seller Material Agreements
6.9(iii)
Software Products
6.8(vi)
Subsidiary
6.1
Survival Period
10.1(b)
Tax
6.16
Tax Claim
11.4(b)
Tax Return
6.16
Termination Date
5.2(a)
Total Consideration
4.1
Transaction Documents
7.2(i)
Transfer Taxes
11.1
Warranty Survival Period
10.1(a)
 
 
 
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ARTICLE 2.
 
PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES
 
 
2.1       Purchase and Sale of Assets. On the terms and subject to the conditions set forth in this Agreement, at the Closing, Purchaser shall purchase, acquire and accept from Seller, and Seller shall sell, transfer, assign, convey and deliver to Purchaser all of Seller’s right, title and interest in, to and under the Purchased Assets free and clear of any Liens or Liabilities other than Permitted Exceptions and Assumed Liabilities. “Purchased Assets” shall mean the following assets and rights of Seller:
 
 
(a)       all rights of Seller under each of the Purchased Agreements;
 
 
(b)       the Purchased Shares.
 
 
(c)       Seller’s Belgium Activities;
 
 
(d)       the Purchased Intellectual Property as set forth on Schedule 2.1(d), including ownership and all other rights Seller may have with respect to the Purchased Intellectual Property;
 
 
(e)       all Documentation and know-how accumulated by Seller during the IRI Project, in connection with the Purchased Intellectual Property, including Documentation relating to the IRI Project; and a non-exclusive non-transferrable license to Purchaser to use any of Seller’s Intellectual Property which is not Purchased Intellectual Property solely to the extent necessary to conduct the Buisness;
 
 
(f)        the rights of Seller under non-disclosure or confidentiality, non-compete, or non-solicitation agreements with third parties or with Employees or Former Employees of Seller or Subsidiary, in each case to the extent directly related to the Business as of the Closing Date;
 
 
(g)       the rights of Seller under or pursuant to all warranties, representations and guarantees made by suppliers, manufacturers and contractors to the extent directly related to the Business as of the Closing Date;
 
 
(h)       all Cash generated by the operation of the Purchased Assets at and after the Closing Date;
 
 
(i)        the accounts receivable of Seller directly related to the Business as of the Closing Date (“Accounts Receivable”) and all rights of Seller to collect (and retain) from customers of the Business, all fees and other amounts payable to Seller, or that may become payable after the Closing Date as set forth on Schedule 2.1(i).
 
 
(j)        all of Seller’s causes of action, claims, credits, demands or rights of set-off against third parties, directly related to the Business as of the Closing Date;
 
 
 
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(k)       all goodwill associated with the Business as of the Closing Date, together with the right to represent to third parties that Purchaser is the owner of the Business as of the Closing Date;
 
 
(l)        all of Seller’s computer, Software, telecommunications, fixtures, fittings, machinery and other fixed assets as set forth on Schedule 2.1(l); and
 
 
(m)      all proceeds received or receivable by Seller under insurance policies as a result of any damage to or destruction of any Purchased Asset that occurs during the period between the Reference Date and the Closing Date to the extent Seller has not used such proceeds to repair or replace such damaged or destroyed Purchased Asset.
 
 
Notwithstanding the foregoing, the transfer of the Purchased Assets pursuant to this Agreement shall not include the assumption of any Liability related to the Purchased Assets unless Purchaser expressly assumes such Liability pursuant to Section 2.3.
 
 
2.2       Excluded Assets. Nothing herein contained shall be deemed to sell, transfer, assign or convey the Excluded Assets to Purchaser, and Seller shall retain all right, title and interest to, in and under the Excluded Assets. “Excluded Assets” shall mean all assets, properties, interests and rights of Seller other than the Purchased Assets, including without limitation each of the following assets:
 
 
(a )      the Excluded Agreements;
 
 
(b)       all Cash of Seller directly related to the Business and held by Seller prior to the Closing Date other than Cash generated by the operation of the Purchased Assets at and after the Closing Date;
 
 
(c)       all minute books, organizational documents, stock registers and such other books and records of Seller as pertains to ownership, organization or existence of Seller and duplicate copies of such records as are necessary to enable Seller to file Tax returns and reports;
 
 
(d)       any Intellectual Property rights of Seller, except for the Purchased Intellectual Property;
 
 
(e)       [Reserved]
 
 
(f)       ownership and other rights with respect to all Seller’s benefit plans;
 
 
(g)       any other books and records that Seller reasonably demonstrates that are required by Law or Order to retain the original thereof, provided that, if permitted by Law or Order, Seller shall provide Purchaser with copies of such books and records that relate to the Business;
 
 
(h)       any bank accounts of Seller;
 
 
(i)        any claim, right or interest of Seller in or to any refund, rebate, abatement or other recovery for Taxes attributable to the ownership or operation of the Purchased Assets for any period ending prior to the Closing Date or for Taxes attributable to the ownership or operation of the Excluded Assets for any period, together with any interest due thereon or penalty rebate arising therefrom;
 
 
 
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(j)        other than as described in Section 2.1(m), all insurance policies or rights to proceeds thereof relating to the assets, properties, business or operations of Seller, other than those relating to the Purchased Assets and Assumed Liabilities;
 
 
(k)       any rights, claims or causes of action of Seller against third parties relating to assets, properties, business or operations of Seller not directly related to the Purchased Assets;
 
 
(l)        all Tax returns and financial statements of Seller and the Business and all records (including working papers) directly related thereto; provided, that upon request Seller shall provide Purchaser with copies of the portions of such Tax returns, financial statements and records that relate solely to Subsidiary;
 
 
(m)      all of Seller’s causes of action, claims, credits, demands or rights of set-off against third parties, to the extent related to any Excluded Asset;
 
 
(n)      all rights that accrue to Seller under this Agreement;
 
 
(o)      all OCS Funded Technology;
 
 
(p)       the following products of Seller (i) AngioVision product line, including AngioVision 1000 and AngioVision 2000; (ii) DigiPhoto Product line, including DigiPhoto 640 and DigiPhoto 780; (iii) CamVision Product line, including CamVision 1000 and CamVision 2000; (iv) SpotVision; (v); RadVision; and (vi) Seller’s interest in the CGLT product; and
 
 
(q)       all rights, powers and assets not included in the Purchased Assets.
 
 
2.3       Assumption of Liabilities. On the terms and subject to the conditions set forth in this Agreement, at the Closing, Purchaser shall assume, effective as of the Closing, and shall timely perform, pay and discharge in accordance with their respective terms only the following Liabilities (collectively, the “Assumed Liabilities”):
 
 
(a)       Liabilities of Seller under the United Mizrachi Bank Loan not to exceed $1,500,000 in principal amount and the OIS Loan not to exceed $4,200,000 in principal amount (the material terms of which, including their respective interests rates, are as set forth in Schedule 2.3(a));
 
 
(b)       Liabilities of Seller under the Purchased Agreements (other than for previously paid performance required to have been made prior to the Closing Date);
 
 
(c)       Liabilities of Seller in connection with the Belgian Activities as set forth on Schedule 2.3(c);
 
 
(d)       [Reserved]
 
 
 
 
 
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(e)       Liabilities arising at or after the Closing Date from sales at and after the Closing Date of the Purchased Assets pursuant to product warranties, product returns and rebates;
 
 
(f)        Liabilities arising from claims or lawsuits related to events arising in connection with the Purchased Assets at or after the Closing Date;
 
 
(g)       One-half of Transfer Taxes applicable to the transfer of the Purchased Assets pursuant to this Agreement;
 
 
(h)       Liabilities for Taxes relating to the Purchased Assets for all taxable periods beginning at or after the Closing Date;
 
 
(i)        Liabilities and obligations of Seller directly relating to the Purchased Intellectual Property, as set forth on Schedule 2.3(i);
 
 
(j)        Liabilities and obligations of Seller arising at or after the Closing Date from an event occurring at or after the Closing Date under non-disclosure or confidentiality, non-compete, or non-solicitation agreements with third parties or with Employees or Former Employees of Seller or any Subsidiary, in each case to the extent directly related to the Business as of the Closing Date as set forth on Schedule 2.1(j); and
 
 
(k)       Liabilities of Seller under or pursuant to all warranties, representations and guarantees made by suppliers, manufacturers and contractors to the extent directly related to the Business as of the Closing Date as set forth on Schedule 2.1(k).
 
 
2.4       Excluded Liabilities. Purchaser will not assume or be liable for any Excluded Liabilities. “Excluded Liabilities” shall mean all Liabilities of Seller other than the Assumed Liabilities. Excluded Liabilities shall include Liabilities existing on or attributable to an act, omission or circumstance that occurred or existed prior to the Closing Date in respect of the Business, other than (i) the obligation to perform under the Purchased Agreements on or after Closing, and (ii) the Assumed Liabilities as otherwise specifically provided herein, and the following Liabilities:
 
 
(a)       all Liabilities arising out of Excluded Assets, including Excluded Agreements;
 
 
(b)       except as otherwise provided in Section 2.3(g), all Liabilities for Taxes (i) for all taxable periods of Seller, in the case of Taxes relating to the Excluded Assets, (ii) for all taxable periods ending prior to the Closing Date, in the case of Taxes relating to the Purchased Assets and (iii) under any Tax allocation, sharing or similar agreement;
 
 
(c)       one-half of all Transfer Taxes applicable to the transfer of the Purchased Assets pursuant to this Agreement;
 
 
(d)       all Liabilities relating to amounts required to be paid or assumed by Seller hereunder; and
 
 
 
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(e)       Liabilities arising under or pursuant to Environmental Laws directly related to the Business or the Purchased Assets, whether known or unknown, contingent or reserved, including but not limited to Liabilities arising out of or directly related to the presence, use, storage, disposal, treatment or release of Hazardous Materials by the Business or at any of the Purchased Assets;
 
 
2.5       Further Conveyances and Assumptions; Consent of Third Parties. From time to time following the Closing, Seller and Purchaser shall execute, acknowledge and deliver all such further conveyances, notices, assumptions, releases and acquittances and such other instruments, and shall take such further actions, as may be reasonably necessary or appropriate to assure fully to Purchaser and its successors or assigns, all of the rights, titles and interests intended to be conveyed to Purchaser under this Agreement, the Transfer Documents and the Escrow Agreement and to assure fully to Seller and its Affiliates and their successors and assigns, the assumption of the liabilities and obligations intended to be assumed by Purchaser under t his Agreement, the Transfer Documents and the Escrow Agreement, and to otherwise make effective the transactions contemplated hereby and thereby.
 
ARTICLE 3.
 
SALE AND PURCHASE OF CAPITAL STOCK
 
 
3.1       Sale and Purchase of Shares. Upon the terms and subject to the conditions contained herein, on the Closing Date, Seller shall sell, assign, transfer, convey and deliver to Purchaser, free and clear of any Lien except Permitted Exceptions, and Purchaser shall purchase from Seller, all of the shares of CCS which are issued and outstanding and which are owned by Seller, which constitute sixty three percent (63%) of the issued and outstanding shares of CCS (the “Purchased Shares”).
 
ARTICLE 4.
 
CONSIDERATION
 
 
4.1       Consideration. The aggregate consideration (“Total Consideration”) for the Purchased Assets shall be as follows:
 
 
(a)       In full payment of the purchase price for the Purchased Intellectual Property, Purchaser shall deem satisfied the inter-company Indebtedness owed by Seller to Purchaser under the OIS Loan and, as of the Closing Date, Purchaser will fully release and forever discharge Seller and/or its Affiliates from any and all liens, charges, pledges, security interests, debts, liabilities, claims, demands, obligations and other encumbrances arising from or related to such inter-company Indebtedness, including but not limited to principal and interest of the OIS Loan, which thereafter shall be deemed fully paid and discharged and all agreements relating thereto terminated. Without derogating from the forgoing, Purchaser shall sign all instruments required in order to cancel any pledge or ot her security interest registered upon or otherwise applicable to OIS shares owned by Seller and/or any Seller Intellectual Property or other assets, as security for repayment of such indebtedness, all of which shall be deemed terminated and discharged as of the Closing.
 
 
 
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(b)       In full payment of the purchase price of the Purchased Agreements, the Purchased Shares and the Belgian Activities, Purchaser shall assume, pursuant to an assignment and assumption agreement, the Indebtedness owed by Seller to United Mizrachi Bank under the United Mizrachi Bank Loan, and fully release and forever discharge Seller from any and all liens, charges, pledges security interests, debts, liabilities, claims, demands, obligations and other encumbrances arising from or related to such Indebtedness. Without derogating from the forgoing, Purchaser shall sign all instruments required in order to cancel any pledge or other security interest registered upon or otherwise applicable to OIS shares owned by Seller and/or any Seller Intellectual Property or other assets, as security for repayment of such indebtedness, all of which shall be deemed terminated and discharged as of the Closing.
 
ARTICLE 5.
 
CLOSING AND TERMINATION
 
 
5.1       Closing Date.
 
 
(a)       The consummation of the purchase, sale of the Purchased Assets and the assumption of the Assumed Liabilities provided for in Article 2 hereof (the “Closing”) shall take place at the offices of Troutman Sanders LLP, 405 Lexington Avenue, New York, New York 10174 (or at such other place as the parties may designate in writing) at 10:00 a.m. (Eastern standard time) on a date to be specified by the parties (the “Closing Date”), which date shall be no later than the Termination Date (as defined below); provided, that the satisfaction or waiver of the conditions set forth in Article 9 (other than conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at such time) shall have occurred, unless another time, date or place is agreed to in writing by the parties hereto. Notwithstanding anything in the foregoing to the contrary, the parties hereto agree that the Closing may be conducted by electronic exchange (by facsimile, .pdf transmission or similar means of electronic transmission) and telephonic confirmation of all relevant closing deliveries, except to the extent necessary to transfer title to the Purchased Shares.
 
 
(b)       On the Closing Date, the Purchased Shares shall be transferred by Seller to Purchaser by means of the execution of the CCS Deed. The fees and expenses of such German civil law notary shall be split equally between Seller and Purchaser.
 
 
(c)       On the Closing Date, Seller shall deliver or cause to be delivered to Purchaser the following documents and evidence:
 
 
(i)
written statements signed by Seller, executing the sale, transfer, assignment, conveyance and delivery, to Purchaser, of the Purchased Intellectual Property, Purchased Shares, Purchased Agreements and all documentation associated with the Belgian Activities;

 
(ii)
in relation to CCS, the statutory registers and minute books (written up to the time of Closing), certificate of incorporation; and
 
 
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(iii)
Officer Certificate of a qualified officer of United Mizrachi Bank indicating the balance due on the United Mizrachi Bank Loan and the terms of the loan (interest payment dates, maturity date, collateral).
 
(d)       From and after the Closing Date, Purchaser will receive the benefit of the Purchased Assets and Purchased Shares and shall accrue the obligation of the Assumed Liabilities, and as of such time, the risk of loss of the Purchased Assets and Purchased Shares shall be deemed transferred from Seller to Purchaser.
 
 
(e)       On the Closing Date, Purchaser shall deliver or cause to be delivered to Seller an Officer Certificate of a qualified officer of Purchaser indicating the balance due on the OIS Loan and the terms of the loan, including, the interest payment dates, maturity date, and collateral).
 
 
5.2       Termination of Agreement. This Agreement may be terminated prior to the Closing as follows:
 
 
(a)       At the election of Seller or Purchaser on or after October 22, 2009 (such date, as it may be extended under this Section 5.2(a), the “Termination Date”), if the Closing shall not have occurred by the close of business on such date, provided that the terminating party is not in breach in any material respect of any of its obligations hereunder; and provided, further, that upon the mutual written agreement of Purchaser and Seller, the Ter mination Date may be extended for agreed upon additional periods of time;
 
 
(b)       by mutual written consent of Seller and Purchaser;
 
 
(c)       by Seller or Purchaser if there shall be in effect a final nonappealable Order of a Governmental Body of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby; provided, however, that the right to terminate this Agreement under this Section5.2(c)  shall not be available to a party if such Order was primarily due to the failure of such party to perform any of its obligations under this Agreement; or
 
 
(d)       by Purchaser if (i)  Seller shall be in material violation of any of its obligations hereunder, and if such violation (if curable) is not cured within twenty (20) days after the giving of written notice by Purchaser to Seller or (ii) there has been any event, change, occurrence or circumstance that renders any of the conditions set forth in Article 9 incapable of being satisfied by the Termination Date.
 
 
(e)       by Seller if (i) Purchaser shall be in material violation of any of its obligations hereunder, and if such violation (if curable) is not cured within twenty (20) days after the giving of written notice by Seller to Purchaser, or (ii) there has been any event, change, occurrence or circumstance that renders any of the conditions set forth in Article 9 incapable of being satisfied by the Termination Date.
 
 
 
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5.3       Procedure upon Termination. In the event of termination and abandonment by Purchaser or Seller pursuant to Section 5.2 hereof, written notice thereof shall forthwith be given to the other party or parties, and this Agreement shall terminate, and the transactions contemplated hereunder shall be abandoned, without further action by Purchaser or Seller.
 
 
5.4       Effect of Termination.
 
 
(a)       In the event that this Agreement is validly terminated in accordance with Sections 5.2 and 5.3, then each of the parties shall be relieved of their duties and obligations arising under this Agreement after the date of such termination and such termination shall be without liability to Purchaser or Seller; provided, that no such termination shall relieve any party hereto from liability for any willful breach of this Agreement and; provided, further, that the obligations of the parties set forth in Sections 5.4, 8.5, 8.6, and 12.2 through 12.10 hereof shall survive any such termination and shall be enforceable hereunder.
 
 
(b)       Nothing in this Section 5.4 shall relieve Purchaser or Seller of any liability for a breach of any of its covenants or agreements or breach of its representations and warranties contained in this Agreement prior to the date of termination. The Damages recoverable by the non-breaching party shall include all attorneys’ fees reasonably incurred by such party in connection with the transactions contemplated hereby.
 
 
(c)       Nothing in this Section 5.4 shall relieve Purchaser or Seller of their obligations under Section 8.5, and such obligations shall survive any termination of this Agreement. If this Agreement is terminated pursuant to Section 5.2 hereof, Purchaser and Seller shall promptly destroy any Confidential Information of the other in its possession.
 
ARTICLE 6.
 
REPRESENTATIONS AND WARRANTIES OF SELLER
 
Except as set forth in the corresponding sections or subsections of the disclosure letter delivered to Purchaser by Seller concurrently with the execution and delivery of this Agreement (the “Seller Disclosure Letter”), Seller hereby represents and warrants to Purchaser that:
 
 
6.1       Organization. Each of Seller and Subsidiary (as defined below) is a legal entity duly organized and validly existing under the laws of the jurisdiction of its incorporation or organization and has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted, and is qualified to do business as a foreign corporation in each jurisdiction where the ownership, leasing or operation of its assets or properties or the conduct of its business requires such qualification, except where the failure to be so organized, qualified or to have such power or authority, individually or in the aggregate, has not had and would not reasonably be expected to have a Seller Material Adverse Effect (as defined below). Seller has made available to Purchaser complete and correct copies of Seller’s and Subsidiary’s charter or comparable governing documents, each as amended to the date hereof, and each as so delivered is in full force and effect. Neither Seller nor Subsidiary is in violation of any provisions of its Articles of
 
 
 
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Association or comparable governing documents. No dissolution, revocation or forfeiture proceedings regarding Seller or Subsidiary have been commenced. The minute books of Seller and Subsidiary made available to Purchaser or its representatives contain accurate records of all meetings of their boards of directors, all committees of the boards of directors and all of their shareholders’ meetings in the last five years. Section 6.1 of the Seller Disclosure Letter contains a correct and complete list of each jurisdiction where Seller and Subsidiary are organized and qualified to do business. As used in this Agreement, the term (i) “Subsidiary” shall refer to CCS; and (ii) “Seller Material Adverse Effect” means (i) an event, occurrence, fact, condition, change or effect that has a material adverse effect on the Purchased Assets (taken as a hole), or the operations, condition (financial or otherwise) or results of operations or prospects of the Business, or (ii) preventing, materially delaying or materially impairing Seller’s or Subsidiary’s ability to consummate the transactions contemplated by this Agreement.
 
 
6.2       Corporate Authority; Approval and Fairness.
 
 
(i)        Seller has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by Seller in connection with the consummation of the transactions contemplated by this Agreement (the “Seller Documents”), to perform its respective obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby and no other corporate proceedings on the part of Seller are necessary to authorize this Agreement or any Seller Document to which it is a party or to consummate the transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement and each of the Seller Documents and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by all requisite corporate action on the part of Seller. This Agreement has been, and each of the Seller Documents will be at or prior to the Closing, duly and validly executed and delivered by Seller and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each of the Seller Documents when so executed and delivered will constitute, legal, valid and binding obligations of Seller, enforceable against Seller in accordance with its respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity.
 
 
(ii)       (A) Each of the audit committee and the board of directors of MediVision has: (I) unanimously determined that this Agreement and the transactions contemplated by this Agreement are fair to, and in the best interests of, MediVision and its shareholders; (II) approved this Agreement and the transactions contemplated hereby; and (III) made all other affirmative determinations required to be made by it in connection with this Agreement and the transactions contemplated hereby under the Israeli Companies Law; and (B) the board of directors of MediVision has: (I) resolved to recommend approval of this Agreement and the transactions contemplated hereby to the general meeting of MediVision’s shareholders (the “MediVision Recommendation”) and directed that this Agreement be submitted to the general meeting of MediVision’s
 
 
 
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shareholders for their approval; and (II) received the BDO Fairness Opinion, to the effect that the consideration to be received by MediVision under this Agreement is fair from a financial point of view, as of the date of such opinion, to MediVision.
 
 
6.3       Consent of Third Parties; No Violations.
 
 
(i)        Except as set for in Section 6.3(i) of the Seller Disclosure Letter, no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or any Governmental Bodyis required on the part of Seller in connection with the execution and delivery of this Agreement, the compliance by Seller with any of the provisions hereof, the consummation of the transactions contemplated hereby, and except such other consents, waivers, approvals, Orders, Permits or authorizations the failure of which to obtain would not have a Seller Material Adverse Effect.
 
(ii)       Other than as set forth in Section 6.3(ii) of the Seller Disclosure Letter, and/or other than Permitted Exceptions, execution, delivery and performance of this Agreement by Seller does not constitute or result in the creation of imposition of any Lien on any of the Business or the Purchased Assets or conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under, any provision of (i) the certificate of incorporation and bylaws or comparable organizational documents of Seller or Subsidiary; (ii) any Seller Material Agreement or material Permit to which Seller or Subsidiary is a party or by which any of the Business or the Purchased Assets are subject; (iii) any Ord er of any Governmental Body by which any of the Business or the Purchased Assets may be subject; or (v) any applicable Law. Section 6.3(ii) of the Seller Disclosure Letter sets forth a correct and complete list of Seller Material Agreements pursuant to which consents or waivers are or may be required prior to consummation of the transactions contemplated by this Agreement.
 
 
(iii)      Other than as described in Section 6.3(iii) of the Seller Disclosure Letter, except for: (A) relationships with Seller or Subsidiary as an officer, director, or employee thereof (and compensation by Seller or Subsidiary in consideration of such services) in accordance with the terms of their employment; and (B) relationships with Seller as shareholders or option holders therein, to the Knowledge of Seller, none of the directors or officers, or the shareholders of Seller, or any known member of any of their families or Affiliates, are presently a party to, or have been a party to during the year preceding the date of this Agreement, any transaction, agreement or arrangement with Seller or Subsidiary. To the Knowledge of Seller none of the officers, directors or shareholders of Seller hav e any known interest in any property, real or personal, tangible or intangible, including inventions, copyrights, trademarks, or trade names, used in or pertaining to the business, or any supplier, distributor, or customer of Seller, except for the normal rights of a shareholder or option holder or Seller. Other than as described in Section 6.3(iii) of the Seller Disclosure Letter, Seller and Subsidiary have not, since July 1, 2004, (x) extended or maintained credit, arranged for the extension of credit or renewed an extension of credit in the form of a personal loan to or for any director or executive officer of Seller or (y) materially modified any term of any such extension or maintenance of credit.
 
 
 
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6.4       MediVision Reports; Financial Statements.
 
(i)        To the Knowledge of Seller, as of their respective dates (or, if amended prior to the date hereof, as of the date of such amendment) all forms, statements, reports and documents filed with or furnished to the Euronext Stock Exchange (the “MediVision ESE Reports”) did not and will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. Each English language translation of a non-English language document filed as an exhibit to, or incorporated by reference into, any MediVision ESE Report constitutes a true, correct and complete translation of th e original document in all material respects.
 
(ii)       MediVision does not maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by MediVision is recorded and reported on a timely basis to the individuals responsible for the preparation of MediVision’s filings with the Euronext Stock Exchange and other public disclosure documents. MediVision and Subsidiary maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are generally executed in accordance with management’s general or specific authorizations; (ii) transactions are generally recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) a ccess to assets is generally permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any material differences. MediVision’s management has disclosed to MediVision’s auditors and the audit committee of MediVision’s board of directors (A) any significant deficiencies in the design or operation of its internal controls over financial reporting that are reasonably likely to materially adversely affect MediVision’s ability to record, process, summarize and report financial information and has identified for MediVision’s auditors and audit committee of MediVision’s board of directors any material weaknesses in internal control over financial reporting and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in MediVision ’s internal control over financial reporting. MediVision has made available to OIS (i) the material information relating to any such disclosure made by management to MediVision’s auditors and audit committee since December 31, 2000 and (ii) any material communication since December 31, 2000 made by management or MediVision’s auditors to its audit committee. Since December 31, 2000, no material complaints from any source regarding accounting, internal accounting controls or auditing matters, and no material concerns from MediVision employees regarding questionable accounting or auditing matters, have been received by MediVision. MediVision has made available to OIS the material information relating to all such material complaints or concerns relating to other matters made since December 31, 2000 and through the date hereof. No attorney representing MediVision or Subsidiary, whether or not employed by MediVision or Subsidiary, has reported to MediVision any evide nce of a violation of securities Laws, breach of fiduciary duty or similar violation by MediVision or any of its officers, directors, employees or agents to MediVision’s chief legal officer, audit committee (or other committee designated for the purpose) of the board of directors.
 
 
 
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(iii)      Each of the consolidated balance sheets included in or incorporated by reference into any MediVision ESE Reports (including the related notes and schedules) fairly presents in all material respects the consolidated financial position of MediVision and its consolidated subsidiaries as of its date and each of the consolidated statements of income, changes in shareholders’ equity (deficit) and cash flows included in or incorporated by reference into MediVision ESE Reports (including any related notes and schedules) fairly presents in all material respects the results of operations, retained earnings (loss) and changes in financial position, as the case may be, of such companies for the periods set forth therein (subject, in the case of unaudited statements, to notes and normal year-end audit a djustments that will not be material in amount or effect), in each case in accordance with International Accounting Standards (“IAS”) consistently applied during the periods involved, except as may be noted therein.
 
 
(iv)      MediVision has previously furnished to OIS a complete and correct copy of any material amendments or modifications, which have not yet been filed with the Euronext Stock Exchange but which are required to be filed, to agreements, documents or other instruments which previously had been filed by MediVision with the Euronext Stock Exchange.
 
 
(v)       MediVision has made available to OIS all material position papers with respect to accounting policies and practices, including any quarterly position made available to MediVision’s principal financial and accounting officer, its audit committee or its independent registered public accounting firm; MediVision’s revenue recognition policies and practices are and have been in compliance in all material respects with all applicable rules, regulations and statements of the Euronext Stock Exchange with respect thereto; and MediVision’s controls over its revenue recognition policies and practices have been communicated to and applied in all material respects by its sales organization.
 
 
(vi)      Neither MediVision nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of a nature required to be disclosed in a MediVision ESE Report or on a consolidated balance sheet or in the related notes to consolidated financial statements prepared in accordance with IAS and the rules of the Euronext Stock Exchange and which are not so reported and which are, individually or in the aggregate, material to the business, results of operations, assets or financial condition of MediVision and its Subsidiaries taken as a whole, except liabilities permitted to be incurred under this Agreement.
 
 
6.5       Accounts Receivable. All Accounts Receivable: (i) have arisen from bona fide transactions in the Ordinary Course of Business consistent with past practice and are payable on ordinary trade terms, (ii) to the Knowledge of Seller, are legal, valid and binding obligations of  the respective debtors enforceable in accordance with their terms, and (iii) are not subject to any valid counterclaim. All Accounts Receivable of Seller and its subsidiaries reflected on the balance sheet are good and fully collectible at the aggregate recorded amounts thereof, net of any applicable reserve for returns or doubtful accounts reflected thereon.
 
 
 
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6.6       Title to Purchased Assets, Intellectual Property.
 
 
(i)        Except as set forth in Schedule 6.6(i), Seller owns and has good and marketable title to each of the Purchased Assets, free and clear of all Liens (other than Permitted Exceptions).
 
 
(ii)       Except as set forth on Schedule 6.4(ii), Seller exclusively owns and has rights to use all Purchased Intellectual Property, free and clear of any Liens (other than Permitted Exceptions). Except as set forth on Schedule 6.4(ii), to the Knowledge of Seller, (i) none of the Purchased Intellectual Property infringes or results from the misappropriation of any Intellectual Property of any third Person, (ii) no third Person is infringing or misappropriating any Purchased Intellectual Property, and (iii) none of the Purchased Intellectual Property is the subject of any current claim of infringement or misappropriation received by Seller or Subsid iary in writing.
 
 
6.7       Ownership and Transfer of Purchased Shares. Seller is the record and beneficial owner of the Purchased Shares, which constitute sixty three percent (63%) of the issued and outstanding shares of CCS free and clear of any and all Liens (other than Permitted Exceptions). To the Knowledge of Seller, CCS has no shares reserved for issuance for any outstanding share option plan as of the date hereof. Seller has the corporate power and authority to sell, transfer, assign and deliver the Purchased Shares being sold by it as provided in this Agreement, and such delivery will convey to Purchaser good and marketable title to the Purchased Shares, free and clear of any and all Liens (other than Permitted Exceptions).
 
 
6.8       Intellectual Property.
 
 
(i)        Seller owns or has a valid right to use the Purchased Intellectual Property used in its business as presently conducted, except as, individually or in the aggregate, has not had and would not reasonably be expected to have a Seller Material Adverse Effect. Section 6.8(i) of the Seller Disclosure Letter sets forth the (x) Purchased Intellectual Property owned by Seller, indicating for each registered item the registration or application number and the applicable filing jurisdiction and (y) material Intellectual Property Agreements to which Seller or Subsidiary is a party, or is bound by or has rights under associated with the Purchased Intellectual Property. Except as set forth in Section 6.8(i) of the Seller Disclosure Letter, Seller has exclusive ownership of the Pur chased Intellectual Property owned by it, free and clear of all Liens (other than Permitted Exceptions), exclusive licenses and non-exclusive licenses other than those granted in connection with the sale of products in the Ordinary Course of Business. The Purchased Intellectual Property owned by Seller is to the Knowledge of Seller valid, subsisting and enforceable, and is not subject to any outstanding order, judgment, decree or agreement (other than Permitted Exceptions) adversely affecting Seller’s or Subsidiary’s use thereof or its rights thereto. Seller is aware of no facts that would
 
 
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materially adversely affect its or Subsidiary’s ability to utilize the Purchased Intellectual Property as intended, including any patents or other Intellectual Property of others (other than Permitted Exceptions) that could be infringed by the manufacture, use, or sale of products derived from the Purchased Intellectual Property. To the Knowledge of Seller, neither Seller nor Subsidiary has infringed or otherwise violated the Intellectual Property rights, related to the Purchased Intellectual Property, of any third party, and, except as set forth in Section 6.8(i) of the Seller Disclosure Letter, neither Seller nor Subsidiary has received any notice or claim challenging ownership of the Purchased Intellectual Property owned by Seller or Subsidiary or claiming that Seller or Subsidiary infringes or misappropriates the Intell ectual Property of any third party related to the Purchased Intellectual Property (other than Permitted Exceptions).
 
 
(ii)       Without limiting the foregoing, except as set forth in Section 6.8(ii) of the Seller Disclosure Letter, Seller owns all Intellectual Property directly related to the IRI. Section 6.8(ii) of the Seller Disclosure Letter sets forth all Agreements to which Seller or Subsidiary is a party, or is bound by or has rights under, directly relating to the IRI, its development, or the Intellectual Property directly related thereto (“IRI Project”). Except as set forth in Section 6.8(ii) of the Seller Disclosure Letter, Seller has exclusive ownership of all Intellectual Property directly related to the IRI, free and clear of all Liens (other than Permitted Exceptions), exclusive licenses and non-exclusive licenses other th an those granted in connection with the sale of products in the ordinary course of business. The Intellectual Property directly relating to the IRI is valid, subsisting and enforceable and is not subject to any outstanding order, judgment or decree (other than Permitted Exceptions) adversely affecting Seller’s use thereof or its rights thereto. Except for a settlement agreement, dated as of _______, (the “Elop Settlement Agreement”) entered into by Seller and Elbit Systems Electro-Optics Elop Ltd. (“Elop”) and the agreements set forth in Section 6.8(ii) of the Seller Disclosure Letter, there are no agreements (other than Permitted Exceptions) adversely affecting Seller’s use of the IRI Project or the Intellectual Property rights related thereto. Seller is aware of no facts that would adversely affect its ability to utilize such Intellectual Property as intended, including any patents or other Intellectual Property of others (other than Permitted Exceptions) that could be infringed by the manufacture, use, or sale of products derived from such Intellectual Property.
 
 
(iii)      Seller and Subsidiary have taken reasonable and customary measures to protect the confidentiality and value of all trade secrets related to the Purchased Intellectual Property, that are owned, used or held by Seller or Subsidiary (“Purchased Trade Secrets”), and to the Knowledge of Seller, such Purchased Trade Secrets (other than Permitted Exceptions) have not been used, disclosed to or discovered by any person except pursuant to valid and appropriate non-disclosure and/or license agreements which have not been breached. To the Knowledge of Seller, no Employee has any patents issued or applications pending for any device, process, design or invention of any kind now used or currently known to be needed by Seller or Subsidiary in connection with the Purchased Intellectual Property, in the furtherance of its business, which patents or applications have not been assigned to Seller or Subsidiary. All current Employees and all Former Employees that were involved in the development of Seller Products or
 
 
 
 
 
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Intellectual Property have executed valid intellectual property and confidentiality agreements for the benefit of Seller or Subsidiary in a form that Seller has prior to the date of this Agreement provided to Purchaser. Every agreement, under which Intellectual Property was developed, created or otherwise made, for Seller or Subsidiary, assigns all rights to such Intellectual Property to Seller or to Subsidiary.
 
 
(iv)      Neither Seller nor Subsidiary has granted any licenses or other rights to third parties to use the Purchased Intellectual Property other than non-exclusive licenses granted in the ordinary course of business pursuant to customary terms that have been previously provided to Purchaser.
 
 
(v)       Seller has source code for each version of software which is part of the Purchased Intellectual Property, owned by it or Subsidiary and used in the past five (5) years. The source code for such software will compile into object code or otherwise is capable of being installed and operated. Once compiled and/or installed, such software in all material respects will have the features, functions and performance described in the documentation pertaining to it and will execute on the computer platforms for which it is designed. To the Knowledge of Seller, except as set forth in Section 6.8(v) of the Seller Disclosure Letter, none of the software owned by Seller or Subsidiary which is Purchased Intellectual Property contains any shareware, open source code, or other software whose use requires disclosure or licensing of Intellectual Property, including any GNU or GPL libraries or code.
 
 
(vi)      Section 6.8(vi) of the Seller Disclosure Letter contains a list of all software that is sold, licensed, leased or otherwise distributed by Seller or Subsidiary or resellers (the “Software Products”), in connection with the Purchased Intellectual Property, indicating, in each case, the name, owner and most recent version of the Software Product and information regarding any third-party code that is embedded in such Software Product. For the avoidance of doubt, software that is obtained under a “limited license” or open source license shall be considered “third-party code.”
 
 
6.9       Seller Material Agreements and Governmental Contracts.
 
 
(i)        Each Seller Material Agreement (as defined below) disclosed or required to be disclosed in Schedule 6.9(i) is in full force and effect and constitutes a legal, valid and binding agreement of, enforceable in accordance with its terms against, Seller or Subsidiary, as the case may be, as a party thereto and, to the Knowledge of Seller, the other party thereto. Neither Seller nor Subsidiary, as the case may be, nor, to the Knowledge of Seller, any other party to any Seller Material Agreement, is in violation or breach of or default under, in any respect, any such Seller Material Agreement (or, with notice or lapse of time or both, would be in violation or breach of or default under, in any material respect, any such Sell er Material Agreement). Neither Seller nor Subsidiary, as the case may be, has received any written notice from any other party to any Seller Material Agreement to the termination or non-renewal of such Seller Material Agreement.
 
 
 
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(ii)       Except as set forth on Schedule 6.9(ii), neither Seller nor Subsidiary has received any written notice of any default or event that with notice or lapse of time or both would constitute a default by Seller or Subsidiary under any Seller Material Agreement.
 
 
(iii)      Schedule 6.9(i) sets forth all of the following Agreements to which Seller or Subsidiary is a party or by which they are bound and that are directly related to the Purchased Assets or by which the Purchased Assets may be bound or affected:
 
 
(A)      (i) any Agreement for the purchase of raw materials that is reasonably likely to require payments of One Hundred Thousand Dollars ($100,000) or more in any year; (ii) any Agreement for the acquisition of or investment in capital equipment for an aggregate purchase price or investment value of One Hundred Thousand Dollars ($100,000) or more; (iii) any Agreement authorizing the distribution or resale by any Person of any of Seller’s products or services or (iv) any Agreement for the sale or rental of products or services that is reasonably likely to result in payments to Seller and Subsidiary of One Hundred Thousand Dollars ($100,000) or more in any year;
 
 
(B)      any partnership, joint venture or other similar agreement or arrangement relating to the formation, creation, operation, management or control of any partnership or joint venture material to Seller or Subsidiary or in which Seller owns more than a five percent (5%) voting or economic interest, or any interest valued at more than One Hundred Thousand Dollars ($100,000) without regard to percentage voting or economic interest;
 
 
(C)      any Agreement relating to indebtedness for borrowed money or the deferred purchase price of property (in either case, whether incurred, assumed, guaranteed or secured by any asset) in excess of One Hundred Thousand Dollars ($100,000);
 
 
(D)      any non-competition Agreement or other Agreement that (i) purports to limit in any material respect either the type of business in which Seller or Subsidiary may engage or the manner or locations in which any of them may so engage in any business, (ii) could require the disposition of any material assets, line of business or product line of Seller or Subsidiary, (iii) grants “most favored nation” status, including Seller and Subsidiary or (iv) prohibits or limits the rights of Seller or Subsidiary in any material respect to make, sell or distribute any products or services, or use, transfer, license, distribute or enforce any of their respective Intellectual Property rights;
 
 
(E)       any Agreement to which Seller or Subsidiary is a party containing a standstill or similar agreement pursuant to which the party has agreed not to acquire assets or securities of the other party or any of its Affiliates;
 
 
(F)       any Agreement between Seller or Subsidiary and any director or officer of Seller or any Person beneficially owning five percent (5%) or more of the outstanding shares;
 
 
 
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(G)      any Agreement providing for indemnification by Seller or Subsidiary of any Person, except for any such Agreement that is (x) not material to Seller and Subsidiary and (y) entered into in the ordinary course of business;
 
 
(H)      any dealer, distributor, joint marketing or development Agreement currently in force under which Seller or Subsidiary has continuing material obligations to jointly market any product, technology or service and which may not be canceled without penalty upon notice of ninety (90) days or less, or any Agreement pursuant to which Seller or Subsidiary has continuing material obligations to jointly develop any Intellectual Property that will not be owned, in whole or in part, by Seller or Subsidiary and which may not be canceled without penalty upon notice of ninety (90) days or less;
 
 
(I)        any Agreement or commitment currently in force to license any third party to manufacture or reproduce any Seller Product, service or technology or any Agreement or commitment currently in force to sell or distribute any Seller Products, service or technology involving amounts in excess of Two Hundred Fifty Thousand Dollars ($250,000) per annum, except agreements with distributors or sales representatives in the ordinary course of business cancelable without penalty upon notice of ninety (90) days or less;
 
 
(J)       any mortgages, indentures, guarantees, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit, other than trade payables incurred and extensions of credit to customers granted in the ordinary course of business;
 
 
(K)      any settlement agreement under which Seller or Subsidiary has material ongoing obligations;
 
 
(L)       all Agreements relating to the governance or shareholding of CCS, including any Agreements between Seller and the other shareholder of CCS that affect or may affect such governance or shareholding;
 
 
(M)     all Agreements relating to the development or ownership of the IRI or the Intellectual Property relating thereto;
 
 
(N)      any Agreement or commitment not otherwise disclosed pursuant to one of the other clauses of this Section 6.7(i) involving in excess of One Hundred Thousand Dollars ($100,000) being paid by or to Seller or Subsidiary in any twelve (12) month period;
 
 
(O)      any other Agreement or group of related Agreements that, if terminated or subject to a default by any party thereto, would, individually or in the aggregate, be reasonably likely to have a Seller Material Adverse Effect (the Agreements described in clauses (A)-(Q), together with all exhibits and schedules to such Agreements, being the “Seller Material Agreements”).
 
 
(iv)      A true and correct copy of each Seller Material Agreement has previously been delivered to Purchaser and neither Seller, Subsidiary nor, to the Knowledge of Seller, any other party thereto is in default with respect to a material obligation under or material breach in any respect under the terms of any such Seller Material Agreement.
 
 
 
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(v)       Except as set forth on Schedule 6.9(v), neither Seller nor Subsidiary is party to any material Agreement to which the other ultimate contracting party is a Governmental Body (including any subcontract with a prime contractor or other subcontractor who is a party to any such Agreement)
 
 
6.10     Absence of Certain Developments. Except as expressly contemplated by this Agreement or as set forth on Schedule 6.10, since December 31, 2008, Subsidiary and the Business has been conducted only in the Ordinary Course of Business, and, with respect to the Business, the Purchased Assets and Subsidiary, there has not been:
 
 
(a)       any event, change or circumstance which has had, or is reasonably likely to have, a Seller Material Adverse Effect;
 
 
(b)       any material damage (normal wear and tear excepted), destruction, eminent domain taking or other casualty loss (whether or not covered by insurance) affecting Subsidiary or the Business or any Purchased Asset in any material respect;
 
 
(c)       any purchase, sale, mortgage, pledge, lease, or creation or other incurrence of any Lien on the Business, any Purchased Asset or asset of Subsidiary, other than purchases, sales or leases of assets in the Ordinary Course of Business or the creation or incurrence of Permitted Exceptions;
 
 
(d)       any material change in any method of accounting or accounting practice with respect to the Business or Subsidiary;
 
 
(e)       any entry into, termination, amendment, cancellation, or other modification of any Agreement or any waiver of, or agreement with respect to, any rights or obligations set forth therein, other than in the Ordinary Course of Business;
 
 
(f)        any material settlement, waiver or agreement with respect to any Legal Proceeding, Liability, or other right;
 
 
(g)       any incurrence or assumption of any Indebtedness in an aggregate amount greater than Fifty Thousand Dollars ($50,000);
 
 
(h)       any (i) delay or postponement of the payment of any accounts payable or any change in the methodology employed by Seller or Subsidiary with respect to the payment thereof, (ii) acceleration of the collection of Accounts Receivable or any change in the methodology employed by Seller or Subsidiary with respect to the payment thereto, (iii) turnover of inventory, or (iv) incurrence of other Liabilities outside of the Ordinary Course of Business, which in the case of (i)-(iv) above, exceeds in the aggregate an amount greater than Fifty Thousand Dollars ($50,000);
 
 
 
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(i)        any transaction with any Affiliate outside of the Ordinary Course of Business;
 
 
(j)        any declaration, setting aside or payment of any dividend or other distribution in respect of the capital stock (or other applicable equity or beneficial interest) of Subsidiary, or any direct or indirect redemption, purchase or other acquisition by Seller or its Affiliates of any such capital stock (or other applicable equity or beneficial interest), or any Option with respect to, Subsidiary;
 
 
(k)       any authorization, issuance, sale or other disposition by Subsidiary of any shares of capital stock (or other applicable equity or beneficial interest) of, or option with respect to, Subsidiary, or any modification or amendment of any right of any holder of any outstanding shares of capital stock (or other applicable equity or beneficial interest) of, or option with respect to, Subsidiary;
 
 
(l)        any (A) reorganization, liquidation or dissolution of Seller or Subsidiary or (B) business combination involving Seller or Subsidiary and any other Person;
 
 
(m)      any amendment to the organizational documents of Subsidiary or the taking of any action with respect to any such amendment;
 
 
(n)       except as set forth on Schedule 6.10(n), any violation, breach or default under, or the taking or failure to take any action that (with or without notice or lapse of time or both) would constitute a violation or breach of, or default under, any term or provision of any Permit held or used by Subsidiary or Seller and relating to the Business or the Purchased Assets; or
 
 
(o)       any entering into of an agreement to do or engage in any of the foregoing.
 
 
6.11     Litigation. Except as set forth in Schedule 6.11 of the Seller Disclosure Letter, there are no (A) civil, criminal or administrative actions, suits, claims, hearings, arbitrations, investigations or other proceedings pending or, to the Knowledge of Seller, threatened against Seller or Subsidiary that relates to or may affect the Business, the Purchased Assets or Seller’s or Subsidiary’s obligations under this Agreement, except for those that would not, individually or in the aggregate, reasonably be expected to have a Seller Material Adverse Effect or (B) obligations or liabilities of Seller or Subsidiary, whether or not accrued, contingent or otherwise, and whether or not required to be disclosed in SellerR 17;s Financial Statements, or any other facts or circumstances known to Seller that could reasonably be expected to result in any claims against, or obligations or liabilities of, Seller or Subsidiary that relates to or may affect the Business, the Purchased Assets or Seller’s or Subsidiary’s obligations under this Agreement, including those relating to environmental and occupational safety and health matters, except for those that, individually or in the aggregate, have not had and would not reasonably be expected to have a Seller Material Adverse Effect. Neither Seller nor Subsidiary is a party to or subject to the provisions of any judgment, order, writ, injunction, decree or award of any Governmental Body that relates to or may affect the Business, the Purchased Assets or Seller’s or Subsidiary’s obligations under this Agreement which, individually or in the aggregate, has had, or would reasonably be expected to have, a Seller Material Adverse Effect.
 
 
 
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6.12     Financial Advisors. No Person has acted, directly or indirectly, as a broker, finder or financial advisor for Seller in connection with the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof. Seller shall be solely obligated for the payment of all fees and expenses of any such broker, finder, or financial advisor.
 
 
6.13     Environmental Matters. Except as may not have a Seller Material Adverse Effect, (i) Seller and its Subsidiaries are not in violation of any Environmental Law; (ii) no real property currently or, to the Knowledge of Seller, formerly owned or operated by Seller or Subsidiary is, or with respect to formerly owned or operated properties, to the Knowledge of Seller is, contaminated with any Hazardous Material or requires remediation under any Environmental Law; (iii) Seller and Subsidiary do not have knowledge of being subject to liability for any off-site disposal or contamination; (iv) Seller and its Subsidiaries have not received any claims or notices alleging liability under any Environmental Law; and (v) to the K nowledge of Seller, there are no circumstances involving Seller or Subsidiary that could result in any claims, liabilities, costs or restrictions on the ownership, use or transfer of any property pursuant to any Environmental Law.
 
 
6.14     Tax Returns and Payments.
 
 
(i)        Each of Seller and Subsidiary (w) has prepared in good faith and duly and timely filed (taking into account any extension of time within which to file) all material Tax Returns (as defined below) required to be filed by it, and all such Tax Returns are complete and accurate in all material respects and prepared in substantial compliance with all applicable Laws; (x) with respect to any Tax Returns that are required to be filed after the date hereof but prior to the Closing Date, each of Seller and Subsidiary shall prepare in good faith and duly and timely file (taking into account any extension of time within which to file) all such Tax Returns and such Tax Returns shall be complete and accurate in all material respects and prepared in substantial compliance with all applic able Laws; (y) has paid all Taxes (as defined below) relating to Purchased Assets that it is (or was) required to pay, whether or not shown as due on such Tax Returns, and has withheld all Taxes it has been obligated to withhold from amounts owing to any employee, creditor or third party, except with respect to matters contested in good faith for which adequate reserves have been established and which are set forth in Section 6.14(i) of the Seller Disclosure Letter; and (z) has not waived any statute of limitations with respect to Taxes relating to Purchased Assets or agreed to any extension of time with respect to a Tax assessment or deficiency. Seller and Subsidiary have complied in all material respects with all applicable Laws relating to Taxes relating to Purchased Assets. Except as set forth in Section 6.14(i) of the Seller Disclosure Letter, there are no pending, or to the Knowledge of Seller, threatened audits, examinations, investigations or other proceedings in respect of Taxes or Tax matters relating to Purchased Assets involving Seller or Subsidiary. Seller has made available to Purchaser true and correct copies of the Israeli Tax Returns and German income and VAT Tax Returns filed by Seller and Subsidiary for each of the fiscal years ended December 31, 2006, 2005 and 2004; neither Seller nor Subsidiary has filed (and was not required to file) any income or VAT Tax Returns in any jurisdictions other than Israel and Germany for
 
 
 
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such fiscal periods, and no claims have been made relating to Purchased Assets by any other jurisdiction that Seller and/or Subsidiary is or may be subject to income or VAT taxation by that jurisdiction. The unpaid Taxes of Seller and Subsidiary (A) did not, as of the date hereof, exceed the reserves for Tax liabilities (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) and (B) will not exceed such reserves as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Seller and Subsidiary in filing their Tax Returns. Neither Seller nor Subsidiary has incurred any liability for Taxes relating to Purchased Assets outside the ordinary course of business consistent with past custom and practice. Seller and Subsidiar y are in compliance in all material respects with all terms and conditions of any Tax exemptions, Tax incentive, Tax holiday or other Tax reduction agreement, approval or order of any Governmental Body relating to Purchased Assets and, to the Knowledge of Seller, subject to receipt of the Approvals required herein, the execution of this Agreement will not have any adverse effect on the validity and effectiveness of any such Tax exemptions, Tax incentive, Tax holiday or other Tax reduction agreement or order.
 
 
(ii)       There are no Tax sharing agreements or similar agreements relating to Purchased Assets under which Seller or Subsidiary could be liable for the Taxes of any Person that is neither Seller nor Subsidiary of Seller. There are no material Liens for Taxes on Purchased Assets except for Taxes not yet due or payable. Except as would not reasonably be expected to have a Seller Material Adverse Effect, all inter-company transactions and charges between and among Seller and Subsidiary or Purchaser or any of its subsidiaries relating to Purchased Assets are at arm’s-length terms or other terms permitted by applicable Laws with respect to Taxes.
 
 
(iii)      No elections have been made under U.S. Treasury regulations Section 301.7701-3 with respect to Seller or Subsidiary.
 
 
(iv)      Neither Seller nor Subsidiary is (or has been) a “controlled foreign corporation” within the meaning of Code Section 957.
 
 
(v)       Neither Seller nor Subsidiary has been (or held, directly or indirectly, an interest in) a United States real property corporation within the meaning of Code Section 897(c)(2).
 
 
(vi)      Neither Seller nor Subsidiary is “engaged in trade or business within the United States” within the meaning of Code Section 882 or otherwise subject to U.S. federal income tax on a net income basis.
 
 
As used in this Agreement, (A) the term “Tax” (including, with correlative meaning, the term “Taxes”) includes all United States, federal, state, local and foreign (including, without limitation, Israeli and German) income, profits, franchise, gross receipts, environmental, customs duty, share capital, severance, stamp, payroll, sales, employment, social security (or similar), unemployment, disability, use, property, withholding, excise, production, value added, occupancy, alternative or add-on minimum and other taxes, duties or assessments of any nature whatsoever relating to Purchased Assets, together with all interest, indexation
 
 
 
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penalties and other penalties and additions imposed with respect to such amounts and any interest in respect of such penalties and additions, and (B) the term “Tax Return” includes all returns and reports (including elections, declarations, disclosures, amendments, schedules, estimates and information returns) required to be supplied, or supplied, to a Tax authority relating to Taxes.
 
 
6.15     Tax Matters.
 
(i)        Neither the Buisness nor the Purchased Assets, directly or indirectly, use any technology that was developed using funding provided by the OCS (“OCS Funded Technology”), or the Investment Center of the Israeli Ministry of Industry, Trade & Labor, nor is any of the technology contained in any of the Purchased Assets is based on the OCS Funded Technology. To the Knowledge of Seller, there has been no indication from any Israeli Tax authority that the execution of this Agreement would adversely affect Seller’s ability to set off for Israeli Tax purposes in the future any and all losses accumulated by Seller as of the Closing Date.
 
(ii)       Neither Seller nor Subsidiary, with resepct to the Business or the Purchased Assets, are a party to or bound by any Tax indemnity, Tax sharing or Tax allocation agreement.
 
 
(iii)      Neither Seller nor Subsidiary, with respect to the Business or the Purchased Assets, have made any payments, are obligated to make any payments, or are a party to any agreement that under certain circumstances could obligate Seller or Subsidiary to make any payments that are not deductible under Code Section 280G (or any corresponding or similar provision or administrative rule of federal, state, local, or foreign law). Subsequent to the Closing Date.
 
 
(iv)      There is no outstanding request for ruling from any Taxing Authority, or closing agreement (within the meaning of Code Section 7121 or any analogous provision of applicable Law) relating to any Tax for which Seller or Subsidiary, with respect to the Business or the Purchased Assets, is or may be liable or with respect to Seller’s or Subsidiary’s income, assets or business, power of attorney or adjustment related to, or in connection with, any Tax that could result in a Lien on any Purchased Assets or Purchased Shares.
 
 
(v)       CCS is and has always been classified as corporation within the meaning of Treasury Regulation Section 301.7701-2(b), and has not made an election pursuant to Treasury Regulation Section 301.7701-2(a), from the date of its respective organization through and including the Closing Date.
 
 
(vi)      Subsidiary is not a “passive foreign investment company within the meaning of Section 1297(a) of the Code nor has it made an election pursuant to Section 1295 of the Code to be treated as a “qualified electing fund” or has made a “mark-to-market” election pursuant to Section 1296 of the Code.
 
 
 
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(vii)     None of Seller or Subsidiary has participated in or cooperate with a boycott within the meaning of Section 999(b)(3) of the Code.
 
 
6.16     Encryption and Other Restricted Technology. Seller’s and Subsidiary’s Business directly related to the Purchased Assets as currently conducted does not involve the use or development of, or engagement in, technology whose development, commercialization or export is restricted under Israeli Law, and Seller’s and Subsidiary’s Business directly related to the Purchased Assets as currently conducted does not require Seller or Subsidiary to obtain a license from the Israeli Ministry of Defense or an authorized body thereof pursuant to Section 2(a) of the Control of Products and Services Declaration (Engagement in Encryption), 1974 or other legislation regulating the development, commercialization or export of tech nology
 
 
6.17     Warranties/Product Liability. Except as set forth on Section 6.17 of the Seller Disclosure Letter and except as specifically reflected, reserved against or otherwise disclosed in Seller’s financial statements or incurred since the date thereof in the ordinary course of business except as does not constitute a Seller Material Adverse Effect, (i) there is no notice, demand, claim, action, suit, inquiry, hearing, proceeding, notice of violation or investigation from, by or before any Governmental Body relating to any Product, including the packaging and advertising related thereto, designed, formulated, manufactured, processed, sold or placed in the stream of commerce by Seller or Subsidiary or any services provided by Selle r or Subsidiary, or claim or lawsuit involving a Product that is pending or, to the Knowledge of Seller, threatened, by any Person, and (ii) there has not been, nor is there under consideration by Seller or Subsidiary, any Product recall or post-sale warning of a material nature concerning any Product. All Products comply in all material respects with applicable Governmental Authorizations and Laws, and there have not been and there are no material defects or deficiencies in such Products.
 
 
6.18     Product Certifications. The product certifications (“MediVision Product Certifications”) given or granted by manufacturers, manufacturers associations, technical associations, or similar bodies, or by any Governmental Body, in each case with respect to Products, are all the MediVision Product Certifications relating to Business or the Purchased Assets, and constitute all the MediVision Product Certifications necessary for Seller and Subsidiary, in connection with the Buisness or the Purchased Assets, to conduct their respective businesses as currently conducted, and are listed in Section 6.18 of the Seller Disc losure Letter, except as does not constitute a Seller Material Adverse Effect. Seller has not made any material modifications or updates to the Products which would require MediVision Product Certifications different from or in addition to those set forth on Section 6.18 of the Seller Disclosure Letter and, other than as set forth on Section 6.18 of the Seller Disclosure Letter, to the Knowledge of Seller, none of the MediVision Product Certifications would be terminated, rescinded or modified as a result of the execution of this Agreement.
 
 
6.19     Completeness of Disclosure. No representation or warranty by Seller in this Agreement contains or on the Closing Date will contain an untrue statement of material fact or omits or on the Closing Date will omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading.
 
 
 
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ARTICLE 7.
 
REPRESENTATIONS AND WARRANTIES OF PURCHASER
 
 
Except as set forth in the corresponding sections or subsections of the disclosure letter delivered to Seller by Purchaser concurrently with the execution and delivery of this Agreement (the “Purchaser Disclosure Letter”), Purchaser hereby represents and warrants to Seller that:
 
 
7.1       Organization and Good Standing. Purchaser is a legal entity duly organized, validly existing and in good standing under the Laws of California and has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted, and is qualified to do business as a foreign corporation in each jurisdiction where the ownership, leasing or operation of its assets or properties or the conduct of its business requires such qualification, except where the failure to be so organized, qualified or to have such power or authority, individually or in the aggregate, has not had and would not reasonably be expected to have a Purchaser Material Adverse Effect.
 
 
7.2       Authorization of Agreement.
 
 
(i)        Purchaser has all requisite power and authority to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by Purchaser in connection with the consummation of the transactions contemplated hereby and thereby (the “Purchaser Documents” and, collectively with the Seller Documents, the “Transaction Documents”) and to consummate the transactions contemplated hereby and thereby and no other corporate proceedings on the part of Purchaser is necessary to authorize this Agreement or any Purchaser Document to which it is a party or to consummate the transactions contemplated by this Agreement. The execution, delivery and performance by Purchaser of this Agreement and each Purchaser Document have been duly authorized by all requisite company action on behalf of Purchaser. This Agreement has been, and each Purchaser Document will be at or prior to the Closing, duly executed and delivered by Purchaser and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each Purchaser Document when so executed and delivered will constitute, the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar Laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity.
 
 
(ii)       Each of the audit committee and the board of directors of Purchaser has: (I) unanimously determined that this Agreement and the transactions contemplated by this Agreement are fair to, and in the best interests of, Purchaser and its shareholders; and (II) approved this Agreement and the transactions contemplated hereby.
 
 
 
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7.3      Conflicts; Consents of Third Parties.
 
 
(a)       Except as set forth in Section 7.3(a) of the Purchaser Disclosure Letter, none of the execution and delivery and performance by Purchaser of this Agreement, the consummation of the transactions contemplated hereby, or the compliance by Purchaser with any of the provisions hereof will conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under, any provision of (i) the articles of incorporation of Purchaser, (ii) any material Agreement or Permit to which Purchaser is a party or by which Purchaser or its properties or assets are bound, (iii) any Order of any Governmental Body applicable to Purchaser o r by which any of the properties or assets of Purchaser are bound or (iv) any applicable Law, other than, in the case of clauses (ii), (iii) and (iv), such conflicts, violations, defaults, terminations or cancellations that would not have a Purchaser Material Adverse Effect.
 
 
(b)       Except as set for in Section 7.3(b) of Purchaser Disclosure Letter, no consent, waiver, approval, Order, Permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental Body is required on the part of Purchaser in connection with the execution and delivery of this Agreement, the compliance by Purchaser with any of the provisions hereof, the consummation of the transactions contemplated hereby, and except such other consents, waivers, approvals, Orders, Permits or authorizations the failure of which to obtain would not have a Purchaser Material Adverse Effect.
 
 
7.4       Litigation. There is no suit, claim, action, arbitration, proceeding pending or, to the Knowledge of Purchaser, investigation pending or, to the Knowledge of Purchaser, threatened against Purchaser, or to which Purchaser is otherwise a party before any Governmental Body, that if adversely determined, would reasonably be expected to adversely affect the consummation of Purchaser’s obligations under this Agreement.
 
 
7.5       Financial Advisors. No Person has acted, directly or indirectly, as a broker, finder or financial advisor for Purchaser in connection with the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof. Purchaser shall be solely obligated for the payment of all fees and expenses of any such broker, finder, or financial advisor.
 
 
7.6       Condition of the Business; Disclaimer of Reliance. Notwithstanding anything contained in this Agreement to the contrary, Purchaser acknowledges and agrees that Seller is not making any representations or warranties whatsoever, express or implied, beyond those expressly given by Seller in Article 6 hereof (as modified by the Schedules hereto), and Purchaser acknowledges and agrees that, except for the representations and warranties contained therein, the Business, the Purchased Assets and the Purchased Shares are being transferred on a “where is” and, as to condition, “as is” basis. Any claims Purchaser may have for breach of representation or warranty shall be based solely on the representations and warranties of Seller set forth in Article 6 hereof (as modified by the Schedules hereto). Purchaser further represents that Seller, any of its Affiliates or any other Person has not made any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding Seller, the Business, the Purchased Assets, the Purchased Shares, or the transactions contemplated by this Agreement not expressly set forth in this Agreement. Purchaser specifically disclaims that it is
 
 
 
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relying upon or has relied upon any such other representations or warranties. Purchaser acknowledges that it has conducted to its satisfaction, its own independent investigation of the Buisness, the Purchased Assets and the Purchased Shares and has been provided access and an opportunity to review information in respect of the Business and the Purchased Assets requested by Purchaser and, in making the determination to proceed with the transactions contemplated by this Agreement, Purchaser has relied on the results of its own independent investigation.
 
 
7.7       Restriction on Activities. There is no agreement, commitment, judgment, injunction, order or decree binding upon Purchaser to which Purchaser is a party which prohibits or impairs Purchaser’s ability to consummate the transactions contemplated by this Agreement, except as would not, individually or in the aggregate, reasonably be expected to have a Purchaser Material Adverse Effect.
 
 
7.8       Completeness of Disclosure. No representation or warranty by Purchaser in this Agreement contains or on the Closing Date will contain an untrue statement of material fact or omits or on the Closing Date will omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading.
 
ARTICLE 8.
 
COVENANTS
 
 
8.1       Access to Information.
 
 
(a)       Seller agrees that, prior to the Closing, Purchaser shall be entitled, through its officers, employees and representatives (including its legal advisors and accountants), to make such investigation of the properties, businesses and operations of Seller or Subsidiary in connection with the Purchased Assets, and such examination of the Documentation relating to the Purchased Assets, Subsidiary, the Purchased Shares and the Assumed Liabilities as it reasonably requests and to make extracts and copies of such Documentation. Any such investigation and examination shall be conducted during regular business hours upon reasonable advance notice and under reasonable circumstances and shall be subject to restrictions under applicable Law. Seller shall cause the officers, employees, consultants, agent s, accountants, attorneys and other representatives of Seller and Subsidiary to cooperate with Purchaser and Purchaser’s representatives in connection with such investigation and examination, and Purchaser and its representatives shall cooperate with Seller, Subsidiary, and their representatives and shall use their Commercially Reasonable Efforts to minimize any disruption to the Business. Notwithstanding anything herein to the contrary, no such investigation or examination shall be permitted to the extent that it would require Seller or Subsidiary to disclose information subject to attorney-client privilege or conflict with any written confidentiality obligations to which Seller or Subsidiary is bound; provided, however, that such information subject to attorney-client privilege or confidentiality obligations shall be disclosed to Purchaser in the event that the underlying subject matter relates primarily to the Purchased Assets or relates to Subsidiary. Except as otherwise set forth in this Agreement, prior to the Closing, without the prior written consent of Seller, which may be withheld for any reason, (i) Purchaser shall not contact any suppliers to, or customers of, Seller or Subsidiary, and (ii) Purchaser shall have no
 
 
 
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right to perform invasive or subsurface investigations of the properties or facilities of Seller or Subsidiary.
 
 
(b)       Seller and Purchaser shall, upon reasonable advance notice, use Commercially Reasonable Efforts to make such records held by it or their Affiliates relating to the Purchased Assets available to the other party (during normal business hours and subject to restrictions under applicable Laws) as may be reasonably requested by the other party in connection with (i) the preparation of financial statements (including the Final Closing Statement) or regulatory filings in respect of periods ending prior to Closing; (ii) any insurance claims by, Legal Proceedings against, disputes relating to any indemnification obligation under Article 10 (Indemnification) between, or governmental investigations of Seller, Subsidiary or Purc haser or any of their Affiliates; or (iii) in order to enable Seller or Purchaser to comply with their respective obligations under this Agreement and each other agreement, document or instrument contemplated hereby or thereby. Seller and Purchaser shall be entitled, at their sole cost and expense, to make copies of the books and records to which they are entitled to access pursuant to this Section 8.1(b).
 
 
(c)       Notwithstanding anything in this Agreement to the contrary, the respective obligations and rights of Purchaser and Seller pursuant to Section 8.1(b) shall apply during the pendency of any Legal Proceeding between any of Purchaser or its Affiliates (including its subsidiaries) or their respective officers, directors, employees, equity holders, agents, representatives, successors and permitted assigns, on the one hand, and Seller or its Affiliates or their respective officers, directors, employees, equity holders, agents, representatives, successors and permitted assigns, on the other hand, so long as such Legal Proceeding does not primarily relate to the subject matter of the records described in Section 8.1(b). In the event that such Legal Proceeding does primarily relate to the subject matter of the records described in Section 8.1(b), applicable rules of discovery shall govern.
 
 
8.2       Conduct of the Business Pending the Closing.
 
 
(a)       Prior to the Closing, except (i) as set forth on Section 8.2(a) of the Seller Disclosure Letter, (ii) as required by applicable Law, (iii) as otherwise contemplated by this Agreement or (iv) with the prior written consent of Purchaser, Seller shall, solely as relates to the Business, and shall cause Subsidiary to:
 
 
(i)
conduct the Business and the business of Subsidiary only in the Ordinary Course of Business; and

 
(ii)
use its Commercially Reasonable Efforts to (A) preserve the present business operations, organization and goodwill of Seller (as they relate to the Business or the Purchased Assets) and Subsidiary and (B) preserve the present relationships with customers and suppliers of Seller (as they relate to the Business or the Purchased Assets) and Subsidiary.
 
(b)       Except (i) as set forth on Schedule 8.2(b) of the Seller Disclosure Letter, (ii) as required by applicable Law, (iii) as otherwise contemplated by this Agreement or (iv) with the prior written consent of Purchaser, Seller shall not, solely as relates to the Purchased Assets, and shall not permit Subsidiary to:
 
 
 
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(i)
subject any of the Buisness or the Purchased Assets or any of the assets of Subsidiary, to any Lien, except for Permitted Exceptions, or subject the Purchased Shares to any Lien;

 
(ii)
acquire assets outside the Ordinary Course of Business from any other Person (except pursuant to an existing Agreement or inventory in the Ordinary Course of Business ) or sell, assign, license, transfer, convey, lease or otherwise dispose of any portion of the Business or the Purchased Assets (except pursuant to an existing Agreement or inventory in the Ordinary Course of Business or for the purpose of disposing of obsolete or worthless assets) in each case, with an aggregate value in excess of One Hundred Thousand Dollars ($100,000);

 
(iii)
cancel or compromise any debt or claim or waive or release any right of Subsidiary or Seller that constitutes a Purchased Asset except in the Ordinary Course of Business;

 
(iv)
merge or consolidate with any other Person, except for any such transactions among Seller’s wholly-owned subsidiaries, or restructure, reorganize or completely or partially liquidate or otherwise enter into any agreements or arrangements imposing material changes or restrictions on its assets, operations or businesses;

 
(v)
declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to the Purchased Shares;

 
(vi)
issue (other than on exercise of options of Seller or rights of Seller set forth in the Seller Disclosure Letter), sell, pledge, dispose of, grant, transfer, encumber, or authorize the issuance, sale, pledge, disposition, grant, transfer, lease, license, guarantee or encumbrance of, any shares of its or Subsidiary’s capital stock, or securities or rights convertible or exchangeable into or exercisable for any shares of such capital stock, or any options, warrants or other rights of any kind to acquire any shares of such capital stock or such convertible or exchangeable securities, including any options of Seller or rights of Seller;

 
(vii)
reclassify, split, combine, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of Subsidiary’s capital stock or securities convertible or exchangeable into or exercisable for any shares of Subsidiary’s capital stock;
 
 
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(viii)
adopt or propose any change in its articles of association or other applicable governing instruments of Seller or Subsidiary that would adversely affect the Business or the Purchased Assets or Seller’s ability to perform its obligations under this Agreement;

 
(ix)
make any material Tax election, make any change in any method of accounting for Tax purposes or make any application with any Governmental Body or seek any Tax ruling from a Governmental Body, if there is a risk that such ruling may result in any terms, restrictions, liabilities or obligations being imposed on the Business or the Purchased Assets;

 
(x)
incur any Indebtedness for borrowed money or guarantee such Indebtedness of another Person, or issue or sell any debt securities or warrants or other rights to acquire any of its or Subsidiary’s debt securities, except for (A) Indebtedness for borrowed money incurred in the Ordinary Course of Business consistent with past practices (x) not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate or (y) in replacement of existing Indebtedness for borrowed money on terms substantially consistent with or more beneficial than the indebtedness being replaced, or (B) guarantees by Seller of Indebtedness of its wholly-owned subsidiaries incurred in compliance with this Section 8.2 or (C) interest rate swaps on customary commercial terms consistent with past practice and in compliance with its risk management policies in effect on the date of this Agreement and not to exceed One Hundred Thousand Dollars ($100,000) of notional debt in the aggregate;

 
(xi)
make any loans, advances or capital contributions to or investments in any Person (other than between itself and any of its direct or indirect wholly-owned Subsidiaries);

 
(xii)
modify, other than in an immaterial manner, any policy or procedure with respect to the collection of receivables or payment of payables directly related to the Buisness or the Purchased Assets;

 
(xiii)
pay, discharge or satisfy before it is due any material claim or Liability directly related to the Buisness or the Purchased Assets or fail to pay any such item in a timely manner directly related to the Business or the Purchased Assets, in each case except in accordance with the Ordinary Course of Business;

 
(xiv)
make any changes with respect to accounting policies or procedures that adversely affects the Buisness or the Purchased Assets, except as required by changes in applicable generally accepted accounting principles;
 
 
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(xv)
except in the Ordinary Course of Business, amend, waive, surrender or terminate or agree to the amendment, waiver, surrender or termination of any Seller Material Agreement or any material Permit that adversely affects the Business or the Purchased Assets;

 
(xvi)
except in the Ordinary Course of Business, exercise any right or option under or extend or renew any Seller Material Agreement that adversely affects the Business or the Purchased Assets;

 
(xvii)
except in the Ordinary Course of Business enter into or engage in any transaction with its Affiliates that adversely affects the Business or the Purchased Assets;

 
(xviii)
pay any management charge to Seller or any entity other than Subsidiary;

 
(xix)
take any action that would reasonably be expected to result in a material increase in Tax liability (or a corresponding loss of Tax attributes) relating to the Business or the Purchased Assets other than in the Ordinary Course of Business;

 
(xx)
agree, commit or offer (in writing or otherwise) to take any of the actions described in clauses “(i)” through “(xix)” of this Section 8.2(b).
 
8.3       Consents.
 
 
(a)       Seller shall (and shall cause its respective Affiliates to) use its Commercially Reasonable Efforts, and Purchaser shall (and shall cause its Affiliates to) cooperate with Seller, to obtain at the earliest practicable date all consents and approvals required to consummate the transactions contemplated by this Agreement; provided however, that Seller, Subsidiary and Purchaser shall not be obligated to pay any consideration therefor to any third party from whom consent or approval is requested.
 
 
(b)       Purchaser shall (and shall cause its respective Affiliates to) use its Commercially Reasonable Efforts, and Seller shall (and shall cause its Affiliates to) cooperate with Purchaser, to obtain at the earliest practicable date all consents and approvals required to consummate the transactions contemplated by this Agreement; provided however, that Purchaser, Subsidiary and Seller shall not be obligated to pay any consideration therefor to any third party from whom consent or approval is requested.
 
 
8.4       Further Assurances. Subject to, and not in limitation of, Sections 8.3(a) and (b), Seller and Purchaser shall each use its Commercially Reasonable Efforts to (A)(i) furnish upon
 
 
 
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request such further information, (ii) execute and deliver to each other such other documents and (iii) take all actions necessary or appropriate to consummate the transactions contemplated by this Agreement, and (B) cause the fulfillment at the earliest practicable date of all of the conditions to their respective obligations to consummate the transactions contemplated by this Agreement.
 
 
8.5       Confidentiality.
 
 
(a)       Seller Confidentiality. Seller shall keep confidential, and cause its respective Affiliates and each of their respective officers, directors, employees, representatives and advisors to keep confidential (i) from the date hereof, all Confidential Information being provided to Seller by or on behalf of Purchaser regarding Purchaser, any of its Affiliates, and any of its or their businesses in connection with the transactions contemplated by this Agreement and (ii) after the Closing Date and subject to the consummation of the Closing, all Confidential Information regarding the Buisness, Purchased Assets, Assumed Liabilities, and Subsidiary.
 
 
(b)       Purchaser Confidentiality. Purchaser shall keep confidential, and cause its Affiliates and each of their respective officers, directors, employees, representatives and advisors to keep confidential from the date hereof, all Confidential Information being provided to Purchaser by or on behalf of Seller regarding Seller, any of its respective Affiliates, and any of their respective businesses; provided, however, that after the Closing Date and subject to the consummation of the Closing, Purchaser shall only be required to keep confidential, and cause its Affiliates and each of their respective officer s, directors, employees, representatives and advisors to keep confidential all Confidential Information provided to Purchaser by or on behalf of Seller that is not related to the Business, the Purchased Assets, Assumed Liabilities or Subsidiary.
 
 
8.6       Non Competition.
 
 
(a)       As an inducement for Purchaser to consummate the transactions set forth in this Agreement, Seller (and its respective Affiliates) agrees that, for a period of three (3) years following the Closing Date, it shall not, directly or indirectly, engage or invest in, own, manage, join, operate, finance, control, or participate in the ownership, management, operation, financing or control of, or loan any money to, or have any financial interest in, or acquire any right to share in the profits of, be employed by, associated with, or in any manner connected with, lend its name or credit to, or render services or advice to, any business or Person whose products, services or activities compete, in whole or in part, or in any way interfere, with the Business, the Purchased Assets or Subsidiary anywhere within the world; provided, however, Seller may purchase or otherwise acquire, in the aggregate, up to five percent (5%) of the outstanding voting shares of any publicly held company and any amount of OIS shares of capital stock (but without otherwise participating in the business activities of such company) without otherwise violating the provisions of this Section 8.6.
 
 
(b)       Seller acknowledges that the provisions of this Section 8.6 and the period of time, scope and type of restrictions on Seller’s activities set forth herein are reasonable and necessary for the protection of Purchaser, which is paying substantial monies and other benefits to Seller, and are an essential inducement to Purchaser’s entering into and performing this Agreement and the Transaction Documents to which Purchaser is party. If any covenant
 
 
 
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contained in this Section 8.6 shall be determined by any Governmental Body to be invalid or unenforceable by reason of its extending for too great a period of time or by reason of its being too extensive in any other respect, (x) such covenant shall be interpreted to extend over the maximum period of time for which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such Governmental Body making such determination, and (y) in its reduced form, such covenant shall then be enforceable, but such reduced form of covenant shall only apply with respect to the operation of such covenant in the particular jurisdiction in or for which such adjudication is made. It is the intention of the parties hereto that the provisions of this Section 8.6 shall be enforceable to the maximum extent permitted by applicable Law.
 
 
(c)       Seller acknowledges that any breach or threatened breach of the covenants contained in this Section 8.6 will likely cause Purchaser material and irreparable damage, the exact amount of which will be difficult to ascertain, and that the remedies at Law for any such breach will likely be inadequate. Accordingly, to the extent permitted by applicable Law, Purchaser shall, in addition to all other available rights and remedies (including, but not limited to, seeking such Damages as it can show it has sustained by reason of such breach), be entitled to seek specific performance and injunctive relief in respect of any breach or threatened breach of this covenant, without being required to post bond or other security and without having to prove the inadequacy of the available remedies at Law.
 
 
8.7       Preservation of Records. Seller and Purchaser agree that each of them shall preserve and keep the records held by it or their Affiliates relating to the Business or the Purchased Assets for a period of seven (7) years from the Closing Date and shall make such records through the period ending on the Closing Date available to the other as may be reasonably required by such party in connection with, any insurance claims by, Legal Proceedings or Tax audits against or governmental investigations of Seller, Subsidiary or Purchaser or any of their Affiliates or in order to enable Seller or Purchaser to comply with their respective obligations under this Agreement and each other agreement, document or instrument contemplated hereby o r thereby. In the event Seller or Purchaser wish to destroy such records prior to such time, such party shall first give thirty (30) days prior written notice to the other and such other party shall have the right at its option and expense, upon prior written notice given to such party within that thirty (30) day period, to take possession of the records within sixty (60) days after the date of such notice.
 
 
8.8       Publicity.
 
 
(a)       None of Seller or Purchaser shall, and they shall cause their respective Affiliates not to, issue any press release or public announcement concerning this Agreement or the transactions contemplated hereby without obtaining the prior written approval of the other parties hereto, which approval will not be unreasonably withheld or delayed, unless, in the sole judgment of Purchaser or Seller, as applicable, disclosure is otherwise required by applicable Law or by the applicable rules of any stock exchange on which Purchaser or Seller list securities, provided that, to the extent required by applicable Law, the party intending to make such release shall use its Commercially Reasonable Efforts consistent with such applicable Law to consult with the other party with respect to the timing and content thereof.
 
 
 
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(b)       Purchaser and Seller each agree that the terms of this Agreement shall not be disclosed or otherwise made available to the public and that copies of this Agreement shall not be publicly filed or otherwise made available to the public, except where such disclosure, availability or filing is required by applicable Law and only to the extent required by such Law. In the event that such disclosure, availability or filing is required by applicable Law, Purchaser and Seller (as applicable) each agree to use their Commercially Reasonable Efforts to obtain “confidential treatment” of this Agreement with the U.S. Securities and Exchange Commission (or the equivalent treatment by any other Governmental Body) and to redact such terms of this Agreement as the other party shall reasonably re quest.
 
 
8.9       Disclosure Schedules; Supplementation and Amendment of Schedules. Seller shall promptly supplement or amend the Schedules until the Closing with respect to any matter hereafter arising or discovered that would have been required to be set forth or described in the Schedules; provided that no such supplement or amendment shall have any effect on the satisfaction of the condition to Closing set forth in Section 9.1(a) or for purposes of determining whether Purchaser is entitled to indemnification pursuant to Article 10.
 
 
8.10     Control of Business. Notwithstanding anything in this Agreement to the contrary, Purchaser acknowledges on behalf of itself and its Affiliates and its and their directors, officers, employees, Affiliates, agents, representatives, successors and assigns that the operation of the Business remains in the dominion and control of Seller and Subsidiary until the Closing and that none of the foregoing Persons will provide, directly or indirectly, any directions, orders, advice, aid, assistance or information to any director, officer or employee of Seller, except as specifically contemplated or permitted by Article 8 including, without limitation, Section 8.3 or as otherwise consented to in advance by an officer of Seller.
 
 
8.11     Foreign Tax Declarations. Seller shall provide Purchaser, on or prior to the Closing Date, with any certificates required under applicable foreign Law to avoid foreign Tax withholding with respect to the purchase of the Purchased Shares or Purchased Assets (a “Foreign Tax Withholding Certificate”).
 
 
8.12     Exclusivity.    From the date of this Agreement until the Closing or the termination of this Agreement in accordance with Section 5.2, Seller will not (and will not permit its respective Affiliates or any of its Affiliates’ representatives to) directly or indirectly: (a) solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to, or enter into or consummate any transaction relating to, the acquisition of the Purchased Assets or the Subsidiary or any merger, recapitalization, share exchange, sale of substantial assets (other than sales of inventory in the Ordinary Course of Business) or any similar transaction or alternative to the contemplated transactions hereunder or (b) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing, except as may be required under the laws of Israel. Seller will notify Purchaser immediately if any Person makes any proposal, offer, inquiry or contact with respect to any of the foregoing (whether solicited or unsolicited).
 
 
8.13     Belgian and German Approvals.
 
 
 
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(a)        Each party to this Agreement shall use all reasonable efforts to deliver and file, as promptly as practicable after the date of this Agreement, each notice, report or other document required to be delivered by such party to, or filed by such party with, any Belgian and/or German Governmental Entity with respect to this Agreement. MediVision and OIS shall use all reasonable efforts to obtain, as promptly as practicable after the date of this Agreement, any consents and approvals that may be required pursuant to Belgian and/or German legal requirements in connection with this Agreement.
 
 
(b)       MediVision and OIS each shall: (i) give the other parties prompt notice of the commencement of any legal proceeding by or before any Belgian and/or German Governmental Entity with respect to this Agreement or any of the other transactions contemplated by this Agreement; (ii) keep the other parties informed as to the status of any such legal proceeding; and (iii) promptly inform the other parties of any communication to any Governmental Entity regarding this Agreement. MediVision and OIS will consult and cooperate with one another, and will consider in good faith the views of one another, in connection with any analysis, appearance, presentation, memorandum, brief, argument, opinion or proposal made or submitted in connection with any Belgian and/or German legal proceeding rel ating to this Agreement. In addition, except as may be prohibited by any Belgian and/or German Governmental Entity or by any Belgian and/or German Legal Requirement, MediVision and OIS will permit authorized representatives of the other party to be present at each meeting or conference relating to any such legal proceeding and to have access to and be consulted in connection with any document, opinion or proposal made or submitted to any Belgian and/or German Governmental Entity in connection with any such legal proceeding.
 
 
8.14     Elop Payment. Seller agrees that, by April 15, 2011, it will use its best efforts to satisfy and discharge all of its obligations under the Elop Settlement Agreement, including, without limitation, paying any and all amounts that are owed by Seller to Elop pursuant to the Elop Settlement Agreement, in an amount not to exceed US$250,000 (the “Elop Debt”), and Seller shall provide written evidence, reasonably satisfactory to Purchaser, that all of Seller’s obligations under the Elop Settlement Agreement have be satisfied and discharged; provided that if the Elop Debt is not p aid by April 15, 2011, Purchaser and Seller hereby agree that Purchaser shall pay the Elop Debt directly to Elop. In order to facilitate such payment by Purchaser, Purchaser shall be entitled to instruct (in accordance with the escrow agreement substantially in the form attached hereto as Exhibit C) the Escrow Agent (as defined below) to disburse from the Escrow Reserve (as defined below) to Purchaser, free of any charge or consideration, either (i) an appropriate number of shares of common stock of Purchaser (or an amount of cash held with the Escrow Agent, if such exist at such time), as shall be determined by Purchaser in accordance with the escrow agreement (the “Elop Debt Released Shares”), or (ii) the cash proceeds from the sale of the number of shares of Common Stock of Purchaser in the Escrow Reserve equal to the amount paid by Purchaser in accordance with the escr ow agreement and Purchaser may use the proceeds to pay the Elop Debt. The Seller further agrees that upon the satisfaction and discharge of its obligations under the Elop Settlement Agreement, or the satisfaction of such obligations by Purchaser, as the case may be, it will promptly assign to Purchaser the patent No. PCT/IL2005/00086 with the title of “Integrated Retinal Imager and Method” (i.e., the “IRI Patent “) that is the subject of the Elop Settlement Agreement. A signed conditional assignment letter for the assignment of the IRI Patent to Purchaser shall be delivered to Purchaser at the Closing.
 
 
 
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8.15     United Mizrachi Bank Loan. If the Closing shall not have occurred by the close of business on October 22, 2009 (i.e., 120 days from the date of this Agreement), Purchaser shall be entitled, at its sole discretion and without the need for any consent, approval or notice to Seller, to instruct (in accordance with the escrow agreement substantially in the form attached hereto as Exhibit C) the Escrow Agent to disburse from the Escrow Reserve to Purchaser, free of any charge or consideration all of the shares in the Escrow Reserve (the “Mizrachi Loan Released Shares”) or the pro ceeds from the sale of all of the shares in the Escrow Reserve. Purchaser shall be entitled, at its sole discretion and without the need for any consent, approval or notice to Seller, as the exclusive owner of the Mizrachi Loan Released Shares, to adopt appropriate corporate resolutions and to take any other action for the cancellation of the Mizrachi Loan Released Shares and/or their reclassification as treasury shares entitling their holder to no rights.
 
 
8.16     OCS Debt. Seller agrees that it will use its best efforts to pay the OCS Debt to the OCS and to satisfy and discharge all other obligations of Seller to the OCS in connection with the transactions contemplated herein (collectively, the “OCS Debt and Obligations”), and Seller shall provide written evidence, reasonably satisfactory to Purchaser, that all of Seller’s OCS Debt and Obligations have be satisfied and discharged; provided that Purchaser may pay the OCS Debt and Obligations directly to the OCS if Seller agrees to such payment. If Purchaser makes such payment to the OCS, Purchaser shall be entitled to instruct (in accordance with the escrow agreement substantially in the form attached hereto as Exhibit C) the Escrow Agent (as defined below) to disburse from the Escrow Reserve to Purchaser, free of any charge or consideration, either (i) an appropriate number of shares of common stock of Purchaser (or an amount of cash held with the Escrow Agent, if such exist at such time), as shall be determined by Purchaser in accordance with the escrow agreement (the “OCS Debt Released Shares”), or (ii) the cash proceeds from the sale of the number of shares of the Common Stock of Purchaser in the Escrow Reserve equal to the amount paid by Purchaser and Purchaser may use the proceeds to pay the OCS Debt and Obligations.
 
ARTICLE 9.
 
CONDITIONS TO CLOSING
 
 
9.1       Conditions Precedent to Obligations of Purchaser. The obligation of Purchaser to consummate the transactions contemplated by this Agreement is subject to the fulfillment, on or prior to the Closing Date, of each of the following conditions (any or all of which may be waived by Purchaser in whole or in part to the extent permitted by applicable Law):
 
 
(a)       the representations and warranties of Seller set forth in this Agreement and in each of the Transaction Documents shall be true and correct in all material respects as of the Closing Date as though made on and as of the Closing Date, except that those representations and warranties that are modified as to materiality or contain a qualification referring to a “Material Adverse Effect” or any similar modification or qualification shall be true and correct in all respects as of said dates;
 
 
 
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(b)       Seller shall have performed and complied in all material respects with all obligations and agreements required in this Agreement to be performed or complied with by them prior to the Closing Date;
 
 
(c)       Purchaser shall have received a certificate signed by an authorized officer of Seller, dated the Closing Date, certifying that the conditions contained in Sections 9.1(a)  and 9.1(b) have been fulfilled;
 
 
(d)       there shall not be in effect on the Closing Date any Order or Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Transaction Documents or that could reasonably be expected to otherwise result in a material diminution of the benefits of the transactions contemplated by this Agreement or any of the Transaction Documents to Purchaser, and there shall not be pending or threatened on the Closing Date any action in, before or by any Governmental Body that could reasonably be expected to result in the issuance of any such Order or the enactment, promulgation or deemed applicability of any such Law to Purchaser or the transactions contemplated by this Agreement or any of the Transaction Docum ents;
 
 
(e)       there shall not be any action, suit, or proceeding pending or threatened before any Governmental Body that could reasonably be expected to (i) prevent consummation of any of the transactions contemplated by this Agreement or the Transaction Documents, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (iii) have a Seller Material Adverse Effect on the right of Purchaser to own the Purchased Shares or to own and operate the Purchased Assets (and no such Order shall be in effect);
 
 
(f)       [Reserved];
 
 
(g)       Reserved
 
 
(h)       The consents and approvals set forth on Schedule 9.1(h) shall have been obtained;
 
 
(i)        Since December 31, 2008, there shall not have been any event, change, effect or development that, individually or in the aggregate, has had, or would be reasonably expected to have, a Seller Material Adverse Effect;
 
 
(j)        Seller shall have delivered, or caused to be delivered, to Purchaser a legal opinion of Eitan-Mehulal Law Group, dated as of the Closing Date, in the form of Exhibit D hereto;
 
 
(k)       Seller shall have delivered, or caused to be delivered, to Purchaser a duly executed Bill of Sale in the form of Exhibit A hereto;
 
 
(l)        Seller shall have delivered, or caused to be delivered, to Purchaser a duly executed Assignment and Assumption Agreement in the form of Exhibit B hereto;
 
 
 
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(m)      Seller shall have delivered, or caused to be delivered, to Purchaser a duly executed Escrow Agreement in the form of Exhibit C;
 
 
(n)       Seller shall have delivered (A) copies of resolutions of the board of directors and the shareholders of Seller authorizing and approving this Agreement, the Transaction Documents and the transactions contemplated hereby and thereby and all of the transactions and agreements contemplated hereby and thereby; (B) the certificate of incorporation, as amended, and bylaws, as amended, of Seller; and (C) the names of the officer or officers of Seller authorized to execute this Agreement, the Transaction Documents and the transaction contemplated herein and therein, all certified by any authorized representative of Seller, to be true, correct, complete and in full force and effect and unmodified as of the Closing Date;
 
 
(o)       Seller shall have delivered certified organizational documents of Seller and Subsidiary, including all amendments thereto;
 
 
(p)       Seller, shall have delivered, or caused to be delivered, to Purchaser share certificate(s) representing the Purchased Shares, duly endorsed in blank or accompanied by properly executed share transfer powers, and a duly executed CCS Deed; and
 
 
(q)       Seller shall have delivered such other documents or instruments reasonably requested by Purchaser or its agents to confirm or carry out performance of the covenants and satisfaction of the conditions required by this Agreement, the Transaction Documents and the documents contemplated hereby and thereby.
 
 
9.2       Conditions Precedent to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions (any or all of which may be waived by Seller in whole or in part to the extent permitted by applicable Law):
 
 
(a)       the representations and warranties of Purchaser set forth in this Agreement and in each of the Transaction Documents shall be true and correct in all material respects as of the Closing Date as though made on and as of the Closing Date, except that those representations and warranties that are modified as to materiality or contain a qualification referring to a “Material Adverse Effect” or any similar modification or qualification shall be true and correct in all respects as of said dates;
 
 
(b)       Purchaser shall have performed and complied in all material respects with all obligations and agreements required by this Agreement to be performed or complied with by Purchaser on or prior to the Closing Date;
 
 
(c)       Seller shall have received a certificate signed by an authorized officer of Purchaser, dated the Closing Date, certifying that the conditions contained in Sections 9.1(a) and 9.1(b) have been fulfilled;
 
 
(d)       Purchaser shall have delivered (A) copies of resolutions of the board of directors of Purchaser authorizing and approving this Agreement, the Transaction Documents
 
 
 
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and the transactions contemplated hereby and thereby and all of the transactions and agreements contemplated hereby and thereby; (B) the certificate of incorporation, as amended, and bylaws, as amended, of Purchaser; and (C) the names of the officer or officers of Purchaser authorized to execute this Agreement, the Transaction Documents and the transaction contemplated herein and therein, all certified by any authorized representative of Purchaser, to be true, correct, complete and in full force and effect and unmodified as of the Closing Date;
 
 
(e)       there shall not be in effect on the Closing Date any Order or Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Transaction Documents or that could reasonably be expected to otherwise result in a material diminution of the benefits of the transactions contemplated by this Agreement or any of the Transaction Documents to Seller, and there shall not be pending or threatened on the Closing Date any action in, before or by any Governmental Body that could reasonably be expected to result in the issuance of any such Order or the enactment, promulgation or deemed applicability of any such Law to Seller or the transactions contemplated by this Agreement or any of the Transaction Documents;< /font>
 
 
(f)        Seller shall have received consent from the United Mizrachi Bank to Purchaser’s assumption of Liabilities of Seller under the United Mizrachi Bank Loan;
 
 
(g)       Purchaser shall have delivered, or caused to be delivered, to Seller a duly executed Assignment and Assumption Agreement in the form attached hereto as Exhibit B hereto;
 
 
(h)       Purchaser shall have delivered, or caused to be delivered, to Seller a duly executed Escrow Agreement; and
 
 
9.3       Frustration of Closing Conditions. None of Seller or Purchaser may rely on the failure of any condition set forth in Sections 9.1 or 9.2, as the case may be, if such failure was caused by such party’s failure to comply with any provision of this Agreement.
 
ARTICLE 10.
 
SURVIVAL
 
 
10.1       Survival of Representations and Warranties.
 
 
(a)       The representations and warranties of the parties hereto contained in this Agreement shall survive the Closing until the twenty-four (24) month anniversary of the Closing Date (the “Warranty Survival Period”).
 
 
(b)       All of the covenants or other agreements of the parties hereto contained in this Agreement shall survive until fully performed or fulfilled, unless and to the extent only that non-compliance with such covenants or agreements is waived in writing by the party entitled to such performance. No claim for a breach of a covenant or other agreement set forth in this Agreement that (i) by its nature is required to be performed by or prior to Closing (the “Pre-Closing Covenants”) may be made or brought by any party hereto after the first anniversary of
 
 
 
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the Closing Date, and (ii) by its nature is required to be performed after Closing (the “Post-Closing Covenants”) may be made or brought by any party hereto after the first anniversary of the last date on which each such Post-Closing Covenant was required to be performed (in each case, a “Covenant Survival Period” and collectively with the Warranty Survival Period, the “Survival Period”).
 
 
(c)       Notwithstanding Sections 10.1(a) hereof, any breach of any representation or warranty in respect of which indemnity may be sought under this Agreement shall survive the applicable Survival Period if notice in writing of the inaccuracy or breach thereof giving rise to such right of indemnity shall have been given to the party against whom such indemnity may be sought prior to such time. Any claim not asserted in accordance with this Article 10.1 on or prior to the expiration of the applicable Survival Period will be irrevocably and unconditionally released and waived except in cases of Intentional Misrepresentation.
 
 
10.2       Indemnification by Seller.
 
 
(a)       Seller hereby agrees to indemnify and hold Purchaser and its directors, officers, employees, Affiliates, stockholders, agents, attorneys, representatives, successors and permitted assigns (collectively, the “Purchaser Indemnified Parties”) harmless from and against any and all Damages to the extent based upon or resulting from or incurred in connection with:
 
 
(i)
any breach of, or inaccuracy in, any representation or warranty made by Seller in this Agreement or in any document, schedule, instrument or certificate delivered hereunder or in respect of a claim made based upon alleged facts that if true could constitute any such breach or inaccuracy;

 
(ii)
any breach or violation of any Pre-Closing Covenant or Post-Closing Covenant by Seller;

 
(iii)
any Accounts Receivable set forth on Seller balance sheet as of the Closing Date which are not fully collected within one (1) year after the Closing Date, net of any applicable reserve for returns or doubtful accounts reflected thereon.

 
(iv)
any Excluded Liability; and

 
(v)
any pending litigation on or before the Closing Date related to the Business, the Purchased Assets, the Assumed Liabilities, or Subsidiary;
 
In the event that Seller may be obligated to indemnify Purchaser Indemnified Parties under both subsections (i) or (ii) and any of subsections (iii)-(v) of this Section 10.2, Seller’s obligations under any of subsections (iii)-(v) shall be controlling and the limitations provided in Sections 10.1 shall not apply.
 
 
 
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(b)       Purchaser shall take and shall cause its Affiliates to take all reasonable steps to mitigate any Damages upon becoming aware of any event which would reasonably be expected to, or does, give rise thereto.
 
 
(c)       Seller shall have no liability (for indemnification or otherwise) with respect to claims under Sections 10.2(a), until the total of all Damages with respect to such matters exceeds Fifty Thousand Dollars ($50,000), and then for the total amount of Damages.
 
 
10.3       Indemnification by Purchaser.
 
 
(a)       Purchaser hereby agrees to indemnify and hold Seller and its directors, officers, employees, Affiliates, agents, attorneys, representatives, successors and permitted assigns (collectively, the “Seller Indemnified Parties”) harmless from and against, and pay to the applicable Seller Indemnified Parties the amount of, any and all Damages based upon or resulting from:
 
 
(i)
any breach of, or inaccuracy in, any representation or warranty made by Purchaser in this Agreement or in any other document, schedule, instrument or certificate delivered hereunder or in respect of a claim made based upon alleged facts that if true could constitute any such breach or inaccuracy;

 
(ii)
any breach or violation of any Pre-Closing Covenant or Post-Closing Covenant by Purchaser;

 
(iii)
based upon or arising directly from any Assumed Liability; and

 
(iv)
based upon or arising directly from Purchaser’s operation of the Purchased Assets after the Closing Date;
 
(b)       Seller shall take and cause their Affiliates to take all reasonable steps to mitigate any Damages upon becoming aware of any event which would reasonably be expected to, or does, give rise thereto.
 
 
(c)       Purchaser shall have no liability (for indemnification or otherwise) with respect to claims under Sections 10.2(a), until the total of all Damages with respect to such matters exceeds Fifty Thousand Dollars ($50,000), and then for the total amount of Damages.
 
 
10.4        Indemnification Procedures.
 
 
(a)       A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the party from whom indemnification is sought.
 
 
(b)       In the event that any Legal Proceeding shall be instituted or that any claim or demand shall be asserted by any third party in respect of which payment may be sought under Sections 10.2 and 10.3 hereof (an “Indemnification Claim”), the Indemnified Party shall promptly cause written notice of the assertion of any Indemnification Claim of which it has knowledge which is covered by this indemnity to be forwarded to the Indemnifying Party. The
 
 
 
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failure of the Indemnified Party to give reasonably prompt notice of any Indemnification Claim shall not release, waive or otherwise affect the Indemnifying Party’s obligations with respect thereto except to the extent that the Indemnifying Party is irreparably and materially prejudiced as a result of such failure in which case such indemnification shall be reduced but only to the extent of such irreparable and material prejudice. The Indemnifying Party shall have the right, at its sole option and expense, to select counsel of its choice to defend the Indemnifying Party, which must be reasonably satisfactory to the Indemnified Party, and to vigorously and diligently defend against, negotiate, settle (subject to subsection (c)) any Indemnification Claim which relates to any Damages in demnified against by it hereunder; provided, however, that the Indemnified Party may, at the sole cost and expense of the Indemnifying Party, at any time after the Indemnified Party’s delivery of the notice referred to in the first sentence of this clause (b) and before such Indemnifying Party’s written response to the Indemnified Party, file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests. If the Indemnifying Party elects to defend against, negotiate or settle any Indemnification Claim which relates to any Damages indemnified by it hereunder, it shall, within thirty (30) days (or sooner if the nature of the Indem nification Claim so requires), notify the Indemnified Party of its intent to do so and provide reasonable assurance of its ability to pay the Indemnification Claim; provided that if the Indemnifying Party elects not to defend against, negotiate, or settle any Indemnification Claim which relates to any Damages indemnified against hereunder, the Indemnified Party may defend against, negotiate or settle such Indemnification Claim at the sole cost and expense of the Indemnifying Party. If the Indemnifying Party shall assume the defense of any Indemnification Claim, the Indemnified Party may participate, at its or their own expense, in the defense of such Indemnification Claim; provided, however, that such Indemnified Party shall be entitled to participate in any such defense with separate counsel at the expense of the Indemnified Party; and provided, further, that the Indemnifying Party shall not be required to pay for more than one such counsel (plus any appropriate local counsel) for all indemnified parties in connection with any Indemnification Claim. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such Indemnification Claim.
 
 
(c)       Notwithstanding anything in Section 10.4(b) to the contrary, neither the Indemnifying Party nor the Indemnified Party shall, without the written consent of the other party, settle or compromise any Indemnification Claim or permit a default or consent to entry of any judgment unless the claimant provides to the Indemnified Party an unqualified release from all liability in respect of the Indemnification Claim. Notwithstanding the foregoing, if a settlement offer solely for money damages is made by the applicable third party claimant with a release as per the preceding sentence, and the Indemnifying Party notifies the Indemnified Party in writing of the Indemnifying Party’s willingness to accept the settlement offer a nd pay the amount called for by such offer, and the Indemnified Party declines to accept such offer, the Indemnified Party may continue to contest such Indemnification Claim, free of any participation by the Indemnifying Party, and the amount of any ultimate liability with respect to such Indemnification Claim that the Indemnifying Party has an obligation to pay hereunder shall be limited to the lesser of (A) the amount of the settlement offer that the Indemnified Party declined to accept plus the Damages of the Indemnified Party relating to such Indemnification Claim through the date of its rejection of the settlement offer, or (B) the aggregate Damages of the Indemnified Party with respect to such Indemnification Claim.
 
 
 
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(d)       In the event any Indemnified Party should have a claim under Sections  10.2 or 10.3, as applicable, against any Indemnifying Party that does not involve a third party claim, the Indemnified Party shall deliver a written notice with reasonable promptness to the Indemnifying Party. The failure by any Indemnified Party to give such notice shall not impair such party’s rights hereunder except to the extent that an Indemnifying Party demonstrates that it has been irreparably and materially prejudiced thereby in which case such indemnification shall be reduced but only to the extent of such irreparable and material prejudice. If the Indemnifying Party notifi es the Indemnified Party that it does not dispute the claim described in such notice or fails to notify, in writing, the Indemnified Party within thirty (30) days thereafter whether the Indemnifying Party disputes the claim described in such notice, the Damages in the amount specified in such written notice shall be conclusively deemed a liability of the Indemnifying Party and the Indemnifying Party shall pay the amount of such Loss to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to attempt to negotiate a resolution of such dispute within thirty (30) days.
 
 
(e)       After any final decision, judgment or award shall have been rendered by a Governmental Body of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or the Indemnified Party and the Indemnifying Party shall have arrived at a mutually binding agreement with respect to an Indemnification Claim hereunder, the Indemnified Party shall forward to the Indemnifying Party notice of any sums due and owing by the Indemnifying Party pursuant to this Agreement with respect to such matter.
 
 
(f)        This Section 10.4 shall not apply to any Claims made in respect of Taxes, which shall be specifically governed by Section 11.4.
 
 
(g)       This Section 10.4 shall not apply to any actions taken pursuant to Sections 8.14, 8.15 and/or 8.16, which shall be specifically governed by their respective terms
 
 
10.5     Escrow. On the earlier of (i) the date of execution of a Purchase Agreement between Purchaser U.M AccelMed, Limited Partnership (“AccelMed”), or (ii) the date of execution of this Agreement, Seller shall deposit 3,793,452 shares of common stock of Purchaser beneficially owned by Seller, free of any third parties rights, into an escrow account, and (ii) on the Closing Date, Seller shall deposit additional 2,000,000 shares of common stock of Purchaser, beneficially owned by Seller free of any third parties rights, into an escrow account (all such securities, together with any and all proceeds of disposal of such securities by Seller (if and to t he extent such disposal was consummated prior to the lapse of the Escrow Period), the “Escrow Reserve”), in each case held by Stephen L. Davis, as escrow agent (the “Escrow Agent”), and governed by an agreement to be executed by the applicable parties substantially in the form attached hereto as Exhibit C; provided, that Seller shall have no obligation to deposit the 2,000,000 shares of common stock of Purchaser in the escrow account on the Closing Date if Seller has satisfied and discharged all of its OCS Debt and Obligations prior to the Closing Date. The Escrow Reserve shall be retained by the Escrow Agent until the earlier of (1) date of the termination of this Agreement, or (2) the later of (A) the 24 month anniversary of the Closing Date or (B) the satisfaction and discharge by Seller of the OCS Debt and Obligations (the “Escrow Period”) in order to (a) secure the indemnification obligations of Seller pursuant to
 
 
 
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Section 10.2 ; (b) secure the obligations of Seller and to enable the provision of remedies to Purchaser pursuant to Section 8.14, (c) secure the obligations of Seller and to enable the provision of remedies to Purchaser pursuant to Section 8.15, and (d) secure the obligations of Seller and to enable the provision of remedies to Purchaser pursuant to Sectio n 8.16. Any amounts remaining in the Escrow Reserve after satisfaction of the obligations hereof shall be disbursed in accordance with the escrow agreement.
 
 
10.6     Exclusive Remedy. From and after the Closing, the sole and exclusive remedy for any breach or failure to be true and correct, or alleged breach or failure to be true and correct, of any representation or warranty or any covenant or agreement in this Agreement, shall be indemnification in accordance with this Section 10. For avoidance of doubt, it is acknowledged that the indemnification of Purchaser under Section 10 shall not be limited to the Escrow Reserve and Purchaser shall be entitled to recover from and to be indemnified for all Damages regardless of the value or amount of the Escrow Reserve. Notwithstanding the foregoing, this Section 10.6 shall not operate to limit the rights of the parties to seek equitable remedies (including specific performance or injunctive relief).
 
ARTICLE 11
 
TAXES
 
 
11.1     Payment of Sales, Use or Similar Taxes. Purchaser and Seller shall each be responsible for any federal, state, local or foreign sales Taxes applicable in their respective jurisdictions to the Purchased Assets and Purchased Shares and all other applicable sales, use, value-added, stamp, documentary, filing, recording, real estate transfer, stock transfer, gross receipts, registration, duty, securities transactions, transfer or similar fees or Taxes or governmental charges (including real property transfer gains Taxes, UCC3 filing fees, FAA, ICC, DOT, real estate and motor vehicle registration, title recording or filing fees and other amounts payable in respect of transfer filings) in connection with the transactions contemplated by this A greement (other than Taxes measured by or with respect to income imposed on Seller or its Affiliates) (collectively, “Transfer Taxes”). Purchaser shall file all necessary documents (including all Tax Returns) with respect to all such amounts in a timely manner. To the extent Seller has any Liability for any Transfer Taxes under this Section 11.1.
 
 
11.2      Cooperation on Tax Issues.
 
 
(a)       Purchaser and Seller shall furnish or cause to be furnished to each other, as promptly as practicable, such information and assistance relating to the Purchased Assets, Purchased Shares and the Assumed Liabilities as is reasonably necessary for the preparation and filing of any Tax Return, claim for refund or other filings relating to Tax matters, for the preparation for any Tax audit, for the preparation for any Tax protest, for the prosecution or defense of any suit or other proceeding relating to Tax matters. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide a dditional information and explanation of any material provided hereunder. Seller agrees (A) to retain all books and records with respect to Tax matters pertinent to Subsidiary relating to any taxable period beginning at or before the
 
 
 
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Closing Date until the expiration of the statute of limitations (and, to the extent notified by Purchaser, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any Governmental Body, and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, Seller shall allow the other party to take possession of such books and records.
 
 
(b)       Seller and Purchaser further agree, upon request, to use their reasonable efforts to obtain any certificate or other document from any Governmental Body or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby). The reasonable costs incurred by Seller and Purchaser during the process of obtaining said certificate or other document shall be borne by the party that benefits of the mitigation, reduction or elimination of any Tax.
 
 
11.3      Tax Refunds; Tax Benefit Amounts.
 
 
(a)       Any refunds or credits of Taxes of Subsidiary attributable to any period (or portion thereof) ending at or before the Closing Date (a “Pre-Closing Tax Period”) which is an Excluded Asset shall be for the benefit of, and promptly paid to, Seller to the extent not reflected as an asset in the balance sheet or the Total Consideration; provided, however, if the Tax being refunded shall have been paid by Purchaser or an Affiliate of Purchaser after the Closing Date, such refund shall be paid to Purchaser or such Affiliate. Purchaser shall forward or reimburse to Seller any such Tax refunds or credits received within five (5) days after receipt thereof (but no earlier than two (2) Business Days after the deposit of any such payment made by check has cleared) reduced by any reasonable out-of-pocket expenses incurred by Purchaser or Subsidiary to collect such refund or credit.
 
 
(b)       Neither Purchaser nor any of its Affiliates shall amend, refile, revoke or otherwise modify any Tax Return or Tax election of Subsidiary with respect to a Pre-Closing Tax Period without the prior written consent of Seller. Neither Purchaser nor any of its Affiliates shall make or cause Subsidiary to make an election under Section 338 of the Code or any comparable or similar election under any provision of state, local or foreign Tax Law with respect to the Purchased Shares.
 
 
11.4       Tax Matters.
 
 
(a)       Tax Indemnification.
 
 
(i)
Except as otherwise contemplated in this Agreement, Seller hereby agrees to be liable for and to indemnify and hold Purchaser harmless from and against all Taxes of Subsidiary for any taxable period ending at or before the Closing Date.

 
(ii)
Seller hereby agrees to be liable for and to indemnify and hold Purchaser harmless from and against all Excluded Liabilities set forth in Sections 2.4(b) and 2.4(c).
 
 
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(iii)
Purchaser hereby agrees to be liable for and to indemnify and hold Seller harmless from and against all Taxes of Subsidiary for any taxable period beginning after the Closing Date.

 
(iv)
Purchaser hereby agrees to be liable for and to indemnify and hold Seller harmless from and against all Assumed Liabilities set forth in Sections 2.3(g) and 2.3(h).
 
 
(b)       Tax Audits.
 
 
(i)
If notice of any action, suit, investigation or audit with respect to Taxes of Subsidiary (a “Tax Claim”) shall be received by either party for which the other party may reasonably be expected to be liable pursuant to this Agreement, the notified party shall notify the other party in writing of such Tax Claim. Failure to notify the other party of the Tax Claim will not relieve the other party of any liability that it may have to the notified party, except to the extent that the other party demonstrates that the defense of such Tax Claim is prejudiced by the notified party’s failure to give such notice.

 
(ii)
To the extent the Tax Claim relates to a Pre-Closing Tax Period, Seller will have the right to assume control of the defense of the Tax Claim with counsel of their choice at any time within thirty (30) days after Seller has received notice of the Tax Claim. If Seller assumes such defense, Subsidiary and/or Purchaser shall have the right to participate in the defense thereof and to employ at their own expense counsel reasonably acceptable to Seller separate from the counsel employed by Seller. So long as Seller has assumed and is conducting the defense of the Tax Claim in accordance with the above, Subsidiary and/or Purchaser will not consent to the entry of any judgment on or enter into any settlement with respect to the Tax Claim without the prior written consent of Seller. In the event that Seller refuse to assume the defense of the Tax Claim as provided above, Subsidiary and/or Purchaser may defend against the Tax Claim; provided, however, that neither Subsidiary nor Purchaser may consent to the entry of any judgment on or enter into any settlement with respect to the Tax Claim without the prior written consent of Seller.
 
(c)       Disputes. Any dispute as to any matter covered hereby shall be resolved by Purchaser and Seller in good faith. The fees and expenses of such accounting firm shall be borne equally by Seller, on the one hand, and Purchaser on the other. If any dispute with respect to a Tax Return is not resolved prior to the due date of such Tax Return, such Tax Return shall be filed in the manner which the party responsible for preparing such Tax Return deems correct.
 
 
 
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(d)       Time Limits. Any claim under this Section 11.4  may only be made until (a) the third anniversary of the filing of the relevant Tax Return with respect to any Tax for a Pre-Closing Period filed with a United States federal, state or local Taxing Authority, and (b) the relevant statute of limitations under applicable Tax Law for any Tax Return filed with a foreign Taxing Authority.
 
ARTICLE 12.
 
MISCELLANEOUS AND GENERAL
 
 
12.1     Modification or Amendment. Subject to any limitations under applicable Law, at any time prior to the Closing Date, this Agreement may be amended, modified or supplemented in writing by the parties hereto, by action of the board of directors of the respective parties.
 
 
12.2     Waiver of Conditions. The conditions to each of the parties’ obligations to execute this Agreement are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable Law.
 
 
12.3     Counterparts. This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.
 
 
12.4     Governing Law; Waiver of Jury Trial; Specific Performance.
 
 
(a)       Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION, EXCEPT FOR MATTERS INVOLVING CORPORATE AFFAIRS OF MEDIVISION.
 
 
(b)       Waiver. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDE RED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 12.4.
 
 
 
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(c)       Injunctive Relief. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which such party is entitled at law or in equity
 
 
12.5     Dispute Resolutions. The parties shall use their best efforts to resolve amicably any and all disputes, controversies, claims or differences (“Disputes”) relating to this Agreement. If either party gives written notice to the other party that a Dispute has arisen, and the parties are unable within five (5) business days of such written notice to resolve the Dispute, then it shall be resolved by binding arbitration, which shall be administered by the American Arbitration Association (“AAA”) and shall be conducted in accordance with the Commercial Arb itration Rules of the American Arbitration Association (the “Rules”), as such Rules may be amended from time to time, with the hearing locale to be Sacramento, California. A single neutral arbitrator (the “Arbitrator”) shall preside over the arbitration and decide the Dispute (the “Decision”). The AAA shall use its normal procedures pursuant to the Rules for selection of the Arbitrator. The Decision shall be binding, and the prevailing party may enforce such decision in any court of competent jurisdiction. The parties shall cooperate with each other in causing the arbitration to be held in as efficient and expeditious a manner as practicable and, in this connection, to furnish such documents and make available such Persons as the Arbitrator may request. All proceedings and decisions of the Arbitrator shall be maintained in confidence, to the extent legally permissible, and shall not be made public by any party or any Arbitrator without the prior written consent of all parties to the arbitration, except as may be required by law. The expenses of the arbitration shall be borne by the non-prevailing party to the arbitration, including, but not limited to, the cost of experts, evidence and legal counsel.
 
 
12.6     Notices. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile:
 
 
if to Purchaser:
Ophthalmic Imaging Systems
221 Lathrop Way, Suite 1
Sacramento, CA 95815
Attn: Gil Allon, Chief Executive Officer
Phone: 916-646-2020
Fax: 916-646-0207
Email: Info@oisi.com
 
 
 
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with a copy to:
Troutman Sanders LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Attn: Henry I. Rothman, Esq.
Phone: 212-704-6000
Fax: 212-704-6288
Email: henry.rothman@troutmansanders.com
 
if to Seller:
MediVision Medical Imaging, Ltd.
Hermon Building, Industrial Park
PO Box 45
Yokneam Elit 20692, Israel
Attn: Noam Allon, President & CEO
Phone: 011-972-4-989-4884
Fax: 011-972-4-989-4883
Email: general@medivision-ois.com
 
with a copy to:
Eitan-Mehulal Law Group
10 Abba Eban Blvd.
PO Box 2081
Herzlia 46120, Israel
Attn: Nir Weissberger
Tel +972-9-972-6000
Fax +972-9-972-6001
Email: nirweissberger@israelilaw.com
 
If to Escrow Agent:
Stephen L. Davis
c/o Davis & Leonard LLP
8880 Cal Center Drive
Suite 180
Sacramento, CA 95826
Tel (916) 362-9000
Fax (916) 362-9066
Email: sdavis@davisandleonard.com
 
 
or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. Any notice, request, instruction or other document given as provided above shall be deemed given to the receiving party upon actual receipt, if delivered personally; three (3) Business Days after deposit in the mail, if sent by registered or certified mail; upon confirmation of successful transmission if sent by facsimile (provided that if given by facsimile such notice, request, instruction or other document shall be followed up within one (1) Business
 
 
 
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Day by dispatch pursuant to one of the other methods described herein); or on the next Business Day after deposit with an overnight courier, if sent by an overnight courier.
 
 
12.7     Entire Agreement. This Agreement (including any exhibits hereto), Seller Disclosure Letter and Purchaser Disclosure Letter (the “Confidentiality Agreement”) constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof.
 
 
12.8     No Third-Party Beneficiaries. OIS and MediVision hereby agree that their respective representations, warranties and covenants set forth herein are solely for the benefit of the other party hereto, in accordance with and subject to the terms of this Agreement and this Agreement is not intended to, and does not, confer upon any Person other than the parties hereto any rights or remedies hereunder, including, without limitation, the right to rely upon the representations and warranties set forth herein. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties hereto. Any inaccuracies in such representations and warranties are subject to waiver b y the parties hereto without notice or liability to any other Person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, Persons other than the parties hereto may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.
 
 
12.9     Obligations of OIS and of MediVision. Whenever this Agreement requires a Subsidiary of OIS to take any action, such requirement shall be deemed to include an undertaking on the part of OIS to cause such Subsidiary to take such action. Whenever this Agreement requires a Subsidiary of MediVision to take any action, such requirement shall be deemed to include an undertaking on the part of MediVision to cause such Subsidiary to take such action.
 
 
12.10   Transfer Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including penalties and interest) incurred in connection with the execution of this Agreement shall be paid when due.
 
 
12.11   Severability. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any Person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability af fect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
 
 
12.12   Interpretation; Construction.
 
 
 
 
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(a)       Headings, etc. The table of contents and headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a Section or Exhibit, such reference shall be to a Section of or Exhibit to this Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”
 
 
(b)       No Presumption. The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
 
 
(c)       Disclosure Letters. Each party hereto has or may have set forth information in its respective Disclosure Letter in a section thereof that corresponds to the section of this Agreement to which it relates. The fact that any item of information is disclosed in a Disclosure Letter to this Agreement shall not be construed to mean that such information is required to be disclosed by this Agreement.
 
 
(d)       Calculation of Time Period. When calculating the period of time before which, within which or following which, any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.
 
 
(e)       Dollars. Any reference in this Agreement to $ shall mean U.S. dollars.
 
 
(f)        Exhibits/Schedules. The Exhibits and Schedules to this Agreement are hereby incorporated and made a part hereof and are an integral part of this Agreement. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any matter or item disclosed on one Schedule shall be deemed to have been disclosed on each other Schedule if its relevance to such other Schedules is clearly apparent. Disclosure of any item on any Schedule shall not constitute an admission or indication that such item or matter is material or would have a Material Adverse Effect. No disclosure on a Schedule relating to a possible breach or vi olation of any Agreement, Law or Order shall be construed as an admission or indication that breach or violation exists or has actually occurred. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement.
 
 
(g)       Reflected On or Set Forth In. An item arising with respect to a specific representation or warranty shall be deemed to be “reflected on” or “set forth in” a balance sheet or other financial statement, to the extent any such phrase appears in such representation or warranty, if (a) there is a reserve, accrual or other similar item underlying a number on such balance sheet or other financial statement that related to the subject matter of such representation that is clearly apparent, (b) such item is otherwise specifically set forth on the balance sheet or other financial statement or (c) is specifically set forth in the notes thereto.
 
 
 
58
 
 
 
 
 
 

 
 
12.13   Assignment. This Agreement shall not be assignable by operation of law or otherwise. Any purported assignment in violation of this Agreement is void.
 
 
 
59
 
 
 
 
 
 

 
 
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first written above.
 
 
 
OPHTHALMIC IMAGING SYSTEMS
 
 
By:
/s/ Gil Allon
 
   
Name: Gil Allon
Title: Chief Executive Officer
 
   By:   /s/ Ariel Shenhar    
   
Name: Ariel Shenhar
Title: Chief Financial Officer
 
 
 
MEDIVISION MEDICAL IMAGING LTD.
 
 
By:
/s/ Noam Allon   
 
   
Name: Noam Allon
Title:  President and Chief Executive Officer
   
AGREED AS TO ARTICLE 10 BY ESCROW AGENT   
   
By:
/s/ Stephen Davis 
 
 
 
Name:      Stephen Davis
Title:        Escrow Agent
 
 
 
 
 
S-1
 
 
 

 
 

 

Exhibit A
 
BILL OF SALE
 
THIS BILL OF SALE (this “Bill of Sale”) is made and delivered as of October ___, 2009 by and between MediVision Medical Imaging Ltd., an Israeli company ("Seller"), and Ophthalmic Imaging Systems, a California corporation ("Purchaser").
 
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement (as defined below).
 
WHEREAS, Seller and Purchaser have entered into that certain Asset Purchase Agreement dated as of June 24, 2009 (the “Asset Purchase Agreement”), the terms of which are incorporated herein by reference, which provides, among other things, for the sale and assignment by Seller to Purchaser of the Purchased Assets.
 
NOW, THEREFORE, in consideration of the mutual promises contained in the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Seller, and subject to the terms and conditions of the Purchase Agreement:
 
1.           Seller does hereby bargain, sell, grant, assign, transfer, convey and deliver unto Purchaser, and its successors and assigns, forever, and subject to Sections 5.2, 5.3 and 5.4 of the Asset Purchase Agreement, all of Seller’s right, title and interest in and to the Purchased Assets listed on Exhibit A hereto (the “Sale Assets”), free and clear of any Liens or Liabilities other than the Permitted Exceptions and the Assumed Liabilities, TO HAVE AND TO HOLD such Sale Assets with all appurtenances thereto, unto Purchaser, and its successors and assigns, fo r its use forever.
 
2.           Seller covenants and agrees to execute and deliver, at the request of Purchaser, such further instruments of transfer and assignment and to take such other action as Purchaser may reasonably request to more effectively consummate the assignments contemplated by this Bill of Sale.
 
3.           This Bill of Sale shall inure to the benefit of and be binding upon Seller and the Purchaser and their respective successors and assigns and such successors and permitted assigns will be deemed to be a party hereto for all purposes hereof.  None of Seller or Purchaser may assign, delegate or otherwise transfer either this Bill of Sale or any of the rights, interests or obligations hereunder without the prior written approval of the other; provided, however, that Purchaser may assign this Bill of Sale to one or more of its Affiliates.
 
3.           Nothing in this Bill of Sale, express or implied, is intended to or shall be construed to modify, expand or limit in any way the terms of the Purchase Agreement.  To the extent that any provision of this Bill of Sale conflicts or is inconsistent with the terms of the terms of the Purchase Agreement, the Asset Purchase Agreement shall govern.
 
4.           This Bill of Sale is executed and delivered pursuant to the Asset Purchase Agreement.

 
 

 

5.           Assignments under this Bill of Sale are subject to, and shall confirm with, Section 12.13 of the Asset Purchase Agreement
 
6.           This Bill of Sale shall be governed by, and construed in accordance with, the laws of the State of California, as applied to contracts made and performed entirely in such State without giving effect to the choice of law principles of such State that would require or permit the application of the laws of another jurisdiction.  The Federal and State courts sitting in Sacramento County, California shall have exclusive jurisdiction over all disputes and other matters relating to the interpretation and enforcement of this Bill of Sale, and Seller shall expressly consent to and agree not to contest such exclusive jurisdiction.

[signature page follows]

 
 

 

IN WITNESS WHEREOF, and intending to be legally bound hereby, Seller have caused this Bill of Sale to be executed and delivered as of the day and year first above written.
 
 
 
PURCHASER:
 
OPHTHALMIC IMAGING SYSTEMS
 
 
By:
/s/ Gil Allon
 
 
Name: Gil Allon
Title: Chief Executive Officer
 
   By:   /s/ Ariel Shenhar    
 
Name: Ariel Shenhar
Title: Chief Financial Officer
 
 
 
SELLER:
 
MEDIVISION MEDICAL IMAGING LTD.
 
 
By:
 
 
 
Name:
Title:  

 
 

 

EXHIBIT A

 
List of Assets

 
1.  
Fixed assets listed in the Schedule 2.1(l), attached to the Asset Purchase Agreement.

 
2.  
37,800 shares par value 1.00 Euro, which constitute 63% of the total shares of CCS Pawlowski GmbH, which are registered under the name of Ophthalmic Imaging Systems as of January 5, 2009.

 
3.  
Distributors’ Agreements as defined in Schedule 2.1(a) attached to the Asset Purchase Agreement, listed as numbers 1-4.
  
4.  
IRI Project:
4.1  
IRI Patent in accordance with Schedule 2.1(d) attached to the Asset Purchase Agreement, Document 2.
4.2  
IRI know-how.


 
 

 

Exhibit B
   
ASSIGNMENT AND ASSUMPTION AGREEMENT
 
This Assignment and Assumption Agreement (this "Agreement") is made as of June 24, 2009 by and between MediVision Medical Imaging Ltd., an Israeli company ("Seller"), and Ophthalmic Imaging Systems, a California corporation ("Purchaser").
 
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Asset Purchase Agreement (as defined below).
 
R E C I T A L S:
 
 WHEREAS, Seller and Purchaser are parties to an Asset Purchase Agreement, dated as of June 24, 2009 (the “Asset Purchase Agreement”), providing for, among other things, the sale by Seller to Purchaser of the Purchased Assets and the assumption by Purchaser of the Assumed Liabilities; and
 
WHEREAS, in accordance with the terms of the Asset Purchase Agreement, Seller and Purchaser have agreed to enter into this Agreement, providing for (a) the assignment from Seller to Purchaser of all of Seller’s right, title and interest in, under and to the Purchased Agreements, the agreements listed in Exhibit A hereto, and those assets set forth in Section 2.1 of the Asset Purchase Agreement (collectively, the “Assumed Assets”), from and after the Closing, on and subject to the terms of this Agreement, and (b) the acceptance by Purchaser of such assignment and the assumption by Purchaser of the Assumed Liabilities.
 
NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
 
1.           Assignment.  In accordance with and subject to the terms of the Asset Purchase Agreement, Seller hereby sells, assigns, transfers and conveys to Purchaser, to the extent that such are legally assignable and any necessary consents to assignment have been obtained, all of Seller’s right, title and interest in, under and to the Assumed Assets, free and clear of any Liens or Liabilities other than the Permitted Exceptions and Assumed Liabilities, from and after the Closing.
 
2.           Acceptance and Assumption.  In accordance with and subject to the terms of the Asset Purchase Agreement, Purchaser hereby (a) purchases and accepts the assignment, transfer and conveyance, to the extent that such are legally assignable and necessary consents to assignment have been obtained, of Seller’s right, title and interests in, under and to the Assumed Assets; and (b) unconditionally and irrevocably assumes, undertakes and agrees to be bound by and promptly to perform or cause to be performed the terms, conditions and covenants, agreed to be done, kept and performed by Seller with respect to the Assumed Liabilities and arising under the Assumed Assets including but not limited to pay, satisfy, perform and discharge in full, as and when due, and release and discharge Sellers and their successors and assigns completely and forever from, all of the Assumed Liabilities.  Notwithstanding anything to the contrary herein or in any other writing delivered in connection herewith, Purchaser will not assume any Excluded Liabilities.

 
 

 

3.           Further Actions.  Each of the parties hereto covenants and agrees to execute and deliver, at the request of any other party hereto, such further instruments of transfer, assignment and assumption and to take such other action as such other party may reasonably request to more effectively consummate the assignments and assumptions contemplated by this Agreement.
 
4.           Conflict with Asset Purchase Agreement.  Nothing in this Agreement, express or implied, is intended to or shall be construed to modify, expand or limit in any way the terms of the Asset Purchase Agreement.  To the extent that any provision of this Agreement conflicts or is inconsistent with the terms of the terms of the Asset Purchase Agreement, the Asset Purchase Agreement shall govern.
 
5.           Parties in Interest.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
 
6.           Counterparts.  This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, and all of which together shall constitute one and the same instrument.
 
7.           Governing Law.  This Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed in accordance with, the laws of the State of California, as applied to contracts made and performed entirely in such State without giving effect to the choice of law principles of such State that would require or permit the application of the laws of another jurisdiction.  The Federal and State courts sitting in Sacramento County, California shall have exclusive jurisdiction over all disputes and other matters relating to the interpretation and enforcement of this Agreement, and Seller and Purchaser shall expressly consent to and agree not to contest such exclusive jurisdiction.
 
8.           Succession and Assignment.  Subject to the immediately following sentence, this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, and such successors and permitted assigns will be deemed to be a party hereto for all purposes hereof.  No party may assign, delegate or otherwise transfer either this Agreement or any of the rights, interests or obligations hereunder without the prior written approval of all other parties.
 
[signature page follows]

 
 

 

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first written above.
 
 
 
 
PURCHASER:
 
OPHTHALMIC IMAGING SYSTEMS
 
 
By:
/s/ Gil Allon
 
 
Name: Gil Allon
Title: Chief Executive Officer
 
   By:   /s/ Ariel Shenhar    
 
Name: Ariel Shenhar
Title: Chief Financial Officer
 
 
 
SELLER:
 
MEDIVISION MEDICAL IMAGING LTD.
 
 
By:
 
 
 
Name:
Title:  
 
 

 
Exhibit C


ESCROW AGREEMENT
 
This Escrow Agreement (this “Agreement”) is made and entered into this 24 th day of June, 2009, by and among OPHTHALMIC IMAGING SYSTEMS (the “ Purchaser ”), MEDIVISION MEDICAL IMAGING LTD. (the “ Seller ”), and STEPHEN L. DAVIS , ESQ. (the “ Escrow Agent ”). Capitalized terms used in this Agre ement not otherwise defined herein shall have their respective meanings given to them in the Asset Purchase Agreement (as defined below).
 
R E C I T A L S
 
WHEREAS, the Purchaser and the Seller are parties to that certain Asset Purchase Agreement, dated June 24, 2009 (the “ Asset Purchase Agreement ”); and
 
WHEREAS, the Purchaser and the Seller have agreed that (i) 3,793,452 shares (the “ Initial Escrow Shares ”) of common stock, no par value (the “ Common Stock ”), of the Purchaser beneficially owned by the Seller will be deposited into an escrow account on the closing date (the “ PA Closing Date ”) of the sale by the Purchaser to U.M AccelMed, Limited Partnership (“ AccelMed ”) of 9,633,228 shares of Common Stock and warrants to purchase 3,211,076 shares of Common Stock pursuant to that certain Purchase Agreement, dated June __, 200 9, between the Purchaser and AccelMed and (ii) 2,000,000 shares (the “ Remaining Escrow Shares ,” and collectively with the Initial Escrow Shares, the “ Escrow Shares ”) of Common Stock will be deposited in an escrow account on the closing date (the “ APA Closing Date ”) of the Asset Purchase Agreement, in each case pursuant to Section 10.5 of the Asset Purchase Agreement; provided , that the Seller shall have no obligation to deposit the Remaining Escrow Shares into the Escrow Account (as defined below) if the Seller has satisfied and discharged all of its OCS Debt and Obligations (as defined in the Asset Purchase Agreement) prior to the APA Closing Date.
 
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows:
 
ARTICLE 1
ESCROW SHARES
 
1.1     Delivery .     (i) On the PA Closing Date, the Seller shall deposit with the Escrow Agent, to be held by the Escrow Agent pursuant to the terms of this Agreement, certificates representing the Initial Escrow Shares and the stock powers executed in blank with respect to such Initial Escrow Shares (the “ Initial Escrow Materials ”) and the Escrow Agent shall deliver the Purchaser on or about such date, a written confirmation of his receipt of the Initial Escrow Materials; and
 
(ii) on the APA Closing Date, the Seller shall deposit with the Escrow Agent, to be held by the Escrow Agent pursuant to the terms of this Agreement, certificates representing the Remaining Escrow Shares and the stock powers executed in blank with respect to such Remaining Escrow Shares (the “ Remaining Escrow Materials ”) and the Escrow Agent shall deliver the Purchaser on or about such date, a written confirmation of his receipt of the Initial Escrow Materials; provided , that the Seller shall have no obligation to deposit the Remaining Escrow Shares into the Escrow Account (as defined below) if the Seller has satisfied and discharged all of its OCS Debt and Obligations prior to the APA Closi ng Date. The Remaining Escrow Materials shall be deposited together with an irrevocable power of attorney authorizing the Escrow Agent to release the Remaining Escrow Shares from the Pledge (as defined below), to file a release notice with the Israeli Registrar of Pledges and to take any other reasonable action required to implement such release (without the need for any further consent from the Lenders (as defined below)) immediately prior to any event on which the Escrow Agent shall be entitled to dispose the Remaining Escrow Shares pursuant this Agreement, resulting in the Remaining Escrow Shares being free and clear of any third party charge or rights (as shall be evidenced in writing Israeli Registrar of Pledges’ printout); provided , further that, in the case of (i) and (ii) above, the Seller may, at any time and in its sole discretion (subject to the

 
 

 

terms herein), replace the Escrow Shares with an autonomous bank guarantee of a reputable Israeli or US bank, the identity of which should be approved in advance by the Purchaser (the “ Guarantee ”) reflecting the Fair Market Value (as defined herein) of the Escrow Shares, by depositing the Guarantee with the Escrow Agent, whereupon the Escrow Agent shall confirm receipt of such Guarantee to the Purchaser and shall immediately release the appropriate amount of the Escrow Shares to the Seller. The terms and conditions of the Guarantee shall be subject to the prior approval of the Purchaser, which shall not be unreasonably withheld, provided, further that the terms and conditions of the Guarantee (including the conditions and procedure for the realization of the Guarantee) shall not be less favorable to the Purchaser than the rights and remedies granted to the Purchaser and/or the Purchaser’s ability to recover from the Escrow Property (as defined below) under this Agreement. The Escrow Property shall be held in escrow until the earlier of (i) date of the termination of the Asset Purchase Agreement, or (ii) the later of (A) the 24 month anniversary of the date of the APA Closing Date or (B) the satisfaction and discharge by the Seller of the OCS Debt and Obligations (the “ Termination Date ”).
 
For purposes of this Section 1.1(ii) “ Pledge ” shall mean that certain security and pledge rights granted to the Lenders under that certain convertible loan agreement between the Purchaser, Seller, the Lenders and Delta Trading And Services (1986) Ltd, dated January 12, 2009 with respect to an aggregate of 4,837,391 shares of Common Stock of the Purchaser which are owned by MediVision, out of which 2,000,000 shares of Common Stock of the Purchaser are pledged to the Lenders and “ Lenders ” shall mean Noam Allon, Gill Allon and Ariel Shenhar.
 
1.2        Receipt; Escrow Account . The Escrow Agent hereby agrees (i) to accept delivery of the Escrow Shares or the Guarantee (subject to the Purchaser’s approval set forth above) and process such delivery based on instructions given to the Escrow Agent and (ii) to hold the Escrow Shares or the Guarantee in an escrow account (the “ Escrow Account ”) in accordance with the terms and conditions of this Agreement and for the uses and purposes stated herein. The Escrow Account, unless it holds cash, shall not be an interest bearing account. Cash, if any, held in the Escrow Account shall be invested in a money market account mutually acceptable to the Purc haser and the Seller, as specified in written instructions from the Purchaser and the Seller to the Escrow Agent. In no event shall any part of the Escrow Shares or the Guarantee be commingled with any other securities held by the Escrow Agent. The Escrow Account shall not be subject to any lien or attachment by any creditor of either party hereto and shall be used solely for the purposes set forth in this Agreement and the Asset Purchase Agreement. The Escrow Shares or the Guarantee and any amounts in the Escrow Account shall not be used by the Escrow Agent to offset any obligations that either the Purchaser or the Seller might have to the Escrow Agent or any of its affiliates, whether under this Agreement or under any other agreement or arrangement in any other capacity, nor shall the Escrow Agent have any lien or claim upon the assets in any form whatsoever.
 
1.3        Distribution and Dividends . All cash dividends on the Escrow Shares, when and if received by the Escrow Agent, shall be remitted and paid by the Escrow Agent directly to the Seller and shall not be subject to this Agreement. Additional shares of capital stock issued on or with respect to the Escrow Shares as a result of stock splits, stock dividends or other similar capital adjustments to, or recapitalizations on, the Escrow Shares or all other distributions (other than cash dividends) thereof (the “ Additional Distributions ”) shall be delivered directly by the Purchaser (through its stock transfer agent) to the Escrow Agent and shall not be issue d to the Seller, and shall be retained in the Escrow Account subject to the terms hereof and shall constitute Escrow Property. The Escrow Agent hereby agrees to accept delivery of the Additional Distributions and to hold the Additional Distributions in accordance with the terms and conditions of this Agreement. The Escrow Agent shall deliver the Purchaser on or about such date, a written confirmation of his receipt of the Additional Distributions. The Seller shall be treated as the beneficial owner of the Escrow Property for tax purposes.
 
1.4        Voting of Shares . All voting rights with respect to the Escrow Shares shall be exercised by the Seller.
 

 
2

 

1.5        Transferability; Sale . The interest of the Seller in the Escrow Shares and any other property comprising the Escrow Account (the “ Escrow Property ”) shall not be offered for sale, sold, pledged, assigned, transferred (including by operation of law) or otherwise disposed of, directly or indirectly, or be subject to a transaction which would have the same effect, or be subject to any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the Escrow Property, whether any such aforementioned transaction is to be settled by delivery of the Escrow Property, in cash or otherwise, so long as such Escrow Property is held by the Escrow Agent hereunder; provided , however , that the Escrow Agent may sell, transfer, or otherwise dispose of the Escrow Property pursuant to Sections 2.1 and 2.2 hereof, and as otherwise provided in this Agreement.
 
1.6       Nothing in this Agreement shall limit or restrict the Seller from entering into an agreement with AccelMed and the other parties named therein for the election of directors of the Company and vote of the Escrow Shares and the performance of its obligations thereunder.
 
ARTICLE 2
DISBURSEMENTS
 
2.1        Disbursement Request . At any time prior to the Termination Date, upon written certification by the Purchaser to the Escrow Agent (i) that an amount is due and payable by the Seller to the Purchaser pursuant to Section 10.2 of the Asset Purchase Agreement (an “ Indemnification Claim Amount ”) and such amount has not been paid, (ii) that an amount is due and payable by the Seller to the Purchaser pursuant to Section 8.14 of the Asset Purchase Agreement (an “ Elop Claim Amount ”), and such amount has not been paid; (iii) that an amount in is due and payable by the Seller to t he Purchaser pursuant to Section 8.15 of the Asset Purchase Agreement (an “ United Mizrachi Bank Claim Amount ”) and such amount has not been paid, or (iv) that an amount is due and payable by the Seller to the Purchaser pursuant to Section 8.16 of the Asset Purchase Agreement (an “ OCS Claim Amount ”), and such amount has not been paid, the Purchaser (on its own behalf or on behalf of any other Person to whom such amount is to be paid) may request a disbursement, subject to Article 3 hereof, from the Escrow Account in payment of such amount, or a portion thereof, if any, by delivering to the Escrow Agent and the Seller a written notice (a “ Purchaser Payment Request ”) which specifies the Indemnification Claim Amount, the Elop Claim Amount, the United Mizrachi Bank Claim Amount or the OCS Claim Amount, as the case may be, and which may include instructions to the Escrow Agent to sell Escrow Shares on behalf of the Seller in customary broker transactions on the OTC Bulletin Board (or wherever the Common Stock is then listed or quoted for trading) in an amount equal to the Indemnification Claim Amount, the Elop Claim Amount, United Mizrachi Bank Claim Amount or the OCS Claim Amount, as the case may be, and to wire the proceeds from such sale to the account of the Purchaser set forth in the Purchaser Payment Request. Each Purchaser Payment Request shall be accompanied by a representation to the Escrow Agent that a copy of such Purchaser Payment Request has been provided to the Seller.
 
2.2        Distribution of the Escrow Fund .
(a)        Disbursements upon Joint Instructions . The Escrow Agent will distribute the Escrow Property, or any portion thereof, having a Fair Market Value equal to the Indemnification Claim Amount, the Elop Claim Amount, the United Mizrachi Bank Claim Amount, or the OCS Claim Amount, as the case may be (or such lesser amount of Escrow Property as is then held in the Escrow Account), in accordance with, and upon receipt of, the instructions of the Purchaser and the Seller.
 
(b)        Disbursements upon Purchaser Payment Request . (1) Subject to the provisions of Article 3, on the tenth (10th) Business Day after receipt from the Purchaser of a Purchaser Payment Request with respect to an Indemnification Claim, the Escrow Agent will distribute to the Purchaser (for the account of the Purchaser or another Person, as the case may be) the Escrow Property, or any portion thereof, (i) in the case of Escrow Shares, having a Fair Market Value equal to the Indemnification Claim Amount, or (ii) in the case of cash, equal to the Indemnification Claim Amount (or in each case, such lesser amount of Escrow Property as is then held in the Escrow Account).
 

 
3

 

(2)       Subject to the provisions of Section 3.2, on the tenth (10th) Business Day after receipt from the Purchaser of a Purchaser Payment Request with respect to an Elop Claim Amount, the Escrow Agent will distribute to the Purchaser (for the account of the Purchaser or another Person, as the case may be) the Escrow Property, or any portion thereof, (i) in the case of Escrow Shares, having a Fair Market Value equal to the Elop Claim Amount, or (ii) in the case of cash, equal to the Elop Claim Amount (or in each case, such lesser amount of Escrow Property as is then held in the Escrow Account); and following such distribution to the Purchaser, the Escrow Agent shall distribute to the Seller, if applicable, Escrow Shares in an amount equal to 602,409 minus the shares used to satisfy the Elop Claim Amount.
(3)       Subject to the provisions of Section 3.2, on the tenth (10th) Business Day after receipt from the Purchaser of a Purchaser Payment Request with respect to an United Mizrachi Bank Claim Amount, the Escrow Agent will distribute to the Purchaser (for the account of the Purchaser or another Person, as the case may be) all of the Escrow Shares or cash from the sale of all the Escrow Shares.
 
(4)       Subject to the provisions of Section 3.2, on the tenth (10th) Business Day after receipt from the Purchaser of a Purchaser Payment Request with respect to an OCS Claim Amount, the Escrow Agent will distribute to the Purchaser (for the account of the Purchaser or another Person, as the case may be) the Escrow Property, or any portion thereof, (i) in the case of Escrow Shares, having a Fair Market Value equal to the OCS Claim Amount, or  (ii) in the case of cash, equal to the OCS Claim Amount (or in each case, such lesser amount of Escrow Property as is then held in the Escrow Account); and following such distribution to the Purchaser, the Escrow Agent shall distribute to the Seller, Escrow Shares, if applicable, in an amount equal to either (A) if the APA Closing has occurred, 4,337,3 49 minus the shares used to satisfy the OCS Claim Amount, or (B) if the APA Closing has not occurred 2,337,349 minus the shares used to satisfy the OCS Claim Amount.
 
(c)        Disbursement upon Lapse of twelve (12) Months . On the twelve (12) month anniversary of the date of this Agreement, the Escrow Agent will distribute to the Seller 426,847 Escrow Shares.
 
(d)        Disbursement upon Lapse of twenty-four (24) Months . On the twenty-four (24) month anniversary of the date of this Agreement, the Escrow Agent will distribute to the Seller 426,847 Escrow Shares.
 
(e)        Disbursement upon Lapse of Termination Date . On the Termination Date, and subject to sixty (60) days prior written notice to the Purchaser and the Seller (a “ Termination Notice ”), the Escrow Agent will distribute to the Seller the remaining portion of the Escrow Account, or the undisputed portion thereof (if any) in the event that (i) the Purchaser has delivered any Purchaser Payment Request prior to or subsequent to the delivery of the Termination Notice, (ii) any portion of the Escrow Account is subject to a Payment Dispute (as defined below) at such time, (iii) or in the event that the Purchaser has made any other valid claim in return to the termination notice delivered to it.
 
It is hereby understood and agreed that any Escrow Shares to be distributed or sold, as the case may be, pursuant to this Section 2.2 that are subject to a pledge agreement in favor of Agfa Gevaert N.V., Delta Trading and Services (1986), Ltd., Gil Allon, Noam Allon, Ariel Shenhar and/or Yuval Shenhar, if to be distributed to the Seller, will be distributed prior to any other Escrow Shares that are not subject to such pledge agreement, and if to be distributed to the Purchaser or sold by the Escrow Agent will be distributed or sold after all other Escrow Shares not subject to such pledge agreement are distributed or sold.
 

 
4

 

ARTICLE 3
DISPUTE RESOLUTION
 
3.1        Payment Disputes .
 
(a)       If, after delivery of a Purchaser Payment Request with respect to an Indemnification Claim Amount, the Seller desires to challenge the amount of the disbursement requested therein (a “ Payment Dispute ”), then the Seller must do so prior to the tenth (10th) Business Day after a Purchaser Payment Request is given by delivering to the Escrow Agent and the Purchaser written notice (a “ Dispute Notice ”) describing in reasonable detail the amount of the requested distribution to be challenged and the basis for such challenge. If the Seller delivers a Dispute Notice or any dispute otherwise arises as to the terms of the Escrow Account, the Pur chaser and the Seller shall attempt to resolve the dispute and if they are unable to do so within thirty (30) days after delivery of the Dispute Notice, the dispute shall be resolved in accordance with the dispute resolution procedures contained in Section 12.5 of the Asset Purchase Agreement. If, upon final resolution of the dispute, either by mutual agreement or in accordance with the dispute resolution procedures contained in Section 12.5 of the Asset Purchase Agreement, all or a portion of the Escrow Property is determined to be payable to the Purchaser, upon receipt of (i) a joint written direction of the Purchaser and the Seller, or (ii) any final non-appealable Order directing the Escrow Agent as to the disposition of such dispute, then the Escrow Agent shall promptly release to the Purchaser the amount so determined/directed. Each party shall be responsible for its own fees and expenses in connection with a dispute of any Indemnification Claim Amount, Elop Claim Amount, United Mizrachi Bank Claim Amo unt or OCS Claim Amount, provided that if the final non-appealable Order direct the payment to the Purchaser of the all or substantially all the amount claimed by the Purchaser under the Purchaser Payment Request, then the Seller shall reimburse the Purchaser for all expenses incurred by the Purchasers in connection with a dispute under this Section 3.1.  
 
(b)       It is hereby agreed and acknowledged by the Seller that any and all Purchaser Payment Requests with respect to Elop Claim Amount, United Mizrachi Bank Claim Amount or OCS Claim Amount shall not be subject to the dispute procedure set fort in Section 3.1(a) above and the Escrow Agent shall distribute Escrow Property, or any portion thereof on the tenth (10th) Business Day after receipt from the Purchaser of a Purchaser Payment Request, as set forth in Section 2.2(b).
 
3.2        Valuation of Escrow Property .
 
(a)        Fair Market Value . For purpose of this Agreement,
 
(i) the Fair Market Value of each Escrow Share in connection with an Indemnification Claim Amount, an United Mizrachi Bank Claim Amount and an OCS Claim Amount shall be the volume weighted average price based on the closing price per share of the Purchaser’s Common Stock on the OTC Bulletin Board (or wherever the Common Stock is listed or quoted for trading on the date in question) for the thirty-day trading period ending on the day prior to the date on which the claim was “finally determined” (as defined below), with appropriate adjustment to take into account any stock split, reverse stock split, stock dividend, recapitalization or other similar capital adjustments with respect to the Purchaser’s Common Stock
 
(ii) the Fair Market Value of each of the Escrow Shares in connection with an United Mizrachi Bank Claim Amount shall be $0.41522 per share, with appropriate adjustment to take into account any stock split, reverse stock split, stock dividend, recapitalization or other similar capital adjustments with respect to the Purchaser’s Common Stock, and
 
(iii) the Fair Market Value of each Escrow Share for the purpose of providing the Guarantee shall be the volume weighted average price based on the closing price per share of the Purchaser’s Common Stock on the OTC Bulletin Board (or wherever the Common Stock is listed or quoted for trading on the date in question) for the thirty-day trading period ending on the day prior to the date of replacing the Escrow Shares with the Guarantee.

 
5

 


For purposes of this Section 3.2, the date on which a claim was “finally determined” shall mean (a) in the case of Section 2.2(a), the payment date stated in the joint written instructions; (b) in the case of Section 2.2(b), the payment date stated in the Purchaser Payment Request; provided , however , that nothing in this Section 3.2(a) shall prejudice the right of any indemnified party to seek full indemnification for any Indemnification Claim Amount, Elop Claim Amount, United Mizrachi Bank Claim Amount, or OCS Claim Amount for which the Escrow Property is not the sole recourse pursuant to the Asset Purchase Agreement. Notwithstanding anything to the contrary herein, Escrow Property to be re leased shall be rounded to the nearest share.
 
(b)        Calculation . The Fair Market Value with respect to an Indemnification Claim Amount, a Elop Claim Amount or an OCS Claim Amount shall be calculated by the Purchaser within five (5) Business Days after the date on which a claim has been “finally determined” (as defined in Section 3.2(a) above), and the results of such calculation shall be provided to the Escrow Agent in writing signed by the Purchaser (the “ Calculation Notice ”) within such 5-day period. In no event shall the Escrow Agent be required to determine the Fair Market Value of the Escrow Property. The Calculation Notice shall specify (i) the Indemnification Claim Amount, the E lop Claim Amount or the OCS Claim Amount; (ii) the Fair Market Value of Escrow Property on a per share basis; and (iii) and the exact number of shares of Escrow Shares and the amount of other Escrow Property (if any) to be released from the escrow.
The Escrow Agent shall have no duty whatsoever to independently verify the accuracy of the calculations provided pursuant to this Sections 3.2(b)(1) or (2) and shall be entitled to rely on the calculation provided to the Escrow Agent by the Purchaser.
 
ARTICLE 4
ESCROW AGENT
 
4.1        Appointment . The Purchaser and the Seller hereby appoint the Escrow Agent to serve hereunder and the Escrow Agent hereby accepts such appointment and agrees to perform all duties which are expressly set forth in this Agreement. The Seller hereby acknowledges that the Escrow Agent also serves as outside legal counsel to the Purchaser, and shall continue to serve as counsel to Purchaser. Both Seller and Purchaser expressly agree to waive any conflicts of interest arising from the Escrow Agent’s role or performance of duties under this Agreement or as counsel to Purchaser.
 
4.2        Duties; Limitation of Liability of Escrow Agent .
 
(a)       The duties and responsibilities of the Escrow Agent hereunder shall be determined solely by the express provisions of this Agreement, and no other or further duties or responsibilities shall be implied. The Escrow Agent shall not have any liability under, nor duty to inquire into, the terms and provisions of any agreement or instructions, other than as outlined in this Agreement. It is understood and agreed that should any dispute arise with respect to the payment and/or ownership or right of possession of the Escrow Property, the Escrow Agent is authorized and directed to retain in its possession, without liability to anyone, all or any part of the Escrow Property until such dispute shall have been settled either by mutual agreement by the parties concerned or by the final decision of the arbitrators in accordance with the dispute resolution procedures contained in Section 12.5 of the Asset Purchase Agreement.
 
 
(b)       The Escrow Agent may rely and shall be protected in acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder and believed by it to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall be under no duty to inquire into or investigate the validity, accuracy or content of such document. The Escrow Agent shall have no duty to solicit any items which may be due it hereunder.
 
(c)       The Escrow Agent shall not be liable for any action taken or omitted by it in good faith unless a court of competent jurisdiction determines that the Escrow Agent’s willful misconduct or gross negligence was the primary cause of any loss to the Purchaser or the Seller.

 
6

 

(d)       The Escrow Agent shall not incur any liability for following the instructions herein contained or expressly provided for, or written instructions given jointly by the Purchaser and the Seller, or by the Purchaser (to the extent that the Seller was provided with the right to dispute a payment pursuant to an in accordance with Section 3.1 above).
 
(e)       In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder or shall receive instructions, claims or demands from any party hereto which, in its opinion, conflict with any of the provisions of this Agreement, it shall be entitled to refrain from taking any action and its sole obligation shall be to keep safely all property held in escrow until it shall be directed otherwise in writing by all of the other parties hereto or by a final order or judgment of a court of competent jurisdiction.
 
(f)        If, in the sole opinion and discretion of the Escrow Agent, a conflict or dispute arises, and as a result of that conflict or dispute the Escrow Agent is unable to perform his duties or resolve the conflict or dispute, then the Escrow Agent may refer the matter to private arbitration by another attorney. The Escrow Agent shall notify the parties of his decision to refer the matter to arbitration, and the parties promptly shall select an arbitrator. If the parties are unable to agree on an arbitrator, or cannot choose an arbitrator within 10 days of the Escrow Agent’s notification of a conflict or dispute, then the Escrow Agent may choose the arbitrator. The arbitrator shall be an attorney in the County of Sacramento, California, licensed to practice law in the State of Californ ia. Once the arbitrator has been chosen and assigned the dispute or conflict relating to the Escrow Agent’s duties, the parties shall promptly deliver to the arbitrator all arguments and materials necessary to assist the arbitrator in rendering a decision. The arbitrator may, and shall try to, resolve the dispute or conflict within twenty days of being chosen by the parties or Escrow Agent. The decision of the arbitrator shall be final and nonappealable.
 
4.3        Indemnification . The Purchaser and the Seller hereby agree to jointly and severally indemnify the Escrow Agent for, and to hold it harmless against any loss, liability or expense arising out of or in connection with this Agreement and carrying out its duties hereunder, including the costs and expenses of investigating or defending itself against any claim of liability, except in those cases where the Escrow Agent has been guilty of gross negligence or willful misconduct. The costs of enforcing this indemnity shall be paid by the Purchaser and the Seller if the Escrow Agent is determined by a court of competent jurisdiction to be the prevailing party; provided , that the Purchaser, on the one hand, and the Seller, on the other hand, shall each pay one-half of such costs. This right of indemnification shall survive the termination of this Agreement and the resignation of the Escrow Agent.
 
4.4        Compensation/Fees to Escrow Agent . The Escrow Agent has agreed to serve without compensation for his services hereunder. Notwithstanding the foregoing, the Escrow Agent shall be entitled to be reimbursed for all costs and expenses incurred in performing his duties hereunder, and shall be compensated for time spent as Escrow Agent at his then standard hourly rate by the Purchaser.
 
ARTICLE 5
OTHER PROVISIONS
 
5.1        Notices . Any notice or other document to be given hereunder by any party hereto to any other party shall be give in the manner required by Section 12.6 of the Asset Purchase Agreement.
 
5.2        Successor Escrow Agent . In the event the Escrow Agent becomes unavailable or unwilling to continue in its capacity herewith, the Escrow Agent may resign and be discharged from its duties or obligations hereunder by giving its resignation to the parties to this Agreement, specifying a date not less than thirty (30) calendar days following such notice date of when such resignation will take effect, provided that in no event shall the Escrow Agent resign prior to appointment of a successor to ensure that the Escrow Property shall consecutively be held in escrow under the terms herein during until the termination Date. The Purchaser will designate a successor escrow agent prior to the expiration of such period by giving written notice to the Escrow Agent and the Seller. In addition, the Purchaser may appoint, at any time prior to the termination Date, a successor escrow agent with the consent of the Seller, which consent shall not be unreasonably withheld. The Escrow Agent will promptly transfer the Escrow Property to such designated successor. The terms of this Agreement shall bind any successor escrow agent.

 
7

 

5.3        Governing Law .   THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF THAT WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
 
5.4        Representation and Warranties of the Purchaser and the Seller . Each of the Purchaser and the Seller hereby represents and warrants (i) that this Agreement has been duly authorized, executed and delivered on its behalf and constitutes its legal, valid and binding obligation and (ii) that the execution, delivery and performance of this Agreement does not and will not violate any applicable law or regulation.
 
5.5        Further Acts and Assurances . The parties agree to execute and deliver any and all documents and to take such further action as shall be reasonably required to effectuate the provisions of this Agreement.
 
5.6.       Counterparts . This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.
 
5.7        Amendment; Waiver . This Agreement may be amended or modified, and any of the terms, covenants, representations, warranties, or conditions hereto may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance. Any waiver by any party of any condition, or of the breach of any provision, term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall not be deemed to be nor construed as further or continuing waiver of any such condition, or of the breach of any other provision, term, covenant, representation, or warranty of this Agreement.
 
5.8        Severability . The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (ii) the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or une nforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
 
5.9        Integration . This Agreement and the Asset Purchase Agreement contain the entire understanding among the parties hereto with respect to the escrow contemplated hereby and supersedes and replaces all prior and contemporaneous agreements and understandings, oral or written, with regard to such escrow.
 
[Signature page follows]
 

 
8

 

IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of the date first written above.
 
 
Purchaser:
 
OPHTHALMIC IMAGING SYSTEMS
 
By:
/s/ Gil Allon
   
Name: Gil Allon
Title: Chief Executive Officer
   
 
By:
/s/ Ariel Shenhar
   
Name: Ariel Shenhar
Title: Chief Financial Officer
 
 
 
Seller:
 
MEDIVISION MEDICAL IMAGING LTD.
 
 
By:
/s/ Noam Allon
   
Name: Noam Allon
Title: President and Chief Executive Officer
 
 
 
Escrow Agent:
 
 
 
/s/ Stephen L. Davis, Esq.
 
Stephen L. Davis, Esq. 
 
 
 

 
9

 
Exhibit D
 
 
 
 

 
 
 

 
 
 

 
 
 

 
 
 
EX-23.1 5 ex231_s1a2-33316778.htm CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ex231_s1a2-33316778.htm

Exhibit 23.1



CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We consent to the use in this Registration Statement (No. 333-161778) on Form S-1/A of Ophthalmic Imaging Systems of our report dated March 24, 2010, relating to our audit of the consolidated balance sheet of Ophthalmic Imaging Systems as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for the year then ended, appearing in the Prospectus, which is part of this Registration Statement.

We also consent to the reference to our firm under the caption “Interest of Experts and Counsel” in such Prospectus.


/S/ Perry-Smith LLP


Sacramento, California
October 15, 2010



 
 

 
 





CONSENT OF INDEPENDENT AUDITOR


We consent to the use in this Registration Statement (No. 333-161778) on Form S-1/A of Ophthalmic Imaging Systems of our report dated August 10, 2010, relating to our audit of the consolidated balance sheet of MediVision Medical Imaging Ltd. as of December 31, 2008, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the year then ended, appearing in the Prospectus, which is part of this Registration Statement.

We also consent to the reference to our firm under the caption “Interest of Experts and Counsel” in such Prospectus.


/S/ Perry-Smith LLP


Sacramento, California
October 15, 2010
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