<PAGE>
===============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
__________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
__________________
Commission file number 0-21982
DIAMETRICS MEDICAL, INC.
Incorporated pursuant to the Laws of Minnesota
__________________
Internal Revenue Service -- Employer Identification No. 41-1663185
2658 Patton Road, Roseville, Minnesota 55113
(612) 639-8035
__________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No[_]
The total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on March 31, 1997, was 15,255,658.
===============================================================================
<PAGE>
DIAMETRICS MEDICAL, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS:
Three Months Ended March 31, 1997 and 1996............... 3
CONSOLIDATED BALANCE SHEETS as of March 31, 1997
and December 31, 1996...................................... 4
CONSOLIDATED STATEMENTS OF CASH FLOWS:
Three Months Ended March 31, 1997 and 1996............... 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION ........................ 8
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................... 11
ITEM 2. CHANGES IN SECURITIES...................................... 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................ 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 11
ITEM 5. OTHER INFORMATION.......................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 11
SIGNATURES............................................................ 14
</TABLE>
2
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---------------- --------------
<S> <C> <C>
Net sales $ 1,954,966 $ 609,571
Cost of sales 2,827,946 2,399,045
---------------- --------------
Gross profit (loss) (872,980) (1,789,474)
---------------- --------------
Operating expenses:
Research and development 1,789,376 1,387,968
Sales and marketing 1,988,788 1,609,559
General and administrative 951,079 734,879
Restructuring and other charges - 221,437
---------------- --------------
Total operating expenses 4,729,243 3,953,843
---------------- --------------
Operating loss (5,602,223) (5,743,317)
Other income (expense), net (169,790) 195,307
---------------- --------------
Net loss $ (5,772,013) $ (5,548,010)
================ ==============
Net loss per common share $ (0.38) $ (0.37)
================ ==============
Weighted average number of
common shares outstanding 15,226,559 14,912,859
================ ==============
</TABLE>
3
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,285,444 $ 2,451,993
Marketable securities 7,888,283 3,402,598
Accounts receivable:
Trade, net 2,115,132 2,033,496
Nontrade 432,439 556,272
Inventories 4,895,966 4,464,099
Prepaid expenses and other current assets 333,845 543,755
------------ ------------
Total current assets 19,951,109 13,452,213
------------ ------------
PROPERTY AND EQUIPMENT 16,614,350 16,295,952
Less accumulated depreciation and amortization (8,722,076) (8,008,200)
------------ ------------
7,892,274 8,287,752
------------ ------------
OTHER ASSETS 2,181,527 2,318,674
------------ ------------
$ 30,024,910 $ 24,058,639
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,718,820 $ 1,644,324
Accrued expenses 3,922,407 3,848,248
Current portion of long-term liabilities 1,312,036 1,310,154
------------ ------------
Total current liabilities 6,953,263 6,802,726
------------ ------------
LONG-TERM LIABILITIES:
Long-term liabilities, excluding current portion 7,771,022 7,795,851
Capital lease obligations, excluding current portion 407,732 666,668
Other liabilities, excluding current portion 119,712 119,155
------------ ------------
Total liabilities 15,251,729 15,384,400
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value: 750,000 authorized 750,000
and 0 shares issued and outstanding 7,500 -
Common stock, $.01 par value: 20,000,000 authorized 15,255,658
and 15,209,481 shares issued and outstanding 152,557 152,095
Additional paid-in capital 100,497,369 88,451,972
Cumulative translation adjustment (93,095) 89,309
Accumulated deficit (85,791,150) (80,019,137)
------------ ------------
Total shareholders' equity 14,773,181 8,674,239
------------ ------------
$ 30,024,910 $ 24,058,639
============ ============
</TABLE>
4
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,772,013) $(5,548,010)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 977,604 666,323
Gain on disposal of property and equipment (522) (1,686)
Change in operating assets and liabilities:
Receivables, net 42,197 32,052
Inventories (431,867) (1,246,871)
Prepaid expenses and other current assets 209,910 (4,203)
Accounts payable 106,430 (748,008)
Accrued expenses 80,882 266,403
-------------- --------------
Net cash used in operating activities (4,787,379) (6,584,000)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (552,394) (190,142)
Proceeds from sales of property and equipment - 102,586
Purchases of marketable securities (7,885,685) (3,967,356)
Proceeds from sales of marketable securities 3,400,000 10,825,000
Other assets (1,400) (42,175)
-------------- --------------
Net cash provided by (used in) investing activities (5,039,479) 6,727,913
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings (32,240) (33,456)
Net proceeds from the issuance of preferred stock 11,900,000 -
Net proceeds from the issuance of common stock 153,359 146,718
Principal payments under capital lease obligations (269,983) (279,982)
-------------- --------------
Net cash provided by (used in) financing activities 11,751,136 (166,720)
-------------- --------------
CUMULATIVE TRANSLATION ADJUSTMENT (90,827) -
Net increase (decrease) in cash and cash equivalents 1,833,451 (22,807)
Cash and cash equivalents at beginning of period 2,451,993 2,702,232
-------------- --------------
Cash and cash equivalents at end of period $ 4,285,444 $ 2,679,425
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 110,488 $ 139,607
============== ==============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company entered into capital lease obligations for equipment of $0 and
$102,586 for the three months ended March 31, 1997 and 1996, respectively.
5
<PAGE>
DIAMETRICS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
(1) UNAUDITED FINANCIAL STATEMENTS
The interim consolidated financial statements of Diametrics Medical, Inc.
(the "Company") are unaudited and have been prepared by the Company in
accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the
Securities and Exchange Commission. Pursuant to such rules and regulations,
certain financial information and footnote disclosures normally included in
the financial statements have been consolidated or omitted. However, in the
opinion of management, the financial statements include all adjustments,
consisting of normal recurring accruals, necessary for a fair presentation
of the interim periods presented. Operating results for these interim
periods are not necessarily indicative of results to be expected for the
entire year, due to seasonal, operating and other factors.
These statements should be read in conjunction with the financial
statements and related notes which are incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
(2) RECLASSIFICATIONS
Certain 1996 amounts in the Consolidated Statements of Operations have been
reclassified from prior reported balances to conform to the 1997
presentation. The reclassifications had no impact on the net loss or loss
per share as reported in 1996.
(3) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------------------
<S> <C> <C>
Raw materials $1,462,619 $1,623,243
Work-in-process 639,058 569,505
Finished goods 2,794,289 2,271,351
-------------------------
$4,895,966 $4,464,099
=========================
</TABLE>
6
<PAGE>
(4) PRO FORMA INFORMATION
On November 6, 1996, the Company acquired all the outstanding capital stock
of Biomedical Sensors, Ltd. (BSL), an operating unit of Pfizer Inc., and
certain assets from Howmedica, Inc., a wholly-owned subsidiary of Pfizer
Inc., for $1,500,000 in cash and a $7,300,000 senior secured fixed rate
loan note, due November 4, 2002. The Company has accounted for the
acquisition using the purchase method. As such, the excess of the purchase
price over the fair value of the identifiable assets acquired was recorded
as goodwill, which consisted of purchased technology and other intangible
assets totaling $2,305,899.
The following reflects unaudited consolidated condensed results of
operations for the three months ended March 31, 1997 compared to results
for the comparable period in 1996, stated on a pro forma basis, as though
the acquisition occurred at the beginning of 1996:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996 PRO FORMA
------------------------------------
<S> <C> <C>
Net sales $ 1,954,966 $ 1,350,571
Cost of sales 2,827,946 3,169,045
Operating expenses 4,729,243 5,518,843
Net loss (5,772,013) (7,154,010)
Net loss per common share $ (0.38) $ (0.48)
</TABLE>
(5) SHAREHOLDERS' EQUITY
On January 30, 1997, the Company completed the sale in a private placement
of 750,000 shares of Series I Junior Participating Convertible Preferred
Stock at a price of $16.00 per share. Each share of Preferred Stock was
automatically converted into four shares of Common Stock upon shareholder
approval of an increase in authorized shares of Common Stock on April 10,
1997.
Authorized shares of all classes of the Company's stock increased from
25,000,000 to 40,000,000, and authorized shares of Common Stock, par value
$.01 per share, increased from 20,000,000 to 35,000,000 upon shareholder
approval on April 10, 1997.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
-------------------------------------------------------------------------
FINANCIAL CONDITION
-------------------
Statements regarding the Company's expectations about new and existing
products, future financial performance and other forward looking statements
are subject to various risks and uncertainties, including, without
limitation, demand and acceptance of new and existing products,
technological advances and product obsolescence, competitive factors and
the availability of capital to finance growth. These and other risks are
discussed in greater detail in Exhibit 99 to the Company's Form 10-K filed
with the Securities and Exchange Commission, with respect to the Company's
fiscal year ended December 31, 1996.
SUMMARY
-------
Diametrics Medical, Inc. (the "Company"), which began operations in 1990,
is engaged in the development, manufacturing and marketing of critical care
blood analysis systems, which provide immediate or continuous diagnostic
results at the point of patient care.
Since its commencement of operations in 1990, the Company has transitioned
from a development stage company to a full-scale manufacturing and sales
organization. As of March 31, 1997, the primary funding for the operations
of the Company has been approximately $99.1 million raised through public
and private sales of its equity securities and issuance of convertible
promissory notes, all of which have been repaid or converted into common
stock.
As noted in Footnote 4, "Pro Forma Information", in November 1996 the
Company acquired all the outstanding capital stock of Biomedical Sensors,
Ltd. (BSL), an operating unit of Pfizer Inc., and certain assets from
Howmedica, Inc., a wholly owned subsidiary of Pfizer Inc. The combined
operations of these former Pfizer entities are collectively referred to
below as "Biomedical Sensors". Based in England, the new subsidiary,
Diametrics Medical, Ltd. (DML), brings an existing product line which
includes indwelling continuous blood monitoring systems utilizing fiber
optic and electrochemical technology platforms. Current products include
Paratrend 7, an intravascular blood gas monitoring system, and Neocath, a
continuous oxygen monitoring system for newborns. Both products consist of
a monitoring system and intravascular disposable sensors.
RESULTS OF OPERATIONS
---------------------
SALES Sales of the Company's products were $1,954,966 and $609,571 for the
three months ended March 31, 1997 and 1996, respectively, an increase of
over 220%. The increase over the prior year reflects the inclusion of sales
related to DML and also a 49% increase in sales of IRMA instruments and
cartridges. Compared to a pro forma combined basis of Diametrics' and
Biomedical Sensors' sales in the first quarter 1996, sales increased 45% in
first quarter 1997.
The Company's revenues are affected principally by the number of Paratrend
7, Neocath and IRMA instruments placed with customers and the rate at which
disposable sensors and cartridges are used in connection with these
products. As of March 31, 1997, the Company has over 1,600 monitors and
IRMA instruments at customer locations consuming the Company's fiber optic
and electrochemical sensors for critical care blood and tissue analysis.
Disposable fiber optic sensor units sold for the three months ended March
31, 1997 increased 88% over Biomedical Sensors' unit sales as a Pfizer
operating unit in the first quarter of 1996, and IRMA disposable cartridge
units sold during the first quarter of 1997 increased 108% over the
comparable quarter in 1996.
The Company's revenue in each of the remaining three quarters of 1997 is
expected to exceed that of the first quarter, and revenues for the full
year 1997 could significantly more than double the level achieved in 1996.
The projected revenue growth is the result of continued market penetration,
further planned expansion of the blood analysis and monitoring product
lines and the inclusion of a full year of sales from DML.
COST OF SALES The Company incurred manufacturing costs associated with
product sales of $2,827,946 and $2,399,045 for the three months ended March
31, 1997 and 1996, respectively, an
8
<PAGE>
increase of 15%. The increase over the prior year reflects the inclusion of
manufacturing costs related to the operations of DML, partially offset by
reductions in IRMA cartridge manufacturing costs. Compared to a pro forma
combined basis of Diametrics' and Biomedical Sensors' manufacturing costs
in the first quarter 1996, manufacturing costs decreased 11% in first
quarter 1997. The improvement in manufacturing expenses reflects increased
fiber optic sensor and IRMA cartridge volumes, improved yields, increased
shelf life of cartridges and better control of overhead costs.
A negative gross profit resulted as sales volume was not yet sufficient to
cover labor, material and overhead costs. The Company, however, expects
unit costs to continue to decline in 1997 as sales volumes increase and
continued improvements are realized in manufacturing yields, processes,
costs and product design. Depending upon product mix and production
volumes, gross margins are targeted to approximate break-even levels for
the full year 1997.
OPERATING EXPENSES Research and development expenditures were $1,789,376
and $1,387,968 for the three months ended March 31, 1997 and 1996,
respectively. The increase over the prior year reflects the inclusion of
expenses related to the operations of DML, partially offset by a 26%
expense reduction in Diametrics' U.S. operations. Compared to a pro forma
combined basis of Diametrics' and Biomedical Sensors' research and
development costs in the first quarter 1996, research and development costs
decreased 11% in first quarter 1997, due to the completion during 1996 of
development of the IRMA SL, and the impact of staff reductions in the
Company's U.S. operations in late 1996.
Sales and marketing expenses totaled $1,988,788 and $1,609,559 for the
three months ended March 31, 1997 and 1996, respectively. The period-to-
period increase reflects the inclusion of expenses related to the
operations of DML. Compared to a pro forma combined basis of Diametrics'
and Biomedical Sensors' sales and marketing expenses in the first quarter
1996, sales and marketing expenses decreased 13% in first quarter 1997 due
to cost containment and better deployment of resources.
General and administrative expenses totaled $951,079 and $734,879 for the
three months ended March 31, 1997 and 1996, respectively. The period-to-
period increase reflects the inclusion of expenses related to the
operations of DML. Compared to a pro forma combined basis of Diametrics'
and Biomedical Sensors' general and administrative expenses in the first
quarter 1996, general and administrative expenses decreased 5% in first
quarter 1997, due primarily to the impact of staff reductions in the
Company's U.S. operations in late 1996.
Operating expense run rates for the remaining three quarters in 1997 are
targeted to approximate or moderately exceed first quarter 1997 levels.
OTHER INCOME (EXPENSE) Net other expense was $169,790 for the three months
ended March 31, 1997 compared to net other income of $195,307 for the same
period in the prior year, a decrease of $365,097. The Company realized
interest income of $132,234 for the three months ended March 31, 1997 and
$362,966 for the same period in the prior year. The period-to-period
decrease reflects the impact of lower average cash balances resulting from
a net use of cash in operations.
Interest expense totaled $268,255 and $139,607 for the three months ended
March 31, 1997 and 1996, respectively. The period-to-period increase
primarily reflects interest accrued on a long-term note payable to Pfizer
Inc. issued in connection with the Company's acquisition of Biomedical
Sensors in November 1996.
NET LOSS The net loss for the three months ended March 31, 1997 and 1996
was $5,772,013 and $5,548,010, respectively. Compared to a pro forma
combined basis of Diametrics' and Biomedical Sensors' net loss in the first
quarter 1996, the net loss decreased 19% in first quarter 1997. The Company
is targeting a reduced net loss in each of the remaining three quarters of
1997, compared to the first quarter 1997.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At March 31, 1997, the Company had working capital of $12,997,846, an
increase of $6,348,359 from the working capital reported at December 31,
1996. The increase primarily reflects the impact of $11.9 million net
proceeds received in January 1997 with the completion of a private equity
placement of 750,000 shares of convertible preferred stock less the net
cash used in operating, investing and financing activities for the three
months ended March 31, 1997.
At March 31, 1997, the Company had property and equipment of $16,614,350,
up from $16,295,952 at December 31, 1996, less accumulated depreciation of
$8,772,076 and $8,008,200 at March 31, 1997 and December 31, 1996,
respectively. The $318,000 net increase in the cost of property and
equipment is the result of approximately $550,000 of capital additions,
consisting primarily of investments in production equipment and
demonstration instruments used to facilitate sales. Approximately
$4,107,000 of the Company's property and equipment are financed through
capital lease obligations at March 31, 1997. In 1997, the Company expects
capital expenditures and new lease commitments to approximate $3 million,
primarily reflecting investments to support new product development and
production.
At March 31, 1997, the Company had U.S. net operating loss and research and
development tax credit carryforwards for income tax purposes of
approximately $80,000,000 and $850,000 respectively. Pursuant to the Tax
Reform Act of 1986, use of the Company's net operating loss carryforwards
may be limited if a cumulative "change in ownership" of more than 50
percent occurs within any three year period. In connection with prior sales
by the Company of its securities in public and private offerings, the
Company has experienced a "change in ownership." As a result, the
utilization of the Company's net operating loss and certain credit
carryforwards incurred prior to these changes are subject to annual
limitations.
The Company's foreign subsidiary also has net operating loss carryforwards
of approximately $35,800,000 which can be carried forward indefinitely.
As reflected in the accompanying consolidated financial statements, the
Company has incurred a net loss of $5,772,013 for the three months ended
March 31, 1997. In addition, the Company has incurred net losses and has
had negative cash flows from operating activities since inception. During
January 1997 the Company completed a private placement which generated net
cash proceeds to the Company of approximately $11.9 million. The Company
believes current working capital and 1997 projected operating revenues,
supplemented by proceeds from employee stock plans, warrant exercises and
asset based credit, may provide the Company with sufficient liquidity
through 1997 and into early 1998. It is probable, however, the Company will
be required to raise additional capital by late 1997 or early 1998. If
capital requirements vary materially from those currently planned, the
Company could require additional capital at an earlier time. Additional
funds may also be required for the Company to meet significantly greater
than anticipated demand for its products. As a result, the Company has and
will continue to evaluate raising additional capital through alliances with
strategic corporate partners, issuance of debt, or an equity offering.
There can be no assurance that adequate funds will be available when needed
or on acceptable terms. The Company's long-term capital requirements will
depend upon numerous factors, including the rate of market acceptance of
the Company's products, the level of resources devoted to expanding the
sales and marketing organization, manufacturing capabilities and the
Company's research and development activities.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
On January 30, 1997, the Company completed the sale in a private placement
of 750,000 shares of Series I Junior Participating Preferred Stock, par
value $.01 per share (the "Preferred Stock"), at a price of $16.00 per
share, for aggregate proceeds of $12,000,000. Each purchaser of Preferred
Stock also received a detachable warrant to purchase one share of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), for
each share of Preferred Stock purchased, with an exercise price (subject to
adjustment) equal to $5.0625 per share. Such warrants were immediately
exercisable. The securities were privately sold to certain accredited
investors. The securities were sold pursuant to Rule 506 under Regulation
D of the Securities Act of 1933, as amended.
Each share of Preferred Stock was automatically converted, pursuant to the
terms of the Preferred Stock, into four shares of the Common Stock upon
shareholder approval of an increase in the number of authorized shares of
Common Stock on April 10, 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT METHOD
NO. DESCRIPTION OF FILING
- --- ----------- ---------
<S> <C> <C>
3.1 Articles of Incorporation of the Filed herewith
Company (as amended)
3.2 Bylaws of the Company (as (6)
amended)
4.1 Form of Certificate for Common (1)
Stock
4.2 Form of Registration Rights (1)
Agreement between the Company
and certain of its shareholders
and warrant holders
4.3 Form of Registration Rights (3)
Agreement dated as of February
3, 1995, between the Company and
certain of its shareholders
4.4 Registration Rights Agreement, (5)
dated as of January 30, 1997, by
and between the Company and
purchasers of Series I Junior
Participating Preferred Stock
4.5 Form of Certificate for Series (5)
I Junior Participating Preferred
Stock
4.6 Form of Stock Purchase Warrant, (5)
dated as of January 30, 1997
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
10.1 Real Property Lease dated May 3, (1)
1990, between CommersKlodt, a
Minnesota General Partnership
and the Company
10.2 Real Property Lease dated May (1)
28, 1991, between CommersKlodt,
a Minnesota General Partnership
and the Company
10.3 Real Property Lease dated July (1)
2, 1991, between CommersKlodt, a
Minnesota General Partnership
and the Company
10.4 Real Property Lease dated (1)
December 20, 1992, between
CommersKlodt, a Minnesota
General Partnership and the
Company
10.5 Real Property Lease dated May (1)
10, 1993, between CommersKlodt,
a Minnesota General Partnership
and the Company
10.6 Equipment Sublease Agreement (1)
dated August 12, 1992, between
FIM, Inc. and the Company
10.7 Master Lease Agreement dated (1)
November 11, 1992, between
Bankers Leasing Association,
Inc. and the Company
10.8 Master Equipment Lease Agreement (1)
dated June 15, 1993, between the
Company and The Northern Leasing
Fund, as amended by Amendment
No. 1 dated June 8, 1994
(including form of warrant
issued in connection therewith)
10.9 Master Equipment Lease Agreement (1)
dated June 15, 1993, between the
Company and Phoenix Growth
Capitol Corp., as amended by
Amendment No. 1 dated June 8,
1994 (including form of warrant
issued in connection therewith)
10.10* 1990 Stock Option Plan (as (6)
revised and restated), including
form of option agreement
10.11* 1993 Directors' Stock Option (4)
Plan, as amended
10.12* 1995 Equalizing Director Stock (4)
Option Plan
10.13 1995 Employee Stock Purchase (6)
Plan (as revised and restated)
10.14 Agreement dated July 7, 1993, (1)
between the Company and AmHS
Purchasing Partners, L.P.
10.15 Agreement dated January 1, 1995, (3)
between the Company and Vencor,
Inc.
10.16 Settlement Agreement and Mutual (1)
General Releases dated March 25,
1994, among PPG Industries,
Inc., the Company, Walter L.
Sembrowich, David W. Deetz and
Kee Van Sin
10.17 Letter agreement dated as of (2)
February 1, 1995, among the
Company, Allstate Venture Capital
and Frazier and Company L.P.
10.18 Letter agreement dated January (2)
5, 1993, between the Company and
Michael F. Connoy
10.19 Agreement dated June 29, 1990, (2)
between the Company and David W.
Deetz, as supplemented by the
letter agreement dated March 28,
1995
10.20 Agreement dated June 29, 1990, (2)
between the Company and Walter
L. Sembrowich, Ph.D.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
10.21 Agreement dated December 21, (4)
1995, between the Company and
Walter L. Sembrowich, Ph.D.
10.22 Agreement dated March 1, 1996, (4)
between the Company and Barbara
E. Roth
10.23 Agreement dated April 12, 1996 (6)
between the Company and David T.
Giddings
10.24 Stock Purchase Agreement, dated (5)
as of January 30, 1997, between
the Company and the Purchasers
named therein
27 Financial Data Schedule Filed herewith
99 Cautionary Statements Under (6)
Private Securities Litigation
Reform Act
</TABLE>
_________
* Management compensatory plan filed pursuant to Item 601(b)(10)(iii)(A)
of Regulation S-K.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration Number 33-78518) (the "Registration
Statement").
(2) Incorporated by reference to the Company's 1994 Annual Report on Form
10-K.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration Number 33-94442).
(4) Incorporated by reference to the Company's 1995 Annual Report on Form
10-K.
(5) Incorporated by reference to the Company's Current Report on Form 8-K
filed March 25, 1997.
(6) Incorporated by reference to the Company's 1996 Annual Report on Form
10-K.
B. REPORTS ON FORM 8-K.
On January 20, 1997, the Company filed Amendment No. 1 to Current
Report on Form 8-K, originally filed on November 21, 1996, relating to
the Company's acquisition of Biomedical Sensors, Ltd. on November 6,
1996. The amended Form 8-K/A included the financial statements and pro
forma financial information required by Item 7(a) and (b) of Form 8-K,
which were omitted from the report as originally filed.
On March 25, 1997, the Company filed a Current Report on Form 8-K
relating to the Company's completion on January 30, 1997 of a private
placement of 750,000 shares of Series I Junior Participating
Convertible Preferred Stock at a price of $16 per share.
13
<PAGE>
DIAMETRICS MEDICAL, INC.
SIGNATURE
- ---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIAMETRICS MEDICAL, INC.
By: /s/ Laurence L. Betterley
-------------------------
Laurence L. Betterley
Senior Vice President
and Chief Financial Officer
(and Duly Authorized Officer)
Dated: May 14, 1997
14
<PAGE>
DIAMETRICS MEDICAL, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
3.1 Articles of Incorporation of the Company, as amended
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 3.1
ARTICLES OF AMENDMENT
AMENDING AND RESTATING
ARTICLES OF INCORPORATION
OF
DIAMETRICS MEDICAL, INC.
1. The name of the corporation is Diametrics MedicaL, Inc., a Minnesota
corporation.
2. The document entitled "Amended and Restated Articles of Incorporation of
Diametrics Medical, Inc." marked as Exhibit A attached hereto, contains the full
text of the amendments to the articles of incorporation of Diametrics Medical,
Inc.
3. The date of adoption of the amendment by the board of directors of such
corporation was as of April 21, 1994.
4. The date of adoption of the amendment by the shareholders of such
corporation was May 3, 1994.
5. The amendment has been adopted pursuant to Chapter 302A of the Minnesota
Business Corporation Act.
IN WITNESS WHEREOF, the undersigned, the Secretary of Diametrics
Medical, Inc., being duly authorized on behalf of Diametrics Medical, Inc., has
executed this document on this 21st day of June, 1994.
/s/ Kenneth L. Cutler
------------------------------
Kenneth L. Cutler
Secretary
<PAGE>
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
DIAMETRICS MEDICAL, INC.
The following Amended and Restated Articles of Incorporation shall
supersede and take the place of the existing Amended and Restated Articles of
Incorporation and all amendments thereto:
ARTICLE 1. NAME
----------------
The name of the corporation is Diametrics Medical, Inc.
ARTICLE 2. REGISTERED OFFICE
-----------------------------
The address of the registered office of the corporation is 2658 Patton
Road, Roseville, Minnesota 55113.
ARTICLE 3. AUTHORIZED SHARES
-----------------------------
1. Authorized Shares.
-----------------
The total number of shares of capital stock which the corporation is
authorized to issue shall be 25,000,000 shares, consisting of 20,000,000 shares
of common stock, par value $.01 per share ("Common Stock"), and 5,000,000 shares
of preferred stock, par value $.01 per share ("Preferred Stock").
2. Common Stock.
------------
All shares of Common Stock shall be voting shares and shall be
entitled to one vote per share. Holders of Common Stock shall not be entitled
to cumulate their votes in the election of directors and shall not be entitled
to any preemptive rights to acquire shares of any class or series of capital
stock of the corporation. Subject to any preferential rights of holders of
Preferred Stock, holders of Common Stock shall be entitled to receive their pro
rata share, based upon the number of shares of Common Stock held by them, of
such dividends or other distributions as may be declared by the board of
directors from time to time and of any distribution of the assets of the
corporation upon its liquidation, dissolution or winding up, whether voluntary
or involuntary.
3. Preferred Stock.
---------------
The board of directors of the corporation is hereby authorized to provide,
by resolution or resolutions adopted by such board, for the issuance of
Preferred Stock
<PAGE>
from time to time in one or more classes and/or series, to establish the
designation and number of shares of each such class or series, and to fix the
relative rights and preferences of the shares of each such class or series, all
to the full extent permitted by the Minnesota Business Corporation Act, Section
302A.401, or any successor provision. Without limiting the generality of the
foregoing, the board of directors is authorized to provide that shares of a
class of series of Preferred Stock:
(a) are entitled to cumulative, partially cumulative or noncumulative
dividends or other distributions payable in cash, capital stock or
indebtedness of the corporation or other property, at such times and in
such amounts as are set forth in the board resolutions establishing such
class or series or as are determined in a manner specified in such
resolutions;
(b) are entitled to a preference with respect to payment of dividends
over one or more other classes and/or series of capital stock of the
corporation;
(c) are entitled to a preference with respect to any distribution of
assets of the corporation upon its liquidation, dissolution or winding up
over one or more other classes and/or series of capital stock of the
corporation in such amount as is set forth in the board resolutions
establishing such class or series or as is determined in a manner specified
in such resolutions;
(d) are redeemable or exchangeable at the option of the corporation
and/or on a mandatory basis for cash, capital stock or indebtedness of the
corporation or other property, at such times or upon the occurrence of such
events, and at such prices, as are set forth in the board resolutions
establishing such class or series or as are determined in a manner
specified in such resolutions;
(e) are entitled to the benefits of such sinking fund, if any, as is
required to be established by the corporation for the redemption and/or
purchase of such shares by the board resolutions establishing such class or
series;
(f) are convertible at the option of the holders thereof into shares
of any other class or series of capital stock of the corporation, at such
times or upon the occurrence of such events, and upon such terms, as are
set forth in the board resolutions establishing such class or series or as
are determined in a manner specified in such resolutions;
2
<PAGE>
(g) are exchangeable at the option of the holders thereof for cash,
capital stock or indebtedness of the corporation or other property, at such
times or upon the occurrence of such events, and at such prices, as are set
forth in the board resolutions establishing such class or series or as are
determined in a manner specified in such resolutions;
(h) are entitled to such voting rights, if any, as are specified in
the board resolutions establishing such class or series (including, without
limiting the generality of the foregoing, the right to elect one or more
directors voting alone as a single class or series or together with one or
more other classes and/or series of Preferred Stock, if so specified by
such board resolutions) at all times or upon the occurrence of specified
events; and
(I) are subject to restrictions on the issuance of additional shares
of Preferred Stock of such class or series or of any other class or series,
or on the reissuance of shares of Preferred Stock of such class or series
or of any other class or series, or on increases or decreases in the number
of authorized shares of Preferred Stock of such class or series or of any
other class or series.
Without limiting the generality of the foregoing authorizations, any of the
rights and preferences of a class or series of Preferred Stock may be made
dependent upon facts ascertainable outside the board resolutions establishing
such class or series, and may incorporate by reference some or all of the terms
of any agreements, contracts or other arrangements entered into by the
corporation in connection with the issuance of such class or series, all to the
full extent permitted by the Minnesota Business Corporation Act. Unless
otherwise specified in the board resolutions establishing a class or series of
Preferred Stock, holders of a class or series of Preferred Stock shall not be
entitled to cumulate their votes in any election of directors in which they are
entitled to vote and shall not be entitled to any preemptive rights to acquire
shares of any class or series of capital stock of the corporation.
ARTICLE 4. NO CUMULATIVE VOTING
--------------------------------
There shall be no cumulative voting by the shareholders of the
corporation.
ARTICLE 5. NO PREEMPTIVE RIGHTS
--------------------------------
The shareholders of the corporation shall not have any preemptive
rights to subscribe for or acquire securities or rights to purchase securities
of any class, kind or series of the corporation.
3
<PAGE>
ARTICLE 6. WRITTEN ACTION BY DIRECTORS
---------------------------------------
An action required or permitted to be taken at a meeting of the board
of directors of the corporation may be taken by a written action signed, or
counterparts of a written action signed in the aggregate, by all of the
directors unless the action need not be approved by the shareholders of the
corporation, in which case the action may be taken by a written action signed,
or counterparts of a written action signed in the aggregate, by the number of
directors that would be required to take the same action at a meeting of the
board of directors of the corporation at which all of the directors were
present.
ARTICLE 7. DIRECTOR LIABILITY
------------------------------
To the fullest extent permitted by the Minnesota Business Corporation
Act as the same exists or may hereafter be amended, a director of this
corporation shall not be liable to this corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director.
4
<PAGE>
AMENDMENT TO
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DIAMETRICS MEDICAL, INC.
1. The name of the corporation is Diametrics Medical, Inc.
2. Attached hereto as Exhibit A is the full and complete text of the
amendments to Article VIII of the Amended and Restated Articles of
Incorporation of Diametrics Medical, Inc.
3. The date of adoption of the amendment by the board of directors of such
corporation was April 17, 1996.
4. The date of adoption of the amendment by the shareholders of such
corporation was June 27, 1996.
5. The amendment has been adopted pursuant to Chapter 302A of the Minnesota
Business Corporation Act.
IN WITNESS WHEREOF, the undersigned, the Secretary of Diametrics
Medical, Inc., being duly authorized on behalf of Diametrics Medical, Inc., has
executed this document on this 29th day of January, 1997.
/s/ Kenneth L. Cutler
-----------------------------
Kenneth L. Cutler
Secretary
<PAGE>
EXHIBIT A
ARTICLE VIII
The Board of Directors shall have the power, to the extent permitted by
law, to adopt, amend or repeal the Bylaws of this corporation, subject to the
power of the shareholders to adopt, amend or repeal such Bylaws. Bylaws fixing
the number of directors or their classifications, qualifications or terms of
office, or prescribing procedures for removing directors or filling vacancies in
the Board may be adopted, amended or repealed only by the affirmative vote of
the holders of 80% of the outstanding shares of Common Stock entitled to vote.
The number of directors shall be no less than three nor more than twenty
and shall be established by resolution of the Board of Directors. The number of
directors may be increased or decreased from time to time by a resolution
adopted by the holders of at least 80% of the outstanding shares of Common Stock
entitled to vote. In case of any increase or decrease in the number of
directors, the increase or decrease shall be distributed among the several
classes of directors as equally as possible as shall be determined by the Board
of Directors or by the holders of at least 80% of the outstanding shares of
Common Stock entitled to vote. The affirmative vote of shareholders holding at
least 80% of the outstanding shares of Common Stock entitled to vote at an
election of directors may remove any or all of the directors from office at any
time, with or without cause.
Notwithstanding any other provisions of these Restated Articles of
Incorporation or the Bylaws of the corporation or the fact that a lesser
percentage may be specified by law, these Restated Articles of Incorporation or
the Bylaws of the corporation, the affirmative vote of the holders of at least
80% of outstanding shares of Common Stock entitled to vote shall be required to
amend or repeal all or any portion of this Article VIII; provided, however, that
if the Continuing Directors shall be majority vote of all Continuing Directors
have adopted a resolution approving the amendment or repeal proposal and have
determined to recommend it for approval by the holders of Common Stock, then the
vote required shall be the affirmative vote of the holders of at least a
majority of the outstanding Common Stock entitled to vote.
The term "Common Stock" shall mean the Common Stock, par value $.01 per
share, of the corporation.
The term "Continuing Director" shall mean any member of the Board of
Directors of the corporation who is unaffiliated with a Controlling Person and
was a member of the Board prior to the time that the Controlling Person became a
Controlling Person, and any successor of a Continuing Director who is
unaffiliated with a Controlling Person and is recommended or elected to succeed
a Continuing Director by a majority of all Continuing Directors.
The term "Controlling Person" shall mean any Person who beneficially owns a
number of shares of Common Stock, whether or not such number includes shares not
then issued, which exceeds a number equal to ten percent of the outstanding
shares of Common Stock.
The term "Person" shall mean an individual, a corporation, a partnership,
an association, a joint-stock company, a trust, any unincorporated organization
and any other entity or group.
<PAGE>
CERTIFICATE OF DESIGNATION
OF
SERIES I JUNIOR PARTICIPATING PREFERRED STOCK
OF
DIAMETRICS MEDICAL, INC.
The undersigned hereby certifies that the Board of Directors of
Diametrics Medical, Inc. (the "Corporation"), a corporation organized and
existing under the Minnesota Business Corporation Act, duly approved the terms
contained in the following resolution effective on January 29, 1997:
RESOLVED, that a series of preferred stock of the Corporation is
hereby created, and the designation and amount thereof and the relative rights
and preferences of the shares of such series, are as follows:
Section 1. Designation and Amount. The shares of such series shall
----------------------
be designated as "Series I Junior Participating Preferred Stock" (the "Preferred
Shares") and the number of shares constituting the Preferred Shares shall be
1,000,000. Such number of shares may be increased or decreased by resolution of
the Board of Directors and any necessary shareholder approval; provided,
---------
however, that no decrease shall reduce the number of shares of Preferred Shares
- -------
to a number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by the
Corporation convertible into Preferred Shares.
Section 2. Dividends and Distributions.
---------------------------
(a) Dividends shall be payable on the Preferred Shares out of funds
legally available for the declaration of dividends only if and when declared by
the Board of Directors. In no event shall any dividend be paid or declared, nor
shall any distribution be made, on the Common Stock, other than a dividend or
distribution payable solely in shares of Common Stock, unless the holders of the
Preferred Shares shall participate in such dividend on a pro rata basis with the
holders of Common Stock, counting one Preferred Share for each four shares of
Common Stock. In no event shall any dividend be paid or declared, nor shall any
distribution be made, on any outstanding series of preferred stock, unless the
holders of all of the outstanding Preferred Shares shall participate in such
dividend or distribution on a pro rata basis with the holders of such series of
preferred stock, counting shares of both such series and shares of the Preferred
Shares on an as-if-converted basis.
(b) If the Conversion Date (as defined in Section 4 hereof) has not
occurred on or before July 29, 1997, then in such event dividends shall accrue
on the
<PAGE>
Preferred Shares at the rate of 7.0% per annum of the liquidation preference
thereof compounded quarterly from the initial date of issuance of such Preferred
Shares to and including the later of the Conversion Date or the Redemption Date
(as hereinafter defined). Such dividends shall be cumulative from the Accrual
Date and shall be paid on March 31, June 30, September 30 and December 31 of
each year, commencing September 30, 1997. Each such dividend shall be paid to
the holders of record of the Preferred Shares on such record date, not exceeding
15 days preceding the payment date thereof, as shall be fixed by the Board of
Directors. Dividends on account of arrears for any past dividend periods may be
declared and paid at any time, without reference to any regular dividend payment
date, to holders of record on such date, not exceeding 30 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
Section 3. Voting Rights.
-------------
(a) Subject to the provision for adjustment hereinafter set forth,
each Preferred Share shall entitle the holder thereof to 2.844 votes on all
matters submitted to a vote of the shareholders of the Corporation. In the
event the Corporation shall at any time, declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the number of votes per share to which
holders of shares of Preferred Shares were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(b) Unless the vote of the holders of a greater number of shares
shall then be required by law, none of the following actions may be taken by the
Corporation without the approval by vote of the holders of 66.667% of issued and
outstanding Preferred Shares, voting together as a single class:
(i) Any amendment, restatement or modification of the Articles of
Incorporation, By-laws or other governance documents which would reasonably
be expected to adversely affect the powers, preferences, privileges or
rights of the Preferred Shares;
(ii) Declaration of payment of any dividend or making of any
distribution on or with respect to the Common Stock;
(iii) Purchase, redemption or retirement, directly or indirectly, of
any shares of capital stock or other equity securities of the Corporation;
-2-
<PAGE>
(iv) Authorization, creation or issuance of any additional shares of
capital stock or other securities which would reasonably be expected to
adversely affect the powers, preferences, privileges or rights of the
Preferred Shares, or are ranked prior to or pari passu with, the Preferred
---- -----
Shares; or
(v) A voluntary dissolution, liquidation or winding up.
(c) Except as otherwise provided herein or by law, the holders of
Preferred Shares and the holders of Common Stock and any other capital stock of
the Corporation having general voting rights shall vote together as one class on
all matters submitted to a vote of shareholders of the Corporation.
(d) Except as set forth herein or required by law, holders of
Preferred Shares shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 4. Mandatory Conversion. When the shareholders of the
--------------------
Corporation have properly authorized a sufficient number of shares of Common
Stock to allow the conversion of all outstanding Preferred Shares into shares of
Common Stock and appropriate filings have been made with governmental
authorities to effect such authorization (such event being herein referred to as
a "Conversion Event"), which filings will be promptly made by the Corporation,
the Preferred Shares shall automatically be converted into fully paid and
nonassessable shares of Common Stock (and such other securities and property as
the holders of Preferred Shares may be entitled to upon the conversion thereof,
as hereinafter provided) at the Conversion Rate (as hereinafter defined) plus an
amount equal to any accrued and unpaid dividends thereon. The Corporation shall
give prompt notice of such mandatory conversion by first class mail, postage
prepaid, to the holders of record of the Preferred Shares, addressed to such
holders at their last addresses as shown on the stock books of the Corporation.
The date (the "Conversion Date") of such mandatory conversion shall be the date
of consummation of the Conversion Event. Each notice of mandatory conversion
shall specify: the Conversion Date and then-effective Conversion Rate (which
shall be four shares of Common Stock for each Preferred Share, unless otherwise
adjusted hereunder); that the holders of Preferred Shares were deemed to have
become holders of record of Common Stock on the Conversion Date; that, from and
after the Conversion Date, the Preferred Shares were no longer considered
outstanding; and that all rights with respect to the shares of Preferred Shares
(and such other securities and property as the holders of the Preferred Shares
may be entitled to upon the conversion thereof, as hereinafter provided) so
converted terminated on the Conversion Date, except the right to receive Common
Stock (and such other securities and property as the holders of Preferred Shares
may be entitled to upon the conversion thereof, as hereinafter provided) as
herein provided. On and after the Conversion Date, each holder of Preferred
Shares shall surrender the certificate or certificates evidencing such shares to
the Corporation at a place to be designated
-3-
<PAGE>
in such notice and shall thereupon be entitled to receive the Common Stock (and
such other securities and property as the holders of Preferred Shares may be
entitled to upon the conversion thereof, as hereinafter provided) receivable in
exchange therefor. Notwithstanding that the certificates evidencing any shares
of Preferred Shares mandatorily converted into Common Stock shall not have been
surrendered on the Conversion Date, such shares shall no longer be deemed
outstanding, and the holders thereof shall nevertheless be deemed to have become
holders of record of Common Stock (and such other securities and property as the
holders of Preferred Shares may be entitled to upon the conversion thereof, as
hereinafter provided) on the Conversion Date.
Except where registration is requested in a name other than the name
of the registered holder, the Corporation will pay any and all documentary stamp
or similar issue or transfer taxes payable in respect of the issue or delivery
of shares of Common Stock on conversion of the Preferred Shares pursuant hereto.
Section 5. Reacquired Shares. Any Preferred Shares purchased,
-----------------
converted or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
preferred stock and may be reissued as part of a new series of preferred stock
subject to the conditions and restrictions on issuance set forth herein, in the
Articles of Incorporation, or in any other certificate of designation creating a
series of preferred stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up; Rank. Upon any
--------------------------------------------
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Preferred
Shares unless, prior thereto, the holders of Preferred Shares shall have
received the greater of (i) $16.00 per share, plus an amount equal to any
accrued and unpaid dividends and distributions thereon, to the date of such
payment, or (ii) an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to four times the aggregate amount to be
distributed per share to holders of Common Stock, or (2) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Preferred Shares, except distributions made ratably on the
Preferred Shares and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time,
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Preferred Shares were entitled
immediately prior to such event under clause (1)(ii) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the
-4-
<PAGE>
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. For the purposes hereof, a
consolidation or merger of the Corporation with or into any other person or
entity, or a sale or transfer of all or substantially all the Corporation's
assets for cash or securities, shall be considered a liquidation, dissolution or
winding up of the Company, unless, with respect to a merger, consolidation or
sale, the holders of shares of Common Stock immediately preceding such merger or
consolidation hold at least a majority of the equity securities of the surviving
entity entitled to vote in the election of directors (or similar governing body)
of the surviving entity.
So long as any Preferred Shares remain outstanding, no stock of any
class or series of the Corporation shall rank prior to or pari passu with the
----------
Preferred Shares, as to liquidation preference, dividends or distributions.
Section 7. Consolidation, Merger, etc. In case of any
---------------------------
reclassification or change of outstanding shares of Common Stock (other than a
change in par value, or as a result of a subdivision or combination), or in case
of any consolidation of the Corporation with, or merger of the Corporation with
or into, any other entity that results in a reclassification, change,
conversion, exchange or cancellation of outstanding shares of Common Stock or
any sale or transfer of all or substantially all of the assets of the
Corporation, each holder of shares of the Preferred Shares then outstanding, if
it has elected not to require a distribution pursuant to Section 6, shall have
the right thereafter to convert the shares of the Preferred Shares held by the
holder into the kind and amount of securities, cash and other property which the
holder would have been entitled to receive upon such reclassification, change,
consolidation, merger, sale or transfer if the holder had held the Common Stock
issuable upon the conversion of the Preferred Stock immediately prior to the
reclassification, change, consolidation, merger, sale or transfer.
Section 8. Redemption. (a) The Preferred Shares shall not be
----------
redeemable at the option of the Corporation and shall be redeemable at the
option of the holder thereof only as provided in this Section 8(b).
(b) In the event that as of January 29, 1999 (the "Put Date") the
Conversion Date has not occurred and the Corporation has not caused the
Preferred Shares to be registered for inclusion on the automated quotation
system of the National Association of Securities Dealers, Inc. or any national
securities exchange on which a class of the Corporation's equity securities is
listed, the Preferred Shares shall be redeemable at the option of the holder
thereof at a price equal to the greater of (i) Current Market Price on the Put
Date (as hereinafter defined) and (ii) the liquidation preference thereof, plus
accrued and unpaid dividends thereon to the date fixed for redemption (the
"Redemption Price") as of the close of business on the 30th business day
following the Put Date (the "Redemption Date"). Notwithstanding the foregoing,
in the event that the Corporation fails to declare and pay a dividend pursuant
to Section 2(b) above, the Put Date shall be accelerated
-5-
<PAGE>
to the payment date that would otherwise apply to such defaulted dividend
payment. The Corporation shall give prompt notice of the Put Date (the "Put Date
Notice") by certified mail, return-receipt requested, to the holders of record
of the Preferred Shares, addressed to such holders at their last addresses as
shown on the stock books of the Corporation. A holder of record of the Preferred
Shares as of the Put Date shall be required to give written notice to the
Corporation of such holder's election to require such redemption (a "Notice of
Redemption") on or before the 20th business day following the date receipt of
such notice is acknowledged. In the event that the Corporation receives Notices
of Redemption from holders representing in excess of 75% of the Preferred Shares
outstanding, the Corporation shall redeem all outstanding Preferred Shares on
the Redemption Date. Notice of Redemption having been given as aforesaid, the
Preferred Shares so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price, and from and after such date such Preferred
Shares shall cease to accrue dividends. Upon surrender of any certificate
representing Preferred Shares for redemption, the record holder of such
Preferred Shares shall be paid by the Corporation the Redemption Price. "Current
Market Price" means four (the "Multiple") times (a) the closing price on the
previous trading day for the Common Stock on the principal stock exchange on
which the Common Stock is traded or (b) if not so traded, the closing price (or,
if no closing price is available, the average of the bid and asked prices) for
such date on the NASDAQ if the Common Stock is listed on the NASDAQ or (c) if
not listed on any exchange or quoted on the NASDAQ, such value as may be
determined in good faith by the Corporation's Board of Directors, which
determination shall be conclusively binding. In the event the Corporation shall
at any time, declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in each such case the
Multiple shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 9. Fractional Shares. Preferred Shares may be issued in
-----------------
fractions of a share which are integral multiples of one one-hundredth of a
share which shall entitle the holder, in proportion to such holder's fractional
shares, to receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Preferred Shares.
-6-
<PAGE>
IN WITNESS WHEREOF, I have subscribed my name this 29th day of
January, 1997.
DIAMETRICS MEDICAL, INC.
/s/ Laurence L. Betterley
-----------------------------------------
Laurence L. Betterley
Chief Financial Officer
<PAGE>
ARTICLES OF CORRECTION
OF
DIAMETRICS MEDICAL, INC.
In order to correct the Certificate of Designation of Series I Junior
Participating Preferred Stock as filed with the Minnesota Secretary of State on
January 29, 1997, in accordance with the provisions set forth in Minnesota
Statutes Section 5.16, the undersigned hereby makes the following statements:
1. The name of the person who filed the instrument is Laurence L.
Betterley.
2. The instrument to be corrected is the Certificate of Designation of
Series I Junior Participating Preferred Stock of Diametrics Medical, Inc. filed
with the Minnesota Secretary of State on January 29, 1997.
3. The error to be corrected is the number of votes each Preferred Share
entitles its holder to cast, as set forth in Section 3(a) of the Certificate of
Designation.
4. The following portion of the Certificate of Designation is hereby set
forth in its corrected form as follows:
"Section 3. Voting Rights.
-------------
(a) Subject to the provision for adjustment hereinafter set forth,
each Preferred Share shall entitle the holder thereof to 3.16 votes on all
matters submitted to a vote of the shareholders of the Corporation. In the
event the Corporation shall at any time, declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the number of votes per share to which
holders of shares of Preferred Shares were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(b) Unless the vote of the holders of a greater number of shares
shall then be required by law, none of the following actions may be taken by the
Corporation without the approval by vote of the holders of 66.667% of issued and
outstanding Preferred Shares, voting together as a single class:
(i) Any amendment, restatement or modification of the Articles of
Incorporation, By-laws or other governance documents which would reasonably
be expected to adversely affect the powers, preferences, privileges or
rights of the Preferred Shares;
<PAGE>
(ii) Declaration of payment of any dividend or making of any
distribution on or with respect to the Common Stock;
(iii) Purchase, redemption or retirement, directly or indirectly, of
any shares of capital stock or other equity securities of the Corporation;
(iv) Authorization, creation or issuance of any additional shares of
capital stock or other securities which would reasonably be expected to
adversely affect the powers, preferences, privileges or rights of the
Preferred Shares, or are ranked prior to or pari passu with, the Preferred
---- -----
Shares; or
(v) A voluntary dissolution, liquidation or winding up.
(c) Except as otherwise provided herein or by law, the holders of
Preferred Shares and the holders of Common Stock and any other capital stock of
the Corporation having general voting rights shall vote together as one class on
all matters submitted to a vote of shareholders of the Corporation.
(d) Except as set forth herein or required by law, holders of
Preferred Shares shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action."
<PAGE>
IN WITNESS WHEREOF, I have subscribed my name this 30th day of
January, 1997.
DIAMETRICS MEDICAL, INC.
/s/Laurence L. Betterley
---------------------------------------------
Laurence L. Betterley
Chief Financial Officer
<PAGE>
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
DIAMETRICS MEDICAL, INC.
1. The name of the corporation is Diametrics Medical, Inc., a Minnesota
corporation.
2. The amendment adopted is:
"PARAGRAPH 1 OF ARTICLE 3 OF THE COMPANY'S AMENDED AND RESTATED
ARTICLES OF INCORPORATION IS HEREBY AMENDED AS FOLLOWS:
1. AUTHORIZED SHARES.
-----------------
THE TOTAL NUMBER OF SHARES OF CAPITAL STOCK WHICH THE
CORPORATION IS AUTHORIZED TO ISSUE SHALL BE 40,000,000
SHARES, CONSISTING OF 35,000,000 SHARES OF COMMON STOCK, PAR
VALUE $.01 PER SHARE (`COMMON STOCK'), AND 5,000,000 SHARES
OF PREFERRED STOCK, $.01 PAR VALUE PER SHARE (`PREFERRED
STOCK')."
3. The amendment has been adopted pursuant to Chapter 302A of the Minnesota
Business Corporation Act.
IN WITNESS WHEREOF, the undersigned, David Giddings, the President,
Chief Executive Officer and Chairman of Diametrics Medical, Inc., being duly
authorized on behalf of Diametrics Medical, Inc., has executed this document
this 10th day of April, 1997.
/s/ David Giddings
----------------------------------------
David Giddings
President, Chief Executive Officer and
Chairman
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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<SECURITIES> 7,888,283
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0
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