<PAGE>
================================================================================
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 June 30, 1998
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 August 7, 1998, was 23,349,248.
================================================================================
<PAGE>
DIAMETRICS MEDICAL, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS:
Three Months Ended June 30, 1998 and 1997.............................3
Six Months Ended June 30, 1998 and 1997...............................3
CONSOLIDATED BALANCE SHEETS as of June 30, 1998
and December 31, 1997..................................................4
CONSOLIDATED STATEMENTS OF CASH FLOWS:
Six Months Ended June 30, 1998 and 1997................................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...............................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION................................................7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............9
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................10
ITEM 2. CHANGES IN SECURITIES...................................................10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.........................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................10
ITEM 5. OTHER INFORMATION.......................................................10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................11
SIGNATURE.........................................................................12
</TABLE>
2
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 3,052,048 $ 2,607,679 $ 5,468,751 $ 4,562,645
Cost of sales 2,810,068 2,821,574 5,212,758 5,649,520
------------ ------------ ------------ ------------
Gross profit (loss) 241,980 (213,895) 255,993 (1,086,875)
------------ ------------ ------------ ------------
Operating expenses:
Research and development 1,613,207 1,772,087 3,179,542 3,561,463
Sales and marketing 1,912,765 1,954,638 3,636,562 3,943,426
General and administrative 805,879 986,935 1,651,709 1,938,014
Restructuring and other charges -- 163,204 -- 163,204
------------ ------------ ------------ ------------
Total operating expenses 4,331,851 4,876,864 8,467,813 9,606,107
------------ ------------ ------------ ------------
Operating loss (4,089,871) (5,090,759) (8,211,820) (10,692,982)
Other expense, net (236,569) (163,275) (417,813) (333,065)
------------ ------------ ------------ ------------
Net loss $ (4,326,440) $ (5,254,034) $ (8,629,633) $(11,026,047)
============ ============ ============ ============
Basic and diluted net loss per common share $ (0.20) $ (0.29) $ (0.41) $ (0.66)
============ ============ ============ ============
Weighted average number of
common shares outstanding 21,118,721 18,244,016 21,013,158 16,743,710
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,610,274 $ 3,358,684
Marketable securities -- 8,401,642
Accounts receivable 4,412,891 3,768,528
Inventories 4,057,544 3,588,218
Prepaid expenses and other current assets 537,370 311,173
------------- -------------
Total current assets 11,618,079 19,428,245
------------- -------------
PROPERTY AND EQUIPMENT 19,218,051 18,060,127
Less accumulated depreciation and amortization (12,095,724) (10,674,155)
------------- -------------
7,122,327 7,385,972
------------- -------------
OTHER ASSETS 1,609,932 1,847,316
------------- -------------
$ 20,350,338 $ 28,661,533
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,682,411 $ 2,261,822
Accrued expenses 2,330,145 3,687,597
Short-term borrowings and current portion
of long-term liabilities 1,539,471 969,950
------------- -------------
Total current liabilities 6,552,027 6,919,369
------------- -------------
LONG-TERM LIABILITIES:
Long-term liabilities, excluding current portion 8,331,916 8,537,742
Other liabilities, excluding current portion 61,006 61,372
------------- -------------
Total liabilities 14,944,949 15,518,483
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value: 35,000,000 authorized
21,198,390 and 20,889,945 shares issued and outstanding 211,984 208,899
Additional paid-in capital 115,529,923 113,970,247
Cumulative translation adjustment 25,860 19,584
Accumulated deficit (110,362,378) (101,055,680)
------------- -------------
Total shareholders' equity 5,405,389 13,143,050
------------- -------------
$ 20,350,338 $ 28,661,533
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DIAMETRICS MEDICAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,629,633) $(11,026,047)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,674,868 2,068,723
Common stock and options issued in lieu of cash compensation 3,150 --
Gain on disposal of property and equipment (1,556) (61,883)
Change in operating assets and liabilities:
Accounts receivable, net (644,984) 4,726
Inventories (615,620) (25,942)
Prepaid expenses and other current assets (127,439) 44,158
Accounts payable and accrued expenses (857,644) (933,678)
------------ ------------
Net cash used in operating activities (9,198,858) (9,929,943)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,241,921) (1,447,754)
Purchases of marketable securities -- (14,480,278)
Proceeds from maturities of marketable securities 8,401,642 7,400,000
Other 5,735 91,843
------------ ------------
Net cash provided by (used in) investing activities 7,165,456 (8,436,189)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings (179,696) (52,829)
Proceeds from short-term borrowings 990,000 --
Proceeds from long-term borrowings -- 877,656
Net proceeds from the issuance of preferred stock -- 11,900,000
Net proceeds from the issuance of common stock 1,556,459 8,309,020
Principal payments under capital lease obligations (446,609) (542,981)
------------ ------------
Net cash provided by financing activities 1,920,154 20,490,866
------------ ------------
Effect of subsidiary's year-end change on cash
and cash equivalents (664,819) --
Effect of exchange rate changes on cash and cash equivalents 29,657 (6,772)
------------ ------------
Net increase (decrease) in cash and cash equivalents (748,410) 2,117,962
Cash and cash equivalents at beginning of period 3,358,684 2,451,993
------------ ------------
Cash and cash equivalents at end of period $ 2,610,274 $ 4,569,955
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,174,581 $ 201,724
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
DIAMETRICS MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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 condensed 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, 1997.
(2) INVENTORIES
Inventories are summarized as follows:
June 30, December 31,
1998 1997
---------- ----------
Raw materials $1,051,564 $ 957,049
Work-in-process 650,148 442,527
Finished goods 2,355,832 2,188,642
---------- ----------
$4,057,544 $3,588,218
========== ==========
(3) NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". This statement does not change the reporting of net
income. However, it requires that all items that are required to be
recognized under accounting standards as components of comprehensive income
be reported in a separate financial statement that is displayed with the
same prominence as other financial statements. This statement also requires
that an enterprise display the accumulated balance of other comprehensive
income separately from retained earnings and paid-in-capital in the equity
section of the balance sheet. The Company adopted this statement on January
1, 1998, but does not have significant comprehensive income components to
report at June 30, 1998.
(4) CHANGE IN YEAR-END OF SUBSIDIARY
Effective January 1, 1998, the Company changed the year-end of its
wholly-owned subsidiary, Diametrics Medical, Ltd. (DML) to December 31 from
November 30 to produce a consistent reporting period for the consolidated
entity. As a result of this change in year-end, DML's net results of
operations for the month of December 1997 were closed to beginning
accumulated deficit on the balance sheet as of January 1, 1998. The impact
of this change was an increase in the beginning accumulated deficit of
approximately $677,000.
6
<PAGE>
(5) SUBSEQUENT EVENT
On August 4, 1998, the Company completed the sale in a private placement of
2,142,858 shares of Common Stock at a price of $7.00 per share, resulting
in proceeds to the Company of $15,000,006. The purchasers also received
five-year warrants to purchase 714,286 shares of Common Stock at $8.40 per
share, providing additional future funding potential of $6,000,000. The
warrants are exercisable immediately and are callable after a twelve month
waiting period if the Common Stock closing price exceeds certain levels for
twenty consecutive trading days.
In addition, the Company issued Convertible Senior Secured Fixed Rate Notes
to an investor group, with proceeds aggregating $7,300,000. The notes are
due in five years, require quarterly interest payments at a rate of 7% per
annum, and are convertible into the Company's Common Stock at $8.40 per
share. Proceeds of the notes were used to retire other debt of the Company.
The Company expects to use the net proceeds from this private placement for
product development, sales and marketing and other general corporate
purposes.
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, 1997. When used in this Form 10-Q and in
future filings by the Company with the Securities and Exchange Commission,
in the Company's press releases, presentations to securities analysts or
investors, in oral statements made by or with the approval of an executive
officer of the Company, the words or phrases "believes," "may," "will,"
"expects," "should," "continue," "anticipates," "intends," "will likely
result," "estimates," "projects" or similar expressions and variations
thereof are intended to identify such forward-looking statements.
SUMMARY
Diametrics Medical, Inc. (the "Company"), which began operations in 1990,
is engaged in the development, manufacturing and marketing of critical care
blood and tissue 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 development, manufacturing
and sales organization. As of June 30, 1998, the primary funding for the
operations of the Company has been approximately $114 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.
RESULTS OF OPERATIONS
SALES. Sales of the Company's products were $3,052,048 and $5,468,751 for
the three and six months ended June 30, 1998, compared to $2,607,679 and
$4,562,645 for the same periods in the prior year, increases of 17% and
20%, respectively. The increase for the three and six months ended June 30,
1998 over the prior year reflects a 23% and 25% increase in sales of
instruments and a 11% and 15% increase in disposable cartridge and sensor
sales, respectively.
The Company's revenues are affected principally by the number of
instruments, both monitors and IRMA analyzers, placed with customers and
the rate at which disposable sensors and cartridges are used in connection
with these products. As of June 30, 1998, the Company has sold over 2,500
instruments. Disposable sensor and cartridge units sold for the three and
six months ended June 30, 1998 increased 28% and 37%, respectively, over
the same periods in 1997.
The Company has targeted 1998 full year revenue growth in excess of 50%
relative to 1997 as a result of further planned expansion of the blood and
tissue analysis product lines and continued market penetration of existing
products.
7
<PAGE>
COST OF SALES. Cost of sales totaled $2,810,068 and $5,212,758, or 92% and
95% of revenue for the three and six months ended June 30, 1998, compared
to $2,821,574 and $5,649,520, or 108% and 124% of revenue for the same
periods in the prior year, respectively. The significant period-to-period
improvement in the Company's cost of sales as a percentage of revenue
reflects increased cartridge volumes and the impact of cost controls and
manufacturing process changes. These improvements resulted in the
achievement in the second quarter of 1998 of the Company's third
consecutive positive quarterly gross margin. The Company is targeting a
positive gross margin for the full year 1998, as a result of new product
introductions and continued reductions in unit product costs, stemming from
increased sales volumes and further expected improvements in manufacturing
yields, processes and costs.
OPERATING EXPENSES. Research and development expenditures were $1,613,207
and $3,179,542 for the three and six months ended June 30, 1998, compared
to $1,772,087 and $3,561,463 for the same periods in the prior year. The
decline in expenses is the result of the impact of work force reductions,
primarily in the Company's U.S. operations, and cost and process
improvements implemented during 1997.
Sales and marketing expenses totaled $1,912,765 and $3,636,562 for the
three and six months ended June 30, 1998, compared to $1,954,638 and
$3,943,426 for the same periods in 1997. The period-to-period decreases are
due to organizational efficiencies and better deployment of resources.
General and administrative expenses totaled $805,879 and $1,651,709 for the
three and six months ended June 30, 1998, compared to $986,935 and
$1,938,014 for the same periods in 1997. The period-to-period decreases
reflects the impact of work force reductions, primarily in the Company's
U.S. operations, and cost improvements implemented during 1997.
Operating expense run rates for the remaining half of 1998 are expected to
continue to be below 1997 levels.
OTHER EXPENSE. Net other expense was $236,569 and $417,813 for the three
and six months ended June 30, 1998, compared to $163,275 and $333,065 for
the same periods in the prior year, an increase of $73,294 and $84,748,
respectively. The Company realized interest income of $70,943 and $181,813
for the three and six months ended June 30, 1998, compared to $126,402 and
$258,635 for the same periods in the prior year. The period-to-period
decrease reflects the impact of lower average cash balances primarily due
to the timing of the Company's private equity placements in January and
June 1997, resulting in proceeds to the Company of approximately
$20,000,000.
Interest expense totaled $212,130 and $437,831 for the three and six months
ended June 30, 1998, compared to $257,910 and $529,635 for the same periods
in 1997. The period-to-period decrease primarily reflects the reduction in
the amount of higher interest bearing capital lease debt relative to total
debt outstanding.
NET LOSS. The net loss for the three and six months ended June 30, 1998 was
$4,326,440 and $8,629,633, compared to $5,254,034 and $11,026,047 for the
same periods in 1997. Compared to the three and six months ended June 30,
1997, the net loss decreased 18% and 22%, respectively, for the same
periods in 1998. This decrease reflects the revenue growth previously
discussed, coupled with the impact of extensive cost and process
improvements implemented during 1997 and increased production volumes. The
Company is targeting continued improvement in the net loss in future
quarters.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had working capital of $5,066,052, a decrease
of $7,442,824 from the working capital reported at December 31, 1997. The
decrease primarily reflects the impact of net cash used in operating
activities for the six months ended June 30, 1998, partially offset by
proceeds from the issuance of Common Stock from warrant and option
exercises and proceeds from a draw-down on a line of credit.
8
<PAGE>
At June 30, 1998, the Company had property and equipment of $19,218,051, up
from $18,060,127 at December 31, 1997, less accumulated depreciation of
$12,095,724 and $10,674,155 at June 30, 1998 and December 31, 1997,
respectively. The $1,157,924 net increase in the cost of property and
equipment is primarily the result of approximately $1,242,000 of capital
additions, consisting primarily of investments in development and
production equipment and instruments for internal use in R&D and sales.
Approximately $3,000,000 of the Company's property and equipment were
financed through capital lease obligations at June 30, 1998. In 1998, the
Company expects total capital expenditures and new lease commitments to
approximate $2.4 million for the year, primarily reflecting investments to
support new product development and production.
At June 30, 1998, the Company had U.S. net operating loss and research and
development tax credit carryforwards for income tax purposes of
approximately $97,000,000 and $900,000, 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 $43,000,000 which can be carried forward indefinitely.
As reflected in the accompanying consolidated financial statements, the
Company has incurred net losses of $4,326,440 and $8,629,633, respectively,
for the three and six months ended June 30, 1998. In addition, the Company
has incurred net losses and has had negative cash flows from operating
activities since inception. In August 1998, the Company completed a private
equity placement which generated net cash proceeds to the Company of
$15,000,000. The Company believes currently available funds and cash
generated from projected operating revenues, supplemented by employee stock
plans, warrant exercises, asset based credit and corporate alliances, will
meet the Company's working capital needs. If the amount or timing of
funding from these sources or cash requirements vary materially from those
currently planned, the Company could require additional capital. While
there can be no assurance that adequate funds will be available when needed
or on acceptable terms, management believes that the Company will be able
to raise adequate funding if needed. The Company's long-term capital
requirements will depend upon numerous factors, including the rate of
market acceptance of the Company's products and the level of resources
devoted to expanding the sales and marketing organization, manufacturing
capabilities and research and development activities.
Effective March 31, 1998, the Company secured a $1,000,000 receivable
backed credit line with DVI Business Credit Corporation. The loan agreement
requires the Company's accounts receivable collections to be applied to
reduce the loan balance, including advances, interest and fees. All
advances under the line of credit bear interest on the unpaid principal
amount at a fluctuating rate equal to the Prime Rate plus three percent.
Interest is payable monthly in arrears. The loan agreement requires the
monthly payment of an annualized unutilized loan fee equal to one half of
one percent (.5%) of the difference between the committed available loan
amount and the average outstanding loan balance. The Company had drawn
$990,000 on the line of credit as of June 30, 1998.
YEAR 2000 COMPLIANCE
The financial impact to the Company of year 2000 compliance has not been
and is not expected to be material to the Company's financial position or
results of operations in any given year. The Company's existing information
system, consisting of hardware and software supplied by third parties, is
year 2000 compliant. However, because most computer systems are, by their
nature, interdependent, it is possible that non-compliant third party
computers could "reinfect" the Company's computer systems. The Company
could be adversely affected by the year 2000 problem if it or unrelated
parties fail to successfully address this problem. The Company is
developing a plan to communicate with the unrelated parties, including its
regulatory consultants with whom it deals, to coordinate year 2000
compliance. The costs incurred in addressing year 2000 compliance will be
expensed as incurred, in compliance with GAAP.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
The Company issued warrants to purchase up to 25,000 shares of the
Company's Common Stock in May, 1998 as part of a supplier relationship
with Altron, Inc. The warrants were exercisable up to five years from
the date of grant at an exercise price of $5.1875 per share. During
the quarter ended June 30, 1998, 25,000 shares of the Company's Common
Stock were issued upon exercise of such warrants, with proceeds
amounting to $129,688. The securities were sold pursuant to Section
4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Company's shareholders was held on May 13,
1998. At the meeting, shareholders voted on the reelection of two
directors for terms expiring at the Annual Meeting of the Company in
2001, and for the approval of an increase in the number of shares
authorized for issuance under the Company's 1990 Stock Option Plan and
1993 Directors' Stock Option Plan.
Each of the directors was reelected by a vote as follows: Gerald L.
Cohn received 17,316,514 votes "For", 691,784 votes "Against" and no
broker non-votes; and Mark B. Knudson, Ph.D. received 17,339,536 votes
"For", 668,762 votes "Against" and no broker non-votes. The amendments
to approve an increase in the number of shares authorized for issuance
under the Company's 1990 Stock Option Plan and 1993 Directors' Stock
Option Plan were approved as follows: 1990 Stock Option Plan:
14,738,082 votes "For", 2,598,554 votes "Against", 78,727 votes
"Abstained" and 592,935 votes "Unvoted"; and the 1993 Directors' Stock
Option Plan: 13,602,834 votes "For", 3,748,874 votes "Against", 63,655
votes "Abstained" and 592,935 votes "Unvoted".
ITEM 5. OTHER INFORMATION
On August 4, 1998 the Company completed the sale in a private
placement of 2,142,858 shares of the Company's Common Stock, par value
$.01 per share (the "Common Stock"), at a price of $7.00 per share,
for aggregate proceeds of $15,000,006. The purchasers of Common Stock
also received warrants to purchase 714,286 shares of Common Stock at
$8.40 per share. The five-year warrants are exercisable immediately
and are callable after a twelve month waiting period if the Common
Stock closing price exceeds certain levels for twenty consecutive
trading days.
In addition, the Company issued Convertible Senior Secured Fixed Rate
Notes to an investor group, with proceeds aggregating $7,300,000. The
notes will be due in five years, require quarterly interest payments
at a rate of 7% per annum, and are convertible into the Company's
Common Stock at $8.40 per share. Proceeds from the notes were used to
retire other debt of the Company.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT METHOD
NO. DESCRIPTION OF FILING
------- ----------- ---------
<S> <C> <C>
10.1 Common Stock Purchase Agreement, dated June 30, 1998, between the
Company and the Purchasers named therein Filed herewith
10.2 Form of Stock Purchase Warrant, dated August 4, 1998 Filed herewith
10.3 Note Purchase Agreement, dated August 4, 1998, between the
Company and the Purchasers named therein Filed herewith
10.4 Form of Convertible Senior Secured Fixed Rate Note due August 4,
2003 Filed herewith
10.5 1990 Stock Option Plan, as amended and restated Filed herewith
10.6 1993 Directors' Stock Option Plan, as amended and restated Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
B. REPORTS ON FORM 8-K.
None
11
<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: August 14, 1998
12
<PAGE>
DIAMETRICS MEDICAL, INC.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
10.1 Common Stock Purchase Agreement, dated June 30, 1998, between
the Company and the Purchasers named therein
10.2 Form of Stock Purchase Warrant, dated August 4, 1998
10.3 Note Purchase Agreement, dated August 4, 1998, between the
Company and the Purchasers named therein
10.4 Form of Convertible Senior Secured Fixed Rate Note due
August 4, 2003
10.5 1990 Stock Option Plan, as amended and restated
10.6 1993 Directors' Stock Option Plan, as amended and restated
27 Financial Data Schedule
<PAGE>
Exhibit 10.1
COMMON STOCK
PURCHASE AGREEMENT
This Common Stock Purchase Agreement (this "Agreement") is made this
30th day of June 1998 (the "Effective Date"), by and among Diametrics Medical,
Inc., a Minnesota corporation, with its principal place of business at 2658
Patton Road, Roseville, Minnesota 55113 (the "Company"), and the purchasers
signatories hereto (the "Purchasers"; and each individually, a "Purchaser").
BACKGROUND
A. The Company desires to sell 2,142,858 shares of its common stock
("Common Stock") and a warrant or warrants (in substantially the form of Exhibit
A hereto) to purchase 714,286 shares of its Common Stock for a period of five
years, and the Purchasers desire to purchase the same, each on the terms and
subject to the conditions set forth herein.
B. The Company is an obligor to Howmedica, Inc. under a certain Senior
Secured Fixed Rate Loan Note due November 4, 2002 (the "Howmedica Note"), which
provides that certain securities issuances, including the transactions
contemplated by this Agreement, would potentially or actually cause acceleration
of payment of certain principal amounts under the Howmedica Note.
C. The Company and the Purchasers intend to close the transactions
contemplated by this Agreement (assuming all other closing conditions have been
satisfied or waived) concurrently with the closing of a separate transaction
resulting from the Purchasers arranging for the purchase at an aggregate price
of $7,300,000 of Convertible Senior Secured Fixed Rate Notes (each a "Note") in
substantially the form set forth in Exhibit B hereto pursuant to a Note Purchase
Agreement (the "Note Purchase Agreement") in substantially the form set forth in
Exhibit C hereto. The proceeds of such purchase shall be used solely so that the
Company can fully satisfy the Howmedica Note. Under the terms of the Note
Purchase Agreement, each holder of a Note issued pursuant thereto would have the
right (but not the obligation), to convert all or part of the principal amount
of the Note into shares of common stock of the Company and, upon the occurrence
of a merger, consolidation or other event which constitutes a Redemption Event
(as defined in the Note Purchase Agreement), to require the Company to redeem
such Note upon payment of the outstanding principal amount thereof and accrued
but unpaid interest thereon and to issue a warrant to receive shares in the
surviving corporation. The Company has agreed to ensure that any Purchaser so
redeeming its Note will have registration rights with respect to the warrants
and the shares underlying such warrants pursuant to a Warrant Registration
Rights Agreement attached as an exhibit to the Note Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchasers
hereby agree as follows:
<PAGE>
Section 1. Authorization and Issuance of the Securities. Subject to the
terms and conditions of this Agreement, the Company has, or before the Closing
(as defined below) will have, authorized the issuance and delivery to the
Purchasers an aggregate of 2,142,858 shares of its Common Stock and a warrant or
warrants to purchase in the aggregate an additional 714,286 shares of its Common
Stock for a period of five years, in substantially the form set forth on Exhibit
A hereto. The shares of Common Stock to be sold at the Closing, to wit 2,142,858
shares of Common Stock, and the warrant or warrants to purchase Common Stock
issued to the Purchasers pursuant to this Agreement shall be referred to herein
as the "Shares" and the "Warrants," respectively.
Section 2. Agreement to Sell and Purchase the Securities. At the
Closing, the Company will sell to the Purchasers, and the Purchasers will
acquire severally from the Company, for an aggregate purchase price of
$15,000,006 (the "Aggregate Price"), the number of Shares set forth opposite the
name of each Purchaser on Schedule A at a price per share of $7.00, together
with Warrants in substantially the form set forth on Exhibit A hereto.
Section 3. Closing and Delivery.
3.1 Closing. The closing of the purchase and sale of the Shares and the
Warrants pursuant to this Agreement (the "Closing") shall be held as soon as
practicable after the satisfaction or waiver of all other conditions to Closing
set forth in Sections 8 and 9 hereof, at the offices of Heller Ehrman White &
McAuliffe, 333 Bush Street, San Francisco, California 94104, or on such other
date and place as may be agreed to by the Company and the Purchasers. The date
upon which the Closing occurs is herein referred to as the "Closing Date".
3.2 Delivery of the Shares and the Warrants. At the Closing, the
Company shall deliver to each Purchaser an executed stock certificate registered
in the name of such Purchaser, or in such nominee name(s) as designated by such
Purchaser, representing the Shares purchased by such Purchaser, together with an
executed Warrant registered in the name of such Purchaser, representing the
number of shares of Common Stock issuable upon the exercise of such Warrant that
is indicated opposite such Purchaser's name on Schedule A hereto. Also at the
Closing, each Purchaser shall pay to the Company that portion of the Aggregate
Price set forth opposite such Purchaser's name on Schedule A hereto.
3.3 Delivery of Convertible Note and Related Documents. At the Closing,
the Company shall deliver an executed Note Purchase Agreement, the Notes and
other documents relating to the security interests under each Note to each
purchaser under the Note Purchase Agreement (each, a "Note Purchaser").
Section 4. Representations and Warranties of the Company. Except as set
forth on the Schedule of Exceptions attached hereto as Exhibit E, the Company
hereby represents and warrants as of the date hereof to the Purchasers as
follows:
2
<PAGE>
4.1 Organization and Standing. Each of the Company and its Subsidiary
(as hereinafter defined in this Section 4.1) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its organization, has full corporate power and authority to own
or lease its properties and conduct its business as presently conducted, and is
duly qualified as a foreign corporation and is in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary (except
where the failure to be so qualified would not have a material adverse effect on
the business, properties, financial condition or results or operations of the
Company or its Subsidiary). Other than Diametrics Medical, Ltd., formerly known
as Biomedical Sensors, Ltd., (the "Subsidiary"), the Company has no subsidiaries
or equity interest in any other entity.
4.2 Corporate Power; Authorization. The Company has all requisite
corporate power, and will have taken all requisite corporate action, to execute
and deliver this Agreement and the Warrants, to execute and deliver each Note,
each of the documents relating to the security interests under each Note, and
the Note Purchase Agreement, to sell and issue the Shares and the Warrants, to
issue the shares issuable upon exercise of the Warrants (the "Warrant Shares")
or upon conversion of the Note (the "Conversion Shares"), to borrow under the
Notes and to carry out and perform all of its obligations hereunder and
thereunder. Each of this Agreement, the Warrants, the Notes, the documents
relating to the security interests under the Notes, and the Note Purchase
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting the enforcement of creditors' rights generally, (ii) as limited by
equitable principles generally, and (iii) as rights to indemnity or
contributions hereunder may be limited by federal or state securities laws or
principles of public policy. The execution and delivery of this Agreement, the
Warrants, the Notes, each of the documents relating to the security interests
under the Notes, and the Note Purchase Agreement do not, and the performance of
this Agreement, the Warrants, the Notes, each of the documents relating to the
security interests under the Notes, and the Note Purchase Agreement and the
compliance with the provisions hereof and thereof and the issuance, sale and
delivery of the Shares, the Warrants, the Warrant Shares, the Conversion Shares
and the Notes by the Company will not, conflict with, or result in a breach or
violation of the terms, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of any lien pursuant to the terms
of, the Articles of Incorporation or Bylaws of the Company or any statute, law,
rule or regulation applicable to the Company or its Subsidiary, or any state or
federal order, judgment or decree applicable to the Company or its Subsidiary,
or any indenture, mortgage, lease or other agreement or instrument to which the
Company or its Subsidiary or any of the properties of such person is subject,
except such as would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company or its
Subsidiary.
4.3 Issuance and Delivery of the Shares, Conversion Shares and Warrant
Shares; Grant of the Warrants. The Shares, when issued and paid for in
compliance with the
3
<PAGE>
provisions of this Agreement, will be validly issued, fully paid and
nonassessable and issued in compliance with all applicable federal and state
securities laws. Further, the Shares, when issued and paid for in compliance
with the provisions of this Agreement, will not be subject to preemptive,
co-sale, right of first refusal or any other similar rights of the shareholders
of the Company or any liens or encumbrances. In addition, the Warrant Shares and
the Conversion Shares when issued and paid for will be validly issued, fully
paid and nonassessable, issued in compliance with all applicable federal and
state securities laws, and will not be subject to preemptive, co-sale, right of
first refusal or any other similar rights of the shareholders of the Company or
any liens or encumbrances. The Company has not granted any registration rights
which are still in effect with respect to its securities other than the
registration rights set forth herein. Issuance of the Shares, the Warrants, the
Warrant Shares and the Conversion Shares or any of them does not and will not
constitute a default under or give rise to a right of termination, cancellation,
restriction or acceleration of any right or obligation of the Company or its
Subsidiary or a loss of any benefit to which the Company or its Subsidiary is
entitled under any provision of any agreement, contract or other instrument
binding upon or applicable to the Company or its Subsidiary or any of the
properties, assets, licenses, franchises, permits or other similar
authorizations of either of them.
4.4 SEC Documents; Financial Statements. Each of the Company and its
Subsidiary has filed in a timely manner all documents that such person was
required to file with the Securities and Exchange Commission ("SEC") under
Sections 13, 14(a) and 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") during the 36 months preceding the date of this Agreement.
As of their respective filing dates (or, if amended, when amended), all
documents filed by the Company or its Subsidiary with the SEC, whether under the
Exchange Act or under the Securities Act of 1933, as amended (the "Securities
Act"), during such 36-month period (the "SEC Documents") complied in all
material respects with the requirements of the Exchange Act or the Securities
Act, as the case may be. The Company satisfies the requirements for the use of
Form S-3 under the Securities Act, to register the offers and sales of the
Shares, the Warrant Shares and the Conversion Shares contemplated by the Shelf
Registration Statement (as defined in Section 10). None of the SEC Documents as
of their respective dates contained any untrue statement of material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The consolidated financial statements of the Company
and its Subsidiary included in the SEC Documents (the "Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto. The Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied and fairly present
the consolidated financial position of the Company and its Subsidiary at the
dates thereof and the results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal, recurring
adjustments and the absence of footnotes). There is no material liability or
commitment of the Company or its Subsidiary which is not reflected in the most
recent Financial Statements except commitments made since the date of such
Financial Statements in the ordinary course of business. There have
4
<PAGE>
not been any changes in the assets, liabilities, financial condition or
operations of the Company or its Subsidiary from those reflected in the most
recent Financial Statements, except changes in the ordinary course of business
that have not had and are not reasonably expected to have a material adverse
effect on the business, properties, financial condition or results of operations
of the Company or its Subsidiary.
4.5 Intellectual Property. (a) Each of the Company and its Subsidiary
has sufficient title and ownership of all material patents, patent rights,
inventions, trademarks, service marks, copyrights, trade secrets, proprietary
rights, processes and know-how (collectively, "Intellectual Property") owned or
used by it or that are necessary for the conduct of its business as presently
conducted and believes it can obtain, on commercially reasonable terms, any
additional rights necessary for its business as proposed to be conducted, and
the Intellectual Property does not, and will not, conflict with or constitute an
infringement of the rights of others;
(b) There are no outstanding options, licenses (whether to or
from the Company) or agreements of any kind relating to the Intellectual
Property described in paragraph (a) of this Section 4.5 or granting rights to
any other person to manufacture, license, produce, assemble, market or sell
products or services derived or derivable from the Intellectual Property of the
Company or its Subsidiary, nor is the Company or its Subsidiary bound by or a
party to any options, licenses or agreements of any kind with respect to the
Intellectual Property of any other person or entity;
(c) Neither the Company nor its Subsidiary has received any
communications alleging that such person or any of its employees has violated or
infringed or, by conducting its business as proposed, would violate or infringe,
any of the Intellectual Property of any other person or entity;
(d) Neither the Company nor its Subsidiary is aware that any
of its employees is obligated under any contract (including licenses, covenants,
or commitments of any nature) or other agreement, or subject to any judgment,
decree, or order of any court or administrative agency, that would interfere
with the use of such employee's best efforts to promote the interests of the
Company or its Subsidiary with respect to the Intellectual Property of the
Company or its Subsidiary or otherwise or that would conflict with the business
of the Company or its Subsidiary as proposed to be conducted; and
(e) Neither the execution nor delivery of this Agreement, nor
the carrying on of the business of the Company or its Subsidiary by the
employees of such person, nor the conduct of the business of the Company or its
Subsidiary as proposed, will, to the Company's knowledge, conflict with or
result in a breach of the terms, conditions, or provisions of, or constitute a
default under, any contract, covenant, or instrument under which any of such
employees is now obligated. The Company does not believe it is or will be
necessary to utilize any inventions of any of the employees of the Company or
its Subsidiary (or people such person currently intends to hire) made prior to
their employment by such person.
5
<PAGE>
4.6 Properties. The Company and its Subsidiary has good and valid title
to all of the properties and assets reflected as owned by the Company or its
Subsidiary in the Financial Statements, free and clear of all material liens,
mortgages (statutory or otherwise), security interests, pledges, claims or
encumbrances except those, if any, disclosed in the Financial Statements. The
Company and its Subsidiary holds its leased properties under valid and binding
leases, with such exceptions as are not materially significant in relation to
the business of the Company or its Subsidiary. The Company and its Subsidiary
owns or leases all of such properties as are necessary to its operations as now
conducted.
4.7 Capitalization. The authorized capital stock of the Company
consists of 35,000,000 shares of Common Stock and 5,000,000 shares of preferred
stock. There are 21,189,923 shares of Common Stock and no shares of Preferred
Stock outstanding as of the Effective Date, and, excluding the exercise of
vested options and warrants outstanding at the discretion of the holder thereof
and shares purchased through the Company's existing employee stock purchase
plan, immediately prior to the Closing, 21,189,923 shares of Common Stock and no
shares of Preferred Stock will be outstanding. The certificates evidencing the
Shares, the Warrant Shares and the Conversion Shares will be in due and proper
legal form and will be duly authorized for issuance by the Company. 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 federal, state and other applicable laws and were issued without violation
of any preemptive, co-sale or other right. Except as otherwise disclosed in the
SEC Documents and in the Financial Statements, there is no outstanding option,
warrant, agreement or other right calling for the issuance or redemption of, and
there is no commitment, plan or arrangement to issue or redeem, any securities
of the Company. The Company does not have any binding agreement with respect to
the acquisition or purchase of the securities of or owned by any person or
entity or the acquisition of the business, assets or liabilities of any person
or entity, and the Company does not have any agreement or understanding with
respect to the disposition or sale of its business, or any of its material
assets or property.
4.8 Litigation. There is no pending or, to the Company's knowledge,
threatened, action, suit or other proceeding to which the Company or its
Subsidiary is a party or to which the property or assets of the Company or its
Subsidiary is subject which might result in a material adverse effect on the
business, properties, financial condition or results of operations of the
Company or its Subsidiary.
4.9 No Defaults. Neither the Company nor its Subsidiary is in violation
or default of any provisions of its Articles of Incorporation or Bylaws, or any
organizational documents, or in breach with respect to any provision of any
agreement, judgment, decree, order, mortgage, deed of trust, lease franchise,
license, indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound which violation, default or breach
would have a material adverse effect on the business, properties, financial
condition or results of operations of the Company or its Subsidiary, and there
does not exist any state of facts which constitutes an
6
<PAGE>
event of default on the part of the Company or its Subsidiary as defined in such
documents or which, with notice or lapse of time or both, would constitute such
an event of default.
4.10 Material Agreements. Each of the Company and its Subsidiary is a
party to all agreements that are necessary for the conduct of the business of
such person as presently conducted and all such agreements are currently in
effect. Neither the Company nor its Subsidiary is in breach of any provision of
any such agreement where such breach would have a material adverse effect on the
business, properties, financial condition or results of operations of the
Company or its Subsidiary.
4.11 Governmental Consents; Compliance with Law. No consent, approval,
order or authorization of, or registration, qualification, designation,
declaration or filing with, any federal, state, or local governmental authority
on the part of the Company is required in connection with the consummation of
the transactions contemplated by this Agreement except for (i) the filing of a
Shelf Registration Statement and all amendments thereto with the SEC as
contemplated by Section 10.1 of this Agreement, (ii) any filings required by
state securities laws and (iii) if required, the filing of a notification and
report form under the United States Hart- Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"). Each of the Company and its Subsidiary
is conducting business in compliance in all material respects with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including but not limited to, all applicable local, state
and federal environmental laws and regulations.
4.12 Insurance. Each of the Company and its Subsidiary maintains
insurance of the types and in the amounts generally deemed adequate for its
business covering all risks customarily insured against, all of which insurance
is in full force and effect.
4.13 Investment Company. The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
4.14 Taxes. Each of the Company and its Subsidiary has filed all
necessary federal, state, local, and foreign income and franchise tax returns
and has paid or accrued all taxes shown as due thereon except for such taxes as
are being contested in good faith, and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the Company
or its Subsidiary which would have a material adverse effect on the business,
properties, financial condition or results of operations of the Company or its
Subsidiary.
4.15 Listing. The Company's Common Stock is traded on The Nasdaq
National Market.
4.16 Broker's Fee. The Company represents that there are no brokers or
finders entitled to compensation by the Company or its Subsidiary in connection
with any of the
7
<PAGE>
transactions referred to or contemplated hereby, and shall indemnify the
Purchasers for any such fees for which the Company or its Subsidiary is
responsible.
4.17 Disclosure. No representation or warranty of the Company contained
in this Agreement or in the Schedule of Exceptions or in any bring-down
certificate required to be delivered to the Purchasers at the Closing, contains
or will contain any untrue statement of a material fact or omit to state a
material fact required to make the statements herein or therein not misleading.
Section 5. Representations and Warranties of the Purchasers. Each
Purchaser, severally and not jointly with other Purchasers, hereby represents
and warrants as of the date hereof to the Company as follows:
5.1 Investment Purposes. (a) Such Purchaser acknowledges that the
Shares and the Warrants are being issued in reliance upon the exception from the
registration requirements of the Securities Act provided by Section 4(2) thereof
and as such the Shares, Warrant Shares and the Warrants will be "restricted
securities" within the meaning of Rule 144.
(b) Such Purchaser is acquiring the Shares and the Warrants
pursuant to this Agreement in the ordinary course of its business and for its
own account for investment only and with no present intention of distributing
any of such Shares or Warrants or any arrangement or understanding with any
other persons regarding the distribution of such Shares or Warrants except in
each case as conforms with all applicable requirements of the Securities Act,
applicable blue sky laws and all rules and regulations promulgated thereunder.
(c) Such Purchaser will not, directly or indirectly, offer,
sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of) any of the securities
purchased hereunder except in compliance with the Securities Act, applicable
blue sky laws, and the rules and regulations promulgated thereunder.
(d) Such Purchaser has, in connection with its decision to
acquire the Shares and the Warrants, relied with respect to the Company and its
affairs solely upon the SEC Documents and the other information delivered to
such Purchaser by the Company as described in Sections 4.4 above and the
representations and warranties of the Company contained herein.
(e) Such Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act.
(f) Such 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. Upon the execution and
delivery of this Agreement by such Purchaser, this Agreement shall constitute a
valid and binding obligation of such Purchaser, enforceable in accordance with
its terms,
8
<PAGE>
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting the enforcement of
creditors' rights generally, (ii) as limited by equitable principles generally,
including any specific performance, and (iii) as to those provisions of Section
10.3 relating to indemnity or contribution.
5.2 No Advice. Such Purchaser understands that nothing in this
Agreement or any other materials presented to such Purchaser in connection with
the acquisition of the Shares and the Warrants constitutes legal, tax or
investment advice to such Purchaser. Such 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 Shares and the Warrants.
5.3 Restriction on Transfer. Such Purchaser understands that: (a) other
than to a person directly or indirectly controlling, controlled by, or in common
control with, such Purchaser (any such person, an "Affiliate"), neither the
Shares nor the Warrants will be transferable in the absence of a registration
under the Securities Act or an exemption therefrom or in the absence of
compliance with any term of this Agreement; (b) the Company may provide stop
transfer instructions to its transfer agent with respect to the Shares and the
Warrants in order to enforce the restrictions contained in this Section 5.3 and
to confirm that such Purchaser has complied with its obligations contained in
Section 10.2 hereof; and (c) each certificate representing Shares shall be in
the name of such Purchaser and shall bear substantially the following legends
(in addition to any legends required under applicable securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS
OF ANY STATE OR OTHER JURISDICTION, AND MAY ONLY BE SOLD, PLEDGED,
TRANSFERRED OR OTHERWISE DISPOSED OF BY PURCHASER IF SUBSEQUENTLY
REGISTERED UNDER THE SECURITIES ACT AND REGISTERED OR QUALIFIED UNDER
ANY APPLICABLE STATE OR OTHER SECURITIES LAWS, UNLESS THE COMPANY
DETERMINES THAT EXEMPTION FROM SUCH REGISTRATION REQUIREMENT IS
AVAILABLE."
The legend contained in this Section 5.3 shall be removed from a stock
certificate immediately upon receipt by the Company's transfer agent of a
certificate substantially in the form of Appendix I attached hereto.
Notwithstanding the foregoing, such Shares must be held in certificated form
until such Shares have been sold in accordance with the provisions of Appendix I
attached hereto.
5.4 Broker's Fee. Such Purchaser represents that there are no brokers
or finders entitled to compensation by such Purchaser in connection with any of
the transactions referred to herein or contemplated hereby, and shall indemnify
the Company for any such fees for which such Purchaser is responsible.
9
<PAGE>
Section 6. Covenants of the Parties.
6.1 Access to Information. For a period beginning on the Effective Date
and continuing until the Closing, the Company shall afford to the Purchasers and
the agents and representatives of any of them full access, at reasonable times
and in a reasonable manner, to all of its premises, facilities, properties,
books and records and shall make its directors, officers, agents, and (with the
prior consent of the Company, which consent shall not be unreasonably withheld),
customers, vendors and creditors reasonably available to confer with the
Purchasers and the agents and representatives of any of them. The Purchasers
shall have the right to make copies, extracts and summaries of all such reports,
books, records and information, subject, however, to any obligations of the
Company to any other persons. The Company shall notify the Purchasers of any
material change in the business of the Company or in its operations or
properties, or of any governmental complaints, investigations or hearings (or
communications indicating the same may be contemplated) or of the institution,
continuation or threat of any litigation involving the Company or any affiliate
of the Company or any of its assets, and will keep the Purchasers informed of
such events.
6.2 Maintenance of Listing. For so long as the Company is obligated to
keep in effect the Shelf Registration Statement provided under Section 10
hereof, the Company will use its reasonable best efforts to maintain its listing
on The Nasdaq National Market or a national securities exchange, as defined in
the Exchange Act.
6.3 Filings. The parties shall consult and fully cooperate with and
provide assistance to each other in preparing and filing as soon as practicable
all consents, approvals and authorizations necessary or advisable to be made or
obtained from any third party or governmental agency in order to consummate the
transactions contemplated hereby.
6.4 Shelf Registration Opinion. Upon the effectiveness of a Shelf
Registration Statement as provided in Section 10, the Company shall provide the
Purchasers with an opinion letter addressed to the Purchasers, dated as of the
effective date of such Shelf Registration Statement, from Dorsey & Whitney LLP,
counsel to the Company, covering the effectiveness of the Shelf Registration
Statement, the accuracy of the statements of the Company contained therein, and
such other matters as are reasonable and customary in connection with such
registration.
6.5 Purchaser Representatives. The Company shall use its reasonable
best efforts to ensure that, as long as the Purchasers (including any subsequent
assignee or transferee that is an affiliate of a Purchaser) hold in the
aggregate either (i) 5% of the outstanding voting securities of the Company or
(ii) 75% of the Shares, the Purchaser Representatives (as defined in Section
9.11) appointed to serve on the Company's board of directors in accordance with
the provisions of Section 9.11 shall be included in the Company's proxy
statement as nominees of the board of directors for election to the board and
shall be elected to serve on the Company's board of directors.
10
<PAGE>
6.6 Further Assurances. After the Closing Date, the Company shall take
such action and execute such documents as Purchasers of at least 50.1% in
aggregate principal amount of the Notes shall deem reasonably necessary or
advisable to perfect the Purchasers' security interests referred to in the Note
Purchase Agreement or the Notes or such other interests of Purchasers as are
created by or in connection with this Agreement.
6.7 Use of Notes Proceeds. The Company shall use the net proceeds
received by it from the sale of Notes solely for the purpose of repaying in full
the Company's obligations to Howmedica, Inc. under the Howmedica Note and shall
use the proceeds from the sale of the Shares for general corporate purposes
(including funding operations of the Subsidiary), but not to discharge any
intercompany debts. To the extent that the net proceeds from the sale of the
Notes are insufficient to fully discharge the Howmedica Note, the Company shall
use other funds available to it to do so, including the proceeds of the sale of
Shares contemplated by this Agreement.
Section 7. Survival of Representations, Warranties and Agreements;
Indemnification.
7.1 Survival. Notwithstanding any investigation made by any party to
this Agreement, all covenants, agreements, representations and warranties made
by the Company and the Purchasers herein and in the certificates for the
securities delivered pursuant hereto shall survive the execution of this
Agreement, the delivery to (i) the Purchasers of the certificates representing
the Shares and the Warrants and (ii) the Note Purchasers of the Notes and Note
Purchase Agreement, and the payment thereof, until the fifth anniversary of the
Closing Date, except for the representations set forth in Section 4.2, 4.7 and
4.16 and the representations set forth in the first three sentences of Section
4.3, which shall survive indefinitely, and the representations as to taxes set
forth in Section 4.14, which shall survive for the longer of (i) the fifth
anniversary of the Closing Date and (ii) the period expiring ninety (90) days
after the expiration of the period during which a claim by the applicable taxing
authority for a deficiency or other tax adjustment would not be barred by the
statute of limitations applicable to such taxes (any such period an "Indemnity
Period").
7.2 Purchaser's Right to Indemnification. Subject to the provisions of
this Section 7, the Company hereby agrees to indemnify and hold harmless the
Purchasers and the employees, agents, directors, officers, equity holders,
successors, predecessors, assigns and affiliates of any of them (collectively,
the "Purchaser Indemnified Parties") from and against (i) any and all losses,
obligations, liabilities, damages, claims, deficiencies, costs and expenses
(including, but not limited to, the amount of any settlement entered into
pursuant hereto and all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or defense of the matter but
excluding consequential damages) (collectively, "Claims"), which may be asserted
against or sustained or incurred by the Purchaser Indemnified Parties in
connection with, arising out of, or relating to (A) any breach or alleged breach
of any of the representations, warranties, agreements and covenants made by the
Company herein or in any certificate or other document
11
<PAGE>
delivered to any Purchaser Indemnified Party by or on behalf of the Company in
connection with this Agreement; or (B) any false, incorrect or misleading
representation or warranty made by or on behalf of the Company herein or in any
certificate or other document delivered to any Purchaser Indemnified Party by or
on behalf of the Company in connection with this Agreement; and (ii) any and all
costs and expenses (including, but not limited to, reasonable legal expenses)
incurred by any Purchaser Indemnified Party in connection with the enforcement
of its rights under this Agreement. No claim for indemnification pursuant to
this Section 7 may be commenced after the relevant Indemnity Period; provided,
however, that claims made within such Indemnity Period shall survive to the
extent of the Claim covered thereby until such Claim is finally determined and,
if applicable, paid. The parties to this Agreement acknowledge that such
indemnification provisions apply only with respect to the Shares, the Warrants,
the Warrant Shares, the Conversion Shares and the shares of Common Stock issued
or issuable as dividends on, or other distributions with respect to the Shares,
the Warrants, the Warrant Shares and the Conversion Shares; and any other
security issued or issuable in exchange for, or in replacement of, the Shares,
the Warrants, the Warrant Shares and the Conversion Shares.
7.3 Procedure for Claims.
(a) Promptly, but in any event within 10 days after obtaining
knowledge of any claim or demand which may give rise to, or could reasonably
give rise to, a claim for indemnification hereunder (an "Indemnification
Claim"), the Purchaser affected by such claim shall give written notice to the
Company of such Indemnification Claim ("Notice of Claim"). A Notice of Claim
shall be given with respect to all Indemnification Claims; provided, however,
that the failure to give a timely Notice of Claim to the Company shall not
relieve the Company from any liability that it may have to the Purchaser
Indemnified Parties hereunder to the extent that the Company is not prejudiced
by such failure. The Notice of Claim shall set forth the amount (or a reasonable
estimate) of the loss, damage or expense suffered, or which may be suffered, by
the Purchaser Indemnified Party as a result of such Indemnification Claim and
the aggregate amount of all Indemnification Claims to date and a brief
description of the facts giving rise to such Indemnification Claim. Each
Purchaser shall furnish to the Company such information (in reasonable detail)
as such Purchaser may have with respect to such Indemnification Claim (including
copies of any summons, complaint or other pleading which may have been served on
it and any written claim, demand, invoice, billing or other document evidencing
or asserting the same).
(b) If the claim or demand set forth in the Notice of Claim is
a claim or demand asserted by a third party (a "Third Party Claim"), the Company
shall have fifteen days (or such shorter period (but not less than ten days) if
any answer or other response or filing with respect to the pleadings served by
the third party is required prior to the fifteenth day) after the date of
receipt by the Company of the Notice of Claim (the "Notice Date") to notify the
Purchasers in writing of the election by the Company to defend the Third Party
Claim on behalf of the Purchaser Indemnified Parties.
12
<PAGE>
(c) If the Company elects to defend a Third Party Claim on
behalf of the Purchaser Indemnified Parties, each Purchaser shall make available
to the Company and its agents and representatives all records and other
materials in such Purchaser's possession which are reasonably required in the
defense of the Third Party Claim and the Company shall pay any expenses payable
in connection with the defense of the Third Party Claim as they are incurred
(whether incurred by the Purchasers or the Company).
(d) If the Company has assumed control of the defense, the
Company may contest or settle the Third Party Claim on such terms as the Company
may choose, provided, however, that the Company will not have the right, without
the prior written consent of the Purchaser affected by such claim, to settle any
such claim if such settlement (i) arises from or is part of any criminal action,
suit or proceeding (ii) contains a stipulation to, confession of judgment with
respect to, or admission or acknowledgment of, any liability or wrongdoing on
the part of any Purchaser Indemnified Party, (iii) relates to any foreign
federal, state or local tax matters, (iv) provides for injunctive relief, or
other relief other than damages, which is binding on any Purchaser Indemnified
Party, (v) does not fully release all Purchaser Indemnified Parties with respect
to the relevant Third Party Claim or (vi) has any res judicata or collateral
estoppel effect that could be adverse to any Purchaser Indemnified Party.
(e) If the Company elects to defend a Third Party Claim, the
Purchaser Indemnified Parties shall have the right to participate in the defense
of the Third Party Claim, at the Purchaser Indemnified Parties' expense (and
without the right to indemnification for such expense under this Agreement);
provided, however, that the reasonable fees and expenses of counsel retained by
the Purchaser Indemnified Parties shall be at the expense of the Company if (A)
the use of the counsel chosen by the Company to represent the Purchaser
Indemnified Parties would present such counsel with a conflict of interest; (B)
the parties to such proceeding include both Purchaser Indemnified Parties and
the Company and there may be legal defenses available to Purchaser Indemnified
Parties which are different from or additional to those available to the
Company; (C) within ten days after being advised by the Company of the identity
of counsel to be retained to represent the Purchaser Indemnified Parties, the
Purchaser Indemnified Party affected by such claim shall have objected to the
retention of such counsel for valid reasons (which shall be stated in a written
notice to the Company), and the Company shall not have retained different
counsel reasonably satisfactory to such Purchaser Indemnified Party; or (iv) the
Company shall authorize the Purchaser Indemnified Parties to retain separate
counsel at the expense of the Company.
(f) If the Company elects to defend a Third Party Claim, and
does not defend a Third Party Claim in good faith, the Purchaser Indemnified
Parties shall have the right, in addition to any other right or remedy it may
have hereunder, at the sole and exclusive expense of the Company, to defend such
Third Party Claim; provided, however, that such expenses shall be payable by the
Company only if and when such Third Party Claim becomes payable.
13
<PAGE>
(g) The Purchasers shall cooperate with the Company in the
defense of Third Party Claims. Subject to the foregoing, (i) the Purchaser
Indemnified Parties shall not have any obligation to participate in the defense
of or to defend any Third Party Claim and (ii) the Purchaser Indemnified
Parties' defense of or participation in the defense of any Third Party Claim
shall not in any way diminish or lessen the right to indemnification as provided
in this Section 7.
Section 8. Conditions to Company's Obligations at the Closing. The
Company's obligation to complete the transactions contemplated by this Agreement
shall be subject to the following conditions to the extent not waived by the
Company:
8.1 Receipt of Payment. The Company shall have received payment from
the Purchasers, by check or wire transfer, of immediately available funds in the
full amount of $15,000,006.
8.2 Advance to Satisfy Howmedica Note. The Company shall have received
$7,300,000 pursuant to the Note Purchase Agreement.
8.3 Note Purchase Agreement. Each of the Note Purchasers shall have
executed and delivered to the Company a Note Purchase Agreement in substantially
the form set forth on Exhibit C hereto.
8.4 Consents and Approvals. Any consents, waivers, clearances,
approvals and authorizations of regulatory or governmental bodies (including,
without limitation, the expiration or termination of the waiting period under
the HSR Act) and other persons that are necessary in connection with the
consummation of the transactions contemplated by this Agreement shall have been
obtained.
8.5 Representations and Warranties Correct. The representations and
warranties made by the Purchasers in Section 5 hereof shall be true and correct
in all material respects when made, and shall be true and correct in all
material respects on the Closing Date.
Section 9. Conditions to the Purchasers' Obligations at the Closing.
The Purchasers' obligation to complete the transactions contemplated at Closing
by this Agreement shall be subject to the following conditions to the extent not
waived by the Purchasers:
9.1 Delivery of Shares. The Company shall have delivered to each
Purchaser stock certificates representing the Shares purchased by such Purchaser
in accordance with the terms of Section 3.2.
9.2 Warrants. The Company shall have executed and delivered Warrants to
each Purchaser in accordance with the terms of Section 3.2.
9.3 [Intentionally left blank].
14
<PAGE>
9.4 Satisfaction of the Howmedica Note. The Purchasers shall have
received evidence satisfactory to the Purchasers that the Howmedica Note has
been fully satisfied and that the security interest of Howmedica, Inc. in the
shares of DML and in any other property of the Company and/or DML has been fully
discharged and released.
9.5 Note and Note Purchase Agreement. The Company shall have executed
and delivered to each Note Purchaser a Note Purchase Agreement and Note issued
pursuant thereto, and the other documents required to be delivered at the
Closing pursuant to the Note Purchase Agreement.
9.6 Consents and Approvals. Any consents, waivers, clearances,
approvals and authorizations of regulatory or governmental bodies (including,
without limitation, the expiration or termination of the waiting period under
the HSR Act) and other persons that are necessary in connection with the
consummation of the transactions contemplated by this Agreement shall have been
obtained.
9.7 Representations and Warranties Correct. The representations and
warranties made by the Company in Section 4 shall be true and correct in all
material respects (except with respect to representations and warranties that
are qualified as to materiality or material adverse effect, which
representations and warranties shall be true and correct in all respects) when
made and as of the Closing Date or any other date, if a representation or
warranty specifically refers to such other date, and the Purchasers shall have
received a certificate signed by the chief executive officer and chief financial
officer of the Company, or such other officers of the Company as agreed upon by
the parties hereto, that each of such representations and warranties is true and
correct in all material respects (except with respect to representations and
warranties that are qualified as to materiality or material adverse effect,
which representations and warranties shall be true and correct in all respects)
on and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the Closing
Date, and that such party has performed and complied with all of its obligations
under this Agreement which are to be performed or complied with on or prior to
the Closing Date.
9.8 Certificate as to Absence of Material Adverse Effect. The
Purchasers shall have received a certificate signed by a duly authorized officer
of the Company certifying that, since the date of the Company's most recent
filing with the SEC, there have not been any changes in the assets, liabilities,
financial condition or operations of the Company or its Subsidiary, except
changes in the ordinary course of business that have not had and are not
expected to have a material adverse effect on the business, properties,
financial condition or results of operations of the Company or its Subsidiary.
9.9 Legal Opinion. The Purchasers shall have received from Dorsey &
Whitney LLP, counsel to the Company, an opinion letter addressed to the
Purchasers, dated as of the Closing Date, covering the matters set forth in
Exhibit F hereto, subject to customary assumptions and qualifications.
15
<PAGE>
9.10 Waiver of Right of Investment. The Purchasers shall have received
evidence that the Company has received written waivers by the "Purchasers" (as
defined in the Preferred Stock Purchase Agreement dated January 30, 1997,
between the Company and the "Purchasers" listed on Schedule A thereto)
representing 95% of the Preferred Shares purchased under that Preferred Stock
Purchase Agreement waiving such "Purchasers'" rights to invest under Section 7.5
thereof, with respect to the transactions contemplated by this Agreement
(including without limitation the issuance of the Shares, the Warrants and the
Notes).
9.11 Appointment of Directors. The Company shall have taken all actions
necessary to ensure that two representatives of Purchasers purchasing a majority
of the Shares (the "Purchaser Representatives"), to be selected by them and
reasonably acceptable to the Company, shall be appointed, effective immediately
after the Closing, to serve on the Company's board of directors; provided,
however, that David Milligan and Jerry Cohn shall be deemed reasonably
acceptable to the Company to serve as Purchaser Representatives.
9.12 Closing Papers. The Purchasers shall have received the following,
addressed to them and in form and substance reasonably satisfactory to them:
(a) certified copies of the resolutions adopted by the Board
of Directors of the Company authorizing the execution, delivery and performance
of this Agreement, the issuance of the Shares, the Warrants, the Notes, the
Security Documents and each of the other agreements, instruments and
transactions contemplated hereby and by the Note Purchase Agreement, together
with certified copies of the resolutions adopted by a committee of disinterested
members of the Board of Directors approving the same and dated prior to the date
of the Common Stock Purchase Agreement;
(b) certified copies of the certificate of incorporation and
By-laws of each of the Company and its Subsidiary as in effect on the Closing
Date; and
(c) a certificate of the Secretary of the Company dated the
Closing Date, as to the incumbency and signatures of the officers executing this
Agreement and all instruments executed pursuant hereto.
Section 10. Registration of the Shares; Compliance with the Securities
Act.
10.1 Registration Procedures and Expenses. (a) As soon as practicable
following the Closing Date and in any event no later than forty-five (45) days
following the Closing Date, the Company shall prepare and file with the SEC, and
thereafter shall use its reasonable best efforts to cause to be declared
effective, a shelf registration statement on an appropriate form under the
Securities Act relating to the offer and sale of the Shares, the Warrant Shares
and the Conversion Shares (together, the "Registrable Securities") by the
Company to the Purchasers and/or the Holders (as defined in the Note Purchase
Agreement) of Notes and by any holders thereof from time to time, in accordance
with the methods of distribution set forth in such shelf
16
<PAGE>
registration statement, through The Nasdaq National Market or the facilities of
any national securities exchange on which the Company's Common Stock is then
traded, or in privately-negotiated transactions (a "Shelf Registration
Statement"). All shares of Common Stock acquired by the Purchasers pursuant to
Section 2 or upon the exercise of the Warrants acquired by the Purchasers
pursuant to Section 2, or upon the conversion of any Note, shall be included in
such Shelf Registration Statement.
(b) The Company shall use its reasonable best efforts
(including, without limitation, the preparation and filing with the SEC of
amendments and supplements to the Shelf Registration Statement and a prospectus
to be used in connection therewith) to keep the Shelf Registration Statement
continuously effective and not misleading for a period of five (5) years from
the Closing Date or such shorter period that will terminate when all the
Registrable Securities covered by the Shelf Registration Statement have been
sold pursuant thereto. The Company shall be deemed not to have used its
reasonable best efforts to keep the Shelf Registration Statement effective
during the requisite period if it takes any action that would result in the
holders of the Registrable Securities covered thereby not being able to offer
and sell such Registrable Securities during that period, unless such action is
required by applicable law. Notwithstanding the foregoing, following the
effectiveness of the Shelf Registration Statement, the Company may, at any time,
suspend the effectiveness of the Shelf Registration Statement for up to no
longer than seventy-five (75) days, as appropriate (a "Suspension Period"), by
giving notice to the Purchasers and Holders of the Notes, if (i) the Company
shall have determined that the Company may be required to disclose any material
corporate development or (ii) the Company shall be involved in an underwritten
public offering of its securities. The Company will use its best efforts to
minimize the length of any Suspension Period. Notwithstanding the foregoing, no
more than two Suspension Periods may occur in any twelve (12) month period. Each
Purchaser and Holder of a Note agrees that, upon receipt of any notice from the
Company of a Suspension Period, it will not sell (subject to the limitations on
the Company set forth above) any Registrable Securities pursuant to the Shelf
Registration Statement until (i) such Purchase or Holder of a Note is advised in
writing by the Company that the use of the applicable prospectus may be resumed,
(ii) such Purchaser or Holder of a Note has received copies of any additional or
supplemental or amended prospectus, if applicable, and (iii) such Purchaser or
Holder of a Note has received copies of any additional or supplemental filings
which are incorporated or deemed to be incorporated by reference in such
prospectus.
(c) In order to facilitate the public sale or other
disposition of all or any of the Registrable Securities by the Purchasers and
Holders of Notes, the Company shall furnish to the Purchasers with respect to
the Registrable Securities registered under the Shelf Registration Statement
such number of copies of prospectuses, prospectus supplements and preliminary
prospectuses as the Purchasers and Holders of the Notes reasonably request in
conformity with the requirements of the Securities Act.
(d) The Company shall file any documents required of the
Company for normal blue sky clearance in states specified in writing by the
Purchasers or Holders of the Notes; provided, however, that the Company shall
not be required to qualify to do business or
17
<PAGE>
consent to service of process in any jurisdiction in which it is not now so
qualified or has not so consented.
(e) Other than fees and expenses, if any, of counsel or other
advisers to the Purchasers and Holders of the Notes, which fees and expenses
shall be borne by them (except as referred to in Section 12.8 below), the
Company shall bear all expenses (exclusive of any brokerage fees, underwriting
discounts and commissions) in connection with the procedures in paragraphs (a)
through (d) of this Section 10.1.
10.2 Transfer of Securities After Shelf Registration. Each Purchaser or
Holder of a Note agrees that it will not effect any disposition of the
Registrable Securities that would constitute a sale within the meaning of the
Securities Act, except:
(a) pursuant to the Shelf Registration Statement, in which
case the transferring Purchaser or Holder of a Note shall submit the
certificates evidencing the Registrable Securities to the Company's transfer
agent, accompanied by a separate "Purchaser's Certificate" (A) in the form of
Appendix I attached hereto, (B) executed by an officer of, or other authorized
person designated by, such Purchaser or Holder of a Note, and (C) to the effect
that (1) the Registrable Securities have been sold in accordance with the Shelf
Registration Statement and (2) the requirement of delivering a current
prospectus has been satisfied; or
(b) in a transaction exempt from registration under the
Securities Act.
10.3 Indemnification in Connection with Registration. As used in this
Section 10.3 the following terms shall have the following respective meanings:
(a) "Selling Shareholder" shall mean each Purchaser or Holder
of a Note and any transferee of either of them who is entitled to resell
Registrable Securities pursuant to the Shelf Registration Statement, including
any underwriter involved in such resale, and each person, if any, who controls
such Selling Shareholder within the meaning of Section 15 of the Securities Act,
and each officer and each director of such Selling Shareholder;
(b) "Shelf Registration Statement" shall include any final
prospectus, exhibit, supplement or amendment included in or relating to the
Shelf Registration Statement referred to in Section 10.1; and
(c) "Untrue Statement" shall include any untrue statement or
alleged untrue statement, or any omission or alleged omission to state in the
Shelf Registration Statement a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
The Company agrees to indemnify and hold harmless each Selling
Shareholder from and against any losses, claims, damages or liabilities to which
such Selling Shareholder may become subject (under the Securities Act or
otherwise) insofar as such losses, claims,
18
<PAGE>
damages or liabilities (or actions or proceedings in respect thereof) arise out
of, or are based upon, any Untrue Statement on or after the effective date of
the Shelf Registration Statement, or on or after the date of any prospectus or
prospectus supplement or the date of any sale by any purchaser thereunder, or
arise out of any failure by the Company to fulfill any undertaking included in
the Shelf Registration Statement and the Company will reimburse such Selling
Shareholder for any reasonable legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided, however, that the Company shall not be liable to such Selling
Shareholder in any such case to the extent that such loss, claim, damage or
liability arises out of, or is based upon, an Untrue Statement made in such
Shelf Registration Statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Selling Shareholder
specifically for use in preparation of the Shelf Registration Statement, or the
failure of such Selling Shareholder to comply with the covenants and agreements
contained in Section 10.1 or 10.2 hereof respecting sale of the Registrable
Securities or any statement or omission in any prospectus that is corrected in
any subsequent prospectus that was delivered to the Selling Shareholder prior to
the pertinent sale or sales by the Selling Shareholder.
Each Purchaser or Holder of a Note, severally and not jointly,
agrees to indemnify and hold harmless the Company (and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act,
each officer of the Company who signs the Shelf Registration Statement and each
director of the Company) from and against any losses, claims, damages or
liabilities to which the Company (or any such officer, director or controlling
person) may become subject (under the Securities Act or otherwise), insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon, any failure by such Purchaser
or Holder of a Note to comply with the covenants and agreements contained in
Section 10.1 or 10.2 hereof respecting sale of the Registrable Securities, or
any Untrue Statement contained in the Shelf Registration Statement on or after
the effective date thereof, or in any prospectus supplement as of its issue date
or date of any sale by any Purchaser thereunder, if such Untrue Statement was
made in reliance upon and in conformity with written information furnished by or
on behalf of such Purchaser or Holder of a Note specifically for use in
preparation of the Shelf Registration Statement, and such Purchaser or a Holder
of a Note will reimburse the Company (or such officer, director or controlling
person), as the case may be, for any legal or other expenses reasonably incurred
in investigating, defending or preparing to defend any such action, proceeding
or claim; provided that in no event shall any indemnity by such Purchaser or
Holder of a Note under this Section 10.3 exceed the gross proceeds received by
all of the Purchasers and Holders of Notes from the sale of Registrable
Securities covered by such Shelf Registration Statement.
Promptly after receipt by any indemnified person of a notice
of a claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 10.3, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified
19
<PAGE>
person and such indemnifying person shall have been notified thereof, such
indemnifying person shall be entitled to participate therein, and, to the extent
it shall wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified person. After notice from the indemnifying
person to such indemnified person of its election to assume the defense thereof,
such indemnifying person shall not be liable to such indemnified person for any
legal expenses subsequently incurred by such indemnified person in connection
with the defense thereof; provided, however, that if there exists or shall exist
a conflict of interest that would make it inappropriate, in the opinion of
counsel to the indemnified person, for the same counsel to represent both the
indemnified person and such indemnifying person or any affiliate or associate
thereof, the indemnified person shall be entitled to retain its own counsel at
the expense of such indemnifying person; provided, however, that no indemnifying
person shall be responsible for the fees and expenses of more than one separate
counsel for all indemnified parties.
10.4 Termination of Conditions and Obligations. The conditions
precedent imposed by Section 5 or this Section 10 upon the transferability of
the Registrable Securities shall cease and terminate as to any particular number
of the Registrable Securities when such Registrable Securities shall have been
sold or otherwise disposed of in accordance with the intended method of
disposition set forth in the Shelf Registration Statement covering such
Registrable Securities or at such time as an opinion of counsel satisfactory to
the Company shall have been rendered to the effect that such conditions are not
necessary in order to comply with the Securities Act.
10.5 Information Available. So long as any Purchaser or Holder of a
Note continues to own any of the Registrable Securities and the Shelf
Registration Statement is effective covering the resale of Registrable
Securities owned by such person, the Company will furnish to each such person:
(a) as soon as practicable after available (but in the case of
the Company's Annual Report to Shareholders, within one hundred twenty (120)
days after the end of each fiscal year of the Company), one copy of (i) its
Annual Report to Shareholders (which Annual Report shall contain financial
statements audited in accordance with generally accepted auditing standards
certified by a national firm of certified public accountants); (ii) its Annual
Report on Form 10-K (excluding exhibits); (iii) its quarterly reports on Form
10-Q (excluding exhibits); (iv) its Proxy Statement; and (v) its current reports
on Form 8-K, if any (excluding exhibits);
(b) upon the request of any such person, all exhibits excluded
by the parentheticals to subparagraphs (a)(ii),(iii) and (v) of this Section
10.5, in the form generally available to the public; and
(c) upon the reasonable request of any such person, an
adequate number of copies of the prospectuses and supplements to supply to any
other party requiring such prospectuses.
20
<PAGE>
10.6 Changes in Information. Each Purchaser and each Holder of a Note
agrees to promptly notify the Company of any changes in the information set
forth in the Shelf Registration Statement regarding such person or such person's
plan of distribution set forth in such Shelf Registration Statement.
Section 11. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing, shall be sent by confirmed facsimile or mailed by
first-class registered or certified airmail, or nationally recognized overnight
express courier, postage prepaid, and shall be deemed given when so sent in the
case of facsimile transmission, or when so received in the case of mail or
courier, and addressed as follows:
(a) if to the Company, to:
Diametrics Medical, Inc.
2658 Patton Road
St. Paul Minnesota 55113
Attention: David T. Giddings, Chairman, CEO and President
Phone: (612) 639-8035
Fax: (612) 638-1197
with a copy to:
Dorsey & Whitney LLP
220 South 6th Street
Minneapolis, Minnesota 55402
Attention: Kenneth Cutler, Esq.
Phone: (612) 340-2740
Fax: (612) 340-8738
(b) if to the Purchasers, to:
Bay City Capital
750 Battery Street, Suite 600
San Francisco, CA 94111
Attention: Sandy Zweifach, Chief Financial Officer
Phone: (415) 676-3830
Fax: (415) 837-0996
with a copy to:
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
Attention: George H. Shenk, Esq.
Phone: (415) 772-6000
21
<PAGE>
Fax: (415) 772-6268
Any change of an address set forth in this Section 11 may be accomplished by
means of a notice sent in accordance with the terms of this Section 11.
Section 12. Miscellaneous.
12.1 Waivers and Amendments. Neither this Agreement nor any provision
hereof may be changed, waived, discharged, terminated, modified or amended
except upon the written consent of the Company and the Purchasers.
12.2 Sections; Headings; Dollar Amounts. Unless otherwise specified,
all references in this Agreement to "Sections" shall be to Sections of this
Agreement. 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. All currency referred to herein shall be in U.S.
dollars.
12.3 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.
12.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Minnesota as applied to contracts
entered into and performed entirely in Minnesota by Minnesota residents, without
regard to conflicts of law principles.
12.5 Counterparts. This Agreement may be executed in two or more
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. Delivery of an executed counterpart by facsimile
shall be the same as delivery of an original counterpart.
12.6 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and to the Note Purchasers and Holders of Notes. Without limiting
the foregoing, each Purchaser shall have the right to assign prior to Closing
the right to purchase the Shares and Warrants to an affiliated entity.
12.7 Entire Agreement. This Agreement and other documents delivered
pursuant hereto, including the exhibits, constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
22
<PAGE>
12.8 Payment of Fees and Expenses. Each of the Company and each
Purchaser shall bear its own expenses and legal fees incurred on its behalf with
respect to this Agreement and the transactions contemplated hereby, provided,
however, that the Company shall reimburse the Purchaser at the closing for up to
$55,000 of legal fees. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorney's fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
23
<PAGE>
In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
DIAMETRICS MEDICAL, INC.
By: /s/ David T. Giddings
------------------------------
Name: David T. Giddings
---------------------------
Title: Chairman, President & CEO
PURCHASERS:
(See attached signature pages)
S-1
<PAGE>
PURCHASER:
BCC ACQUISITION II LLC
By: THE BAY CITY CAPITAL FUND I, L.P.
Its: Manager
By: Bay City Capital Management LLC
Its: General Partner
By: /s/ Fred Craves
Name: Fred Craves
Title: General Partner
[Signature page to Common Stock Purchase Agreement
S-2
<PAGE>
PURCHASER:
CYNTHIA J. COHN REVOCABLE TRUST
By: /s/ Edward A. Kramer
Name: Edward A. Kramer
Title: Vice-Pres. Summit Bank, Trustee
[Signature page to Common Stock Purchase Agreement
S-2
<PAGE>
PURCHASER:
CYNTHIA J. COHN DESCENDANT
IRREVOCABLE TRUST
By: /s/ Edward A. Kramer
Name: Edward A. Kramer
Title: Vice-Pres. Summit Bank, Trustee
[Signature page to Common Stock Purchase Agreement
S-2
<PAGE>
PURCHASER:
SHELLEY COHN SCHMIDT DESCENDANT
IRREVOCABLE TRUST
By: /s/ Edward A. Kramer
Name: Edward A. Kramer
Title: Vice-Pres. Summit Bank, Trustee
[Signature page to Common Stock Purchase Agreement
S-2
<PAGE>
PURCHASER:
GERALD L. COHN IRREVOCABLE TRUST
F/B/O BLAKE M. SCHMIDT
By: /s/ Edward A. Kramer
Name: Edward A. Kramer
Title: Vice-Pres. Summit Bank, Trustee
[Signature page to Common Stock Purchase Agreement
S-2
<PAGE>
PURCHASER:
GERALD L. COHN IRREVOCABLE TRUST
F/B/O CLAYTON H. SCHMIDT
By: /s/ Edward A. Kramer
Name: Edward A. Kramer
Title: Vice-Pres. Summit Bank, Trustee
[Signature page to Common Stock Purchase Agreement
S-2
<PAGE>
PURCHASER:
HANNAH S. AND SAMUEL A. COHN
MEMORIAL FOUNDATION
By: /s/ Edward A. Kramer
Name: Edward A. Kramer
Title: Vice-Pres. Summit Bank, Trustee
[Signature page to Common Stock Purchase Agreement
S-2
<PAGE>
PURCHASER:
/s/ Florence Cohn
Florence Cohn
[Signature page to Common Stock Purchase Agreement
S-2
<PAGE>
PURCHASER:
AEOW 96, LLC
By: /s/ Will K. Weinstein
Name: Will K. Weinstein Tr dtd 2/27/90
Title: Member Manager
By: Will K. Weinstein
Its: Trustee
[Signature page to Common Stock Purchase Agreement]
S-2
<PAGE>
APPENDIX I
DIAMETRICS MEDICAL, INC.
PURCHASER'S CERTIFICATE OF RESALE OF THE SHARES
(i) The undersigned, an officer of, or other person duly authorized by
_______________________________________________________________________________
[fill in official name of individual or institution]
hereby certifies that he/she [said institution] is the Purchaser of the Shares
evidenced by the attached stock certificate(s) and as such, sold such Shares on
__________________
[date]
in accordance with shelf registration statement number ____________________
_______________________________________________________________________________
[fill in the number of or otherwise identify shelf registration statement]
and the requirement of delivering a current prospectus and current annual,
quarterly and current reports (Forms 10-K, 10-Q and 8-K) by the Company has been
complied with in connection with such sale.
Print or Type:
Name of Purchaser:
-----------------------
Name of Individual representing Purchaser:
-----------------------
Title of Individual representing Purchaser:
-----------------------
Signature by:
Individual representing Purchaser:
-----------------------
<PAGE>
Exhibit A
[Form of Warrant]
<PAGE>
Exhibit B
[form of Convertible Senior
Secured Fixed Rate Note]
<PAGE>
Exhibit C
[Note Purchase Agreement]
<PAGE>
Exhibit D
None.
<PAGE>
Exhibit E
[Schedule of Exceptions]
<PAGE>
Exhibit F
[Form of Legal Opinion]
<PAGE>
EXHIBIT 10.2
DIAMETRICS MEDICAL, INC.
STOCK PURCHASE WARRANT
THE WARRANTS EVIDENCED HEREBY AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE UNDER SUCH ACT OR THE RULES OR REGULATIONS PROMULGATED
THEREUNDER.
August 4, 1998
WARRANT
To Subscribe for and Purchase Common Stock of Diametrics Medical, Inc.
VOID AFTER 5:00 P.M., MINNEAPOLIS, MINNESOTA TIME, ON AUGUST 4, 2003, OR IF
NOT A BUSINESS DAY, AS DEFINED HEREIN, AT 5:00 P.M., MINNEAPOLIS TIME, ON
THE IMMEDIATELY PRECEDING BUSINESS DAY
This certifies that, for valuable consideration, receipt of which is
hereby acknowledged, [Purchaser], and permitted successors and assigns
("Holder") is entitled to purchase from Diametrics Medical, Inc. a Minnesota
corporation (the "Company") up to and including [__________] fully paid and
nonassessable shares (the "Number of Shares") of the common stock of the
Company, $.01 par value (the "Common Stock"), on the terms set forth herein at
an exercise price per share equal to $8.40 (the "Purchase Price"). The Number of
Shares and the Purchase Price may be adjusted from time to time as described in
this Warrant.
1. Exercise.
1.1 Time for Exercise. This Warrant may be exercised in whole or in
part at any time, and from time to time, during the period commencing on the
date of this Warrant and expiring on August 4, 2003.
1.2 Manner of Exercise. This Warrant shall be exercised by delivering
it to the Company with the exercise form duly completed and signed, specifying
the number of shares as to which the Warrant is being exercised at that time
(the "Exercise Number"). The Holder shall simultaneously deliver to the Company
cash or a certified check or wire transfer in an amount equal to the Exercise
Number multiplied by the Purchase Price, and the Holder shall be entitled to
receive the full Exercise Number of shares of Common Stock.
1.3 Effective Date of Exercise. Promptly (but in any case within ten
(10) business days) after any exercise, the Company shall deliver to the Holder
(a) duly executed certificates in the name or names specified in the exercise
notice representing the aggregate number of shares
<PAGE>
issuable upon such exercise, and (b) if this Warrant is exercised only in part,
a new Warrant of like tenor exercisable for the balance of the Number of Shares.
Such certificates shall be deemed to have been issued, and the person receiving
them shall be deemed to be a holder of record of such shares, as of the close of
business on the date the actions required in Section 1.2 shall have been
completed or, if on that date the stock transfer books of the Company are
closed, as of the next business day.
2. Transfer of Warrants and Stock.
2.1 Transfer Restrictions. This Warrant shall be freely transferable by
the Holder in accordance with the terms hereof; provided, however, that neither
this Warrant nor the securities issuable upon its exercise may be sold,
transferred or pledged unless the Company shall have been supplied with
reasonably satisfactory evidence that such transfer is not in violation of the
Securities Act of 1933, as amended (the "Securities Act"), and any applicable
state securities laws. The Company may place a legend to that effect on this
Warrant, any replacement Warrant and each certificate representing shares
issuable upon exercise of this Warrant. Subject to the satisfaction of this
condition only, this Warrant shall be freely transferable by the Holder.
2.2 Manner of Transfer. Upon delivery of this Warrant to the Company
with the assignment form duly completed and signed, the Company will promptly
(but in any case within five (5) business days) execute and deliver to each
transferee and, if applicable, the Holder, Warrants of like tenor evidencing the
rights (a) of the transferee(s) to purchase the Number of Shares specified for
each in the assignment forms, and (b) of the Holder to purchase any
untransferred portion, which in the aggregate shall equal the number of Shares
of the original Warrant. If this Warrant is properly assigned in compliance with
Section 2, it may be exercised by an assignee without having a new Warrant
issued.
2.3 Loss, Destruction of Warrant Certificates. Upon receipt of (a)
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Warrant and (b) except in the case of mutilation, an
indemnity or security reasonably satisfactory to the Company, the Company will
promptly (but in any case within five (5) business days) execute and deliver a
replacement Warrant of like tenor representing the right to purchase the same
Number of Shares.
3. Cost of Issuances. The Company shall pay all expenses, transfer taxes and
other charges payable in connection with the preparation, issuance and delivery
of stock certificates or replacement Warrants, except for any transfer tax or
other charge imposed as a result of (a) any issuance of certificates in any name
other than the name of the Holder, or (b) any transfer of the Warrant. The
Company shall not be required to issue or deliver any Stock certificate or
Warrant until it receives reasonably satisfactory evidence that any such tax or
other charge has been paid by the Holder.
- 2 -
<PAGE>
4. Anti-Dilution Provisions. If any of the following events occur at any time
hereafter during the life of this Warrant, then the Purchase Price and the
Number of Shares immediately prior to such event shall be changed as described
in order to prevent dilution:
4.1 Dividends; Stock Splits Etc. In case the Company shall (a) pay a
dividend in shares of Common Stock or make a distribution in shares of Common
Stock, (b) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (c) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, the Number of Shares purchasable
upon the exercise of this Warrant immediately prior thereto shall be adjusted so
that the Number of Shares purchasable upon exercise of this Warrant shall be
determined by multiplying the Number of Shares theretofore purchasable upon the
exercise of this Warrant by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately following such action
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately prior thereto. Such adjustment shall be made whenever
any event listed above shall occur and shall become effective immediately after
the record date in the case of a dividend and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification. If the Company declares a dividend in money on its Common
Stock and at substantially the same time offers its Stockholders a right to
purchase new shares of Common Stock or of capital stock of any other class from
the proceeds of such dividend, or for an amount substantially equal to such
dividend, all shares of Common Stock or of capital stock of any other class so
issued shall for purposes hereof be deemed issued as a Stock dividend.
4.2 Issuance of Rights or Warrants to Holders. In case the Company
shall issue rights, options or warrants to all holders of its shares of Common
Stock entitling them (for a period expiring within 45 days after the record date
therefor) to subscribe for or purchase shares of Common Stock at a price per
share which is lower at the record date mentioned below than the then Current
Market Price per share of Common Stock (as hereinafter defined), the Number of
Shares thereafter purchasable upon the exercise of this Warrant shall be
determined by multiplying the Number of Shares theretofore purchasable upon
exercise of this Warrant by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares which the aggregate
offering price of the total number shares of Common Stock so offered would
purchase at the then Current Market Price per share of Common Stock. For
purposes of this Section 4.2, the issuance of rights, options or warrants to
subscribe for or purchase securities convertible into Common Stock shall be
deemed to be the issuance of rights, options or warrants to purchase the Common
Stock into which such securities are convertible at an aggregate offering price
equal to the aggregate offering price of such securities plus the minimum
aggregate amount (if any) payable upon conversion of such securities into Common
Stock.
- 3 -
<PAGE>
4.3 Merger; Consolidation; Sale of Assets. In case of (a) the
consolidation or the merger of the Company, (b) the sale of all or substantially
all of the properties and assets of the Company to any Person, (c) any capital
reorganization by the Company, or (d) any voluntary or involuntary dissolution,
liquidation, or winding up of the Company, this Warrant shall, after any such
event, entitle the Holder to receive upon exercise the number of shares of Stock
or other securities or property (including cash) of the Person (if applicable)
resulting from such event, which the holder of securities deliverable upon
exercise of this Warrant (at the time of such event) would have been entitled to
receive upon such event; and in any such case the provisions of Section 4 with
respect to the rights and interests thereafter of the holders of this Warrant
shall be appropriately adjusted so as to be applicable, as nearly as
practicable, to any shares of Stock or other securities or any property
(including cash) thereafter deliverable upon exercise of this Warrant. The
Person resulting from such sale or consolidation or surviving such merger or to
which such sale shall be made shall execute and deliver to the Holder a
supplemental agreement as provided in Section 6.5 below. Any adjustment pursuant
to this Section 4.3 which shall be approved in good faith by the Board of
Directors of the Company pursuant to a resolution delivered to the Holder shall
be conclusive for all purposes hereof. For the purposes of this Agreement
"person" means any individual, partnership, firm, corporation, limited liability
company or partnership, association, trust, unincorporated organization or other
entity, as well as any syndicate or group that would be deemed to be a person
under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
4.4 Other Distributions. In case the Company shall distribute to all
holders of its shares of Common Stock shares of Stock other than Common Stock or
evidences of its indebtedness or assets (excluding cash dividends or
distributions payable out of consolidated earnings or retained earnings and
dividends or distributions referred to in Section 4.1 above) or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred to in
Section 4.2 above), then in each case the Number of Shares thereafter
purchasable upon the exercise of this Warrant shall be determined by multiplying
the Number of Shares theretofore purchasable upon the exercise of this Warrant,
by a fraction of which the numerator shall be the Current Market Price per share
of Common Stock on the record date mentioned below in this Section 4.4 plus the
then fair value (as reasonably determined by the Board of Directors of the
Company in good faith, whose determination shall be conclusive absent manifest
error, irrespective of the accounting treatment thereof) of the portion of the
shares of Stock other than Common Stock or assets or evidences of indebtedness
so distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock,
and of which the denominator shall be the Current Market Price per share of
Common Stock on such record date. Such adjustment shall be made whenever any
such distribution is made, and shall become effective immediately after the
record date for the determination of Stockholders entitled to receive such
distribution.
4.5 Additional Adjustment of Purchase Price. Whenever the Number of
Shares purchasable upon the exercise of this Warrant is adjusted, as provided
herein, the Purchase Price
- 4 -
<PAGE>
payable upon exercise of this Warrant shall be adjusted by multiplying such
Purchase Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the Number of Shares purchasable upon the exercise of this
Warrant immediately prior to such adjustment, and of which the denominator shall
be the Number of Shares so purchasable immediately thereafter.
4.6 No De Minimis Adjustments. No adjustment in the Purchase Price
shall be required unless such adjustment would require an increase or decrease
of at least 1% in such price; provided, however, that any adjustments which by
reason of this Section 4.6 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 4.6 shall be made to the nearest one-twentieth of a cent or to the
nearest one-hundredth of a share, as the case may be.
4.7 Treasury Shares. For the purpose of Section 4, shares of Common
Stock or other securities held in the treasury of the Company shall not be
deemed to be outstanding, and the sale or other deposition of any shares of
Common Stock or other securities held in the treasury of the Company shall be
deemed an issuance thereof.
4.8 Corporate Action. Before taking any action which would cause an
adjustment reducing the Purchase Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of this Warrant, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Purchase Price.
4.9 Independent Public Accountants. The certificate of a "Big Six" firm
of independent public accountants selected by the Board of Directors of the
Company shall be conclusive evidence of the correctness of any computation made
under Section 4.
4.10 Notice of Certain Events. In case at any time prior to the
expiration date of this Warrant:
(I) the Company shall declare a dividend (or any other
distribution) on the Common Stock (other than a dividend in cash out of
retained earnings); or
(ii) the Company shall authorize the granting to the holders
of Common Stock of rights or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights; or
(iii) there shall be any reclassification of the Common Stock
of the Company (other than a subdivision or combination of its
outstanding Common Stock); or
(iv) there shall be any capital reorganization by the Company;
or
- 5 -
<PAGE>
(v) there shall be a consolidation or merger involving the
Company or sale of all or substantially all of the Company's property
and assets (except a merger or other reorganization in which the
Company shall be the surviving corporation or a consolidation, merger
or sale with a wholly-owned subsidiary); or
(vi) there shall be voluntary or involuntary dissolution,
liquidation and winding up by the Company or dividend or distribution
to holders of Common Stock (other than the customary cash and stock
dividends); or
(vii) any other action shall occur which would give rise to an
adjustment to the Purchase Price or the Number of Shares hereunder,
then in any one or more of said cases, the Company shall cause to be
delivered to the Holder, at the earliest practicable time (and, in any
event, not less than 25 days before any record date or other date set
for definitive action), notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or such reorganization, sale,
consolidation, merger, dissolution, liquidation or winding up shall
take place, as the case may be. Such notice shall also set forth such
facts as shall indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Purchase Price
and the kind and amount of the shares of stock and other securities and
property deliverable upon exercise of this Warrant. Such notice shall
also specify the date, if known, as of which the holders of record of
the Common Stock shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their shares of
the Common Stock for securities or other property (including cash)
deliverable upon such reorganization, sale, consolidation, merger,
dissolution, liquidation or winding up, as the case may be (on which
date, in the event of voluntary or involuntary dissolution,
liquidation, or winding up of the Company, other than dissolution,
liquidation or winding up following a consolidation or merger of the
Company with or into, or sale of substantially all of its assets to,
another corporation, the rights to exercise this Warrant shall
terminate).
4.11 Other Securities Adjustments. If as a result of Section 4, a
Holder is entitled to receive any securities other than Common Stock upon
exercise of this Warrant, the number and purchase price of such securities shall
thereafter be adjusted from time to time in the same manner as provided pursuant
to Section 4 for Common Stock. The allocation of purchase price between various
securities shall be made in writing by the Board of Directors of the Company in
good faith at the time of the event by which the holder became entitled to
receive new securities, and a copy sent to the Holder.
4.12 Notices of Adjustments. When any adjustment is required to be made
under Section 4, the Company shall promptly (a) determine such adjustments, (b)
prepare and retain on file a statement describing in reasonable detail the
method used in arriving at the adjustment; and (c) cause a copy of such
statement, together with any agreement required by Section 6.5, to be
- 6 -
<PAGE>
mailed to the Holder within 10 days after the date on which the circumstances
giving rise to such adjustment occurred.
4.13 Computations and Adjustments. Upon each computation of an
adjustment under this Section 4, the Purchase Price shall be computed to the
nearest cent and the Number of Shares shall be calculated to the next highest
whole share. However, the fractional amount shall be used in calculating any
future adjustments. No fractional shares of Common Stock shall be issued in
connection with the exercise of this Warrant, but the Company shall, in the case
of the final exercise under this Warrant, make a cash payment for any fractional
shares based on the Current Market Price of the Common Stock on the date of
exercise. Notwithstanding any changes in the Purchase Price or the Number of
Shares, this Warrant, and any Warrants issued in replacement or upon transfer
thereof, may continue to state the initial Purchase Price and the Number of
Shares. Alternatively, the Company may elect to issue a new Warrant or Warrants
of like tenor for the additional shares of Common Stock purchasable hereunder
or, upon surrender of the existing Warrant, to issue a replacement Warrant
evidencing all the Warrants to which the Holder is entitled after such
adjustments.
4.14 Exercise Before Payment Date. In the event that this Warrant is
exercised after the record date for any event requiring an adjustment, but prior
to the actual event, the Company may elect to defer payment of the adjusted
amount to the Holder until the actual event occurs; provided, however, that the
Company shall deliver a due bill or other appropriate instrument to the Holder
transferable to the same extent as the other securities issuable on exercise
evidencing the Holder's right to receive such additional amount upon the
occurrence of the event requiring such adjustment.
4.15 Current Market Price. "Current Market Price" for the Common Stock
on any given date means (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, in the case of issuances of stock options with an exercise price
equal to fair market value on the date of grant pursuant to the terms of a plan,
such date) 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 Company's Board of Directors, which determination shall be conclusively
binding on the parties.
5. Redemption.
5.1 Redemption at Company's Option. At any time following July __,
1999, if and to the extent that the Common Stock underlying the Warrants is
covered by an effective registration statement under the Securities Act, and no
right to immediate sale of the Common Stock underlying the Warrants has been
suspended pursuant to Section 10.1(b) of the Common Stock Purchase Agreement by
and among the Company, the initial Holder and certain other parties identified
therein dated June 30, 1998 (the "Common Stock Purchase Agreement"), the Company
- 7 -
<PAGE>
may, upon 30 days prior written notice (the "Redemption Notice") to the Holder,
redeem all, but not less than all of the Warrants granted hereunder that have
not been exercised before the date referred to in Section 5.2(d) at a redemption
price of $0.05 per Warrant (the "Redemption Price"), so long as the Current
Market Price (as defined in Section 4.15(a) and (b) above) is greater than the
following prices (the "Target Prices") for any period of 20 consecutive trading
days preceding the date the Redemption Notice is given:
TIME PERIOD TARGET PRICE
----------- ------------
12 month period beginning on the $12.10
first anniversary of the date hereof
12 month period beginning on the $14.52
second anniversary of the date hereof
12 month period beginning on the $17.42
third anniversary of the date hereof
12 month period beginning on the $20.90
fourth anniversary of the date hereof
The date fixed for redemption of this Warrant is referred to herein as
the "Redemption Date."
5.2 Redemption Notice. The Redemption Notice shall specify (a) the
Redemption Price, (b) the Redemption Date, (c) the place where this Warrant
shall be delivered and the Redemption Price paid, and (d) that the right to
exercise the Warrant shall terminate at 5:00 p.m. (Minneapolis time) on the
business day immediately preceding the Redemption Date. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity of the proceedings for such redemption except as to a Holder (I) to
whom notice was not mailed (ii) whose notice was defective.
5.3 Failure to Exercise. Any right to exercise this Warrant shall
terminate at 5:00 p.m. (Minneapolis time) on the business day immediately
preceding the Redemption Date. On and after the Redemption Date, the Holder
shall have no further rights except to receive, upon surrender of this Warrant,
the Redemption Price.
5.4 Surrender of Warrant. From and after the Redemption Date, the
Company shall, at the place specified in the Redemption Notice, upon
presentation and surrender to the Company by or on behalf of the Holder of the
Warrant to be redeemed, deliver or cause to be delivered to or upon the written
order of the Holder a sum in cash equal to the Redemption Price of this Warrant.
From and after the Redemption Date and upon the deposit or setting aside by the
- 8 -
<PAGE>
Company of a sum sufficient to redeem this Warrant, it shall expire and become
void and all rights hereunder, except the right to receive payment of the
Redemption Price, shall cease.
5.5 Adjustments. If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Prices shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
6. Covenants. The Company agrees that:
6.1 Reservation of Stock. During the period in which this Warrant may
be exercised, the Company will reserve sufficient authorized but unissued
securities to enable it to satisfy its obligations on exercise of this Warrant
and shall use its reasonable best efforts to cause all shares of Common Stock
issued upon the exercise of this Warrant to be listed on any exchanges on which
the Common Stock is then listed. If at any time the Company's authorized
securities shall not be sufficient to allow the exercise of this Warrant, the
Company shall take such corporate action as may be necessary to increase its
authorized but unissued securities to be sufficient for such purpose;
6.2 No Liens, etc. All securities that may be issued upon exercise of
this Warrant will, upon issuance, be validly issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and shall be listed on any exchanges on which that class of securities is
listed;
6.3 Furnish Information. During the term of this Warrant, the Company
will promptly deliver to the Holder copies of all financial statements, reports
and proxy statements which the Company shall have sent to its stockholders
generally;
6.4 Stock and Warrant Transfer Books. Except upon dissolution,
liquidation or winding up or for ordinary holidays and weekends, the Company
will not at any time close its stock or warrant transfer books so as to result
in preventing or delaying the exercise or transfer of this Warrant; and
6.5 Merger; Consolidation or Sale of Assets of the Company. Except in
the case of a merger or consolidation where the consideration is payable
entirely in cash or obligations, the Company will not merge or consolidate with
or into any Person, or sell or otherwise transfer its property, assets and
business substantially as an entirety to a successor Person, unless the Person
resulting from such merger or consolidation (if not the Company), or such
successor Person, shall expressly assume, by supplemental agreement reasonably
satisfactory in form to the then Majority Holders (as defined below) and
executed and delivered to the Holder, the due and punctual performance and
observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company. "Majority Holders", as of any date,
- 9 -
<PAGE>
shall mean the holders of this Warrant (or replacement warrants issued pursuant
hereto) and of the substantially similar warrants issued contemporaneously
herewith pursuant to the Common Stock Purchase Agreement (or replacement
warrants issued pursuant thereto) who together have rights to exercise such
warrants for a majority of the Warrant Shares (as defined in the Common Stock
Purchase Agreement).
7. Status of Holder.
7.1 Not a Stockholder. Unless the Holder exercises this Warrant in
writing, the Holder shall not be entitled to any rights (a) as a stockholder of
the Company with respect to the shares as to which the Warrant is exercisable
including, without limitation, the right to vote or receive dividends or other
distributions, or (b) to receive any notice of any proceedings of the Company
except as otherwise provided in this Warrant.
7.2 Limitation of Liability. Unless the Holder exercises this Warrant
in writing, the Holder's rights and privileges hereunder shall not give rise to
any liability for the Purchase Price or as a stockholder of the Company, whether
to the Company or its creditors.
8. Registration Rights. The shares purchasable upon exercisable of this Warrant
shall be Registerable Securities as defined in Section 10.1 of the Common Stock
Purchase Agreement.
9. General Provisions.
9.1 Complete Agreement; Modifications. This Warrant and any documents
referred to herein or executed contemporaneously herewith constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. The Warrant may not be amended, altered or modified except by a writing
signed by the parties.
9.2 Cooperation. Each party hereto agrees to execute any and all
further documents and writings and to perform such other reasonable actions
which may be or become necessary or expedient to effectuate and carry out this
Warrant.
9.3 Notices. All notices under this Warrant shall be in writing and
shall be delivered by personal service or telecopy or certified mail return
receipt requested (if such service is not available, then by first class mail),
postage prepaid, to such address as may be designated from time to time by the
relevant party, and which shall initially be:
- 10 -
<PAGE>
(a) If to the Company:
Diametrics Medical, Inc.
2658 Patton Road
Roseville, Minnesota 55113
Attention: Chief Financial Officer
Telecopy: (612) 639-8459
With a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: Kenneth Cutler
Telecopy: (612) 340-8738
(b) If to the Holder:
[Purchaser]
c/o Bay City Capital LLC
750 Battery Street, Suite 600
San Francisco, CA 94111
Attention: Sandy Zweifach, Chief Financial Officer
Phone: (415) 676-3830
Fax: (415) 837-0996
with a copy to:
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, CA 94104
Attention: George H. Shenk, Esq.
Phone: (415) 772-6000
Fax: (415) 772-6268
Any notice sent by certified mail shall be deemed to have been given
three (3) days after the date on which it is mailed. All other notices shall be
deemed given when received. No objection may be made to the manner of delivery
of any notice actually received in writing by an authorized agent of a party.
9.4 No Third-Party Benefits; Successors and Assigns. None of the
provisions of this Warrant shall be for the benefit of, or enforceable by, any
third-party beneficiary. Except as
- 11 -
<PAGE>
provided herein to the contrary, this Warrant shall be binding upon and inure to
the benefit of the parties, their respective successors and permitted assigns.
9.5 Governing Law. This Warrant concerns a Minnesota corporation, and
all questions with respect to the Warrant and the rights and liabilities of the
parties will be governed by the laws of Minnesota regardless of the choice of
law provisions of Minnesota or any other jurisdiction.
9.6 Waivers Strictly Construed. With regard to any power, remedy or
right provided herein or otherwise available to any party hereunder (a) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or other indulgence.
9.7 Severability. The validity, legality or enforceability of the
remainder of this Warrant shall not be affected even if one or more of its
provisions shall be held to be invalid, illegal or unenforceable in any respect.
9.8 Attorneys' Fees. Should any litigation or arbitration be commenced
(including any proceedings in a bankruptcy court) between the parties hereto or
their representatives concerning any provisions of this Warrant or the rights
and duties of any person or entity hereunder the party or parties prevailing in
such proceeding shall be entitled, in addition to such other relief as may be
granted, to the attorneys' fees and court costs incurred by reason of such
litigation.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed effective as of August 4, 1998.
DIAMETRICS MEDICAL, INC.
By:_______________________________
Title:_____________________________
- 12 -
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________________ hereby sells,
assigns and transfers to the transferee named below the rights to purchase
______________ of the Number of Shares under this Warrant, together with all
rights, title and interest therein. The rights to purchase the remaining Number
of Shares shall remain the property of the undersigned.
Dated: _____________________
[NAME OF HOLDER]
By_________________________________
Name ______________________________
(Please Print)
Address:____________________________
____________________________________
____________________________________
Employer Identification Number, Social
Security Number or other identifying
number:
_______________________________________
- 13 -
<PAGE>
EXERCISE FORM
To Be Executed Upon Exercise Of Warrant
The undersigned hereby exercises the Warrant with regard to ___________
shares of Common Stock and herewith makes payment of the purchase price in full.
The undersigned requests that certificate(s) for such shares and the Warrant for
any unexercised portion of this Warrant be issued to the Holder.
Dated:_______________________________
[NAME OF HOLDER]
By_________________________________
Name ______________________________
(Please Print)
Address:____________________________
____________________________________
____________________________________
Employer Identification Number, Social
Security Number or other identifying
number:
_______________________________________
- 14 -
<PAGE>
EXHIBIT 10.3
NOTE PURCHASE AGREEMENT dated as of August 4, 1998, among DIAMETRICS
MEDICAL, INC., a Minnesota corporation (the "Company") and each of the persons
whose signatures appear under the heading "Purchasers" on the signature pages
hereto (each, a "Purchaser" and collectively, the "Purchasers").
The Company desires to issue and sell an aggregate of $7,300,000
principal amount of 7% Convertible Secured Notes due 2003 substantially in the
form of Exhibit 1 attached hereto. The Notes (defined below) will be convertible
at the option of the holders thereof into shares of Common Stock (the
"Conversion Shares") at a conversion price of $8.40 per share, subject to
adjustment. The Notes will be offered and sold to the Purchasers without being
registered under the Securities Act of 1933, as amended, in reliance upon an
exemption therefrom.
Holders (including subsequent transferees) shall have registration
rights as set forth in the Common Stock Purchase Agreement (defined below) for
so long as the Conversion Shares are Registrable Securities (as defined in the
Common Stock Purchase Agreement).
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
specified below:
"Affiliate" of any person means (i) any person that, directly or
indirectly, is in control of, is controlled by, or is under common control with
such person or (ii) any person who is a director or officer (A) of such person,
(B) of any Subsidiary of such person or (C) of any person described in clause
(i) above. For purposes of this definition, control of a person means the power,
direct or indirect, to direct or cause the direction of the management and
policies of such person whether by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Board" means the Board of Directors of the Company or any committee of
such Board of the Company duly authorized to act for such Board.
"Business Day" means each day other than a Saturday, a Sunday or any
other day on which banking institutions in the State of Minnesota are authorized
or obligated by law or executive order to be closed.
"Capitalized Lease Obligations" means all monetary obligations of the
Company or any Subsidiary under any leasing or similar arrangement which, in
accordance with GAAP, would be classified as capitalized leases, and, for
purposes of this Agreement and the documents referred to herein, the amount of
such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP, and the stated maturity thereof shall be the date of the
last payment of
<PAGE>
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty.
"Closing" and "Closing Date" have the meanings specified in Section
7.1.
"Common Stock" means the common stock of the Company, par value $.01
per share.
"Common Stock Purchase Agreement" means that certain Common Stock
Purchase Agreement dated June 30, 1998 by and among the Company and the
purchasers signatory thereto relating, among other things, to the issuance of
2,142,858 shares of Common Stock and warrants for the purchase of an additional
714,286 shares of Common Stock.
"Company" has the meaning specified in the preamble.
"Consolidated Tangible Net Worth" means consolidated net worth less
goodwill and intangible assets, as shown on the latest audited consolidated
balance sheet of the Group from time to time filed with the Securities and
Exchange Commission.
"Conversion Shares" has the meaning specified in the preamble.
"Conversion Price" has the meaning specified in Section 5.6.
"Current Market Price" means the average of the last reported sale
prices per share for the ten consecutive Trading Days (as defined below)
preceding the date of such computation. The last reported sale price for each
day shall be (i) the last sale price, or the closing bid price if no sale
occurred, of the Common Stock on the principal securities exchange on which the
Common Stock is listed, (ii) if not listed as described in clause (i), the last
reported sale price of the Common Stock on the Automated Quotation System of the
National Association of Securities Dealers, Inc. (the "NASDAQ System"), or any
similar system of automated dissemination of quotations of securities prices
then in common use, if so quoted, or (iii) if not quoted as described in clauses
(i) or (ii), the mean of the high and low bid quotations for the Common Stock as
reported by the National Quotation Bureau Incorporated if at least two
securities dealers have inserted bid quotations for the Common Stock on at least
five of the ten preceding days. If the Common Stock is quoted on a national
securities or central market system, in lieu of a market or quotation system
described above, the last reported sale price shall be determined in the manner
set forth in clause (iii) of the preceding sentence if bid and asked quotations
are reported but actual transactions are not, and in the manner set forth in
clause (i) of the preceding sentence if actual transactions are reported. If
none of the conditions set forth above is met, the last reported sale price of
the Common Stock on any day or the average of such last reported sales prices
for any period shall be the fair market value of such class of stock as
determined by a member firm of the New York Stock Exchange, Inc. selected by the
Company. As used herein the term "Trading Days" means (x) if the Common Stock is
quoted on the NASDAQ System or any similar system of automated dissemination of
quotations of securities prices, days on which trades may be made on such
system, or (y) if not quoted as described in clause (x), days on which
quotations are reported by the National Quotation Bureau Incorporated, or (z) if
the Common
- 2 -
<PAGE>
Stock is listed or admitted for trading on any national securities exchange,
days on which such national securities exchange is open for business.
"Debt" of any person means, without duplication, all (i) liabilities or
obligations, direct and contingent, which liabilities or obligations would, in
accordance with GAAP, be included in determining total liabilities as shown on
the liability side of a balance sheet of such person at the date as of which
Debt is to be determined, including, without limitation, (a) contingent
liabilities which, in accordance with such principles, would be set forth in a
specific dollar amount on the liability side of such balance sheet, and (b)
Capitalized Lease Obligations of such person, (ii) liabilities or obligations of
others for which such person is directly or indirectly liable, by way of
Guarantee or otherwise whether or not such liabilities would, in accordance with
GAAP, be included in determining total liabilities as shown on a balance sheet,
including, without limitation, obligations in respect of interest rate exchange,
swap, cap and other agreements or arrangements designed to provide protection
against fluctuation in interest rates, (iii) liabilities or obligations secured
by Liens on any assets of such person, whether or not such liabilities or
obligations shall have been assumed by it, (iv) liabilities and obligations of
such person, direct or contingent, with respect to letters of credit issued for
the account of such person and bankers acceptances created for such person and
(v) any amendments, renewals, extensions, modifications, refundings or
refinancings of any obligation or indebtedness described in clauses (i) through
(iv) above.
"Default" means any event that is, or after passage of time or the
giving of notice (or both) would be, an Event of Default.
"Default Interest" means interest in accordance with Section 3.2 of the
Note.
"Detachable Warrant" or "Detachable Warrants" has the meaning specified
in Section 4.4.
"DML" means Diametrics Medical, Ltd., an English company.
"Equity Interest" means any and all shares, interests (beneficial or
otherwise), participations, or other equivalents (however designated) in a
person, and any and all warrants, options or other rights to acquire any of the
foregoing.
"Event of Default" means any event specified in Section 8.1 of this
Agreement, continued for the period of time, if any, and after the giving of the
notice, if any, designated in such Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar or successor federal statute, and the rules and regulations of
the SEC thereunder, all as the same shall be in effect at the time.
"Exchange Ratio" means the relationship expressed as a ratio of the
number of shares of common stock of a surviving corporation to be received by
the holders of Common Stock in
- 3 -
<PAGE>
exchange for each share of Common Stock pursuant to a type of merger or
consolidation described in Section 4.4(a) hereof.
"GAAP" means generally accepted accounting principles as of the date of
this Agreement consistently applied and in accordance with past practices.
"Governmental Authority" means any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
or other court or arbitrator, in each case whether of the United States or a
foreign jurisdiction.
"Guarantee" means any obligation, contingent or otherwise, of any
person directly or indirectly guaranteeing any Debt or other obligation of any
other person and any obligation, direct or indirect, contingent or otherwise of
such person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or other obligation of such other person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Debt or other obligation of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Holder" means each person in whose name a Note is registered on the
Register or who is a registered holder of any Conversion Shares or the holder of
a Detachable Warrant, as the case may be.
"Indemnified Persons" has the meaning specified in Article XII.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind whatsoever (including any conditional sale or other title
retention agreement, any lease in the nature thereof and the filing of any
financing statement under the Uniform Commercial Code in any jurisdiction in
connection with the creation of a security interest).
"NASDAQ" or "NASDAQ System" have the meanings specified in the
definition of Current Market Price.
"Notes" means the Notes, substantially in the form of Exhibit 1 hereto,
executed and delivered pursuant to Section 4.1 hereof. The term "Note" or
"Notes" as used herein shall include each note delivered pursuant to any
provision of this Agreement and each note delivered in substitution or exchanged
for any such note, in any case which is at the time outstanding.
"Officer" of any corporation means the Chairman of the Board, the
President, any Vice President (regardless of designation), the Treasurer, the
Secretary, the Assistant Secretary or the Assistant Treasurer of such
corporation.
- 4 -
<PAGE>
"Officer's Certificate" means a certificate signed in the name of the
Company by its Chairman of the Board, its President, one of its Vice Presidents
or its Treasurer.
"person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof or any other entity.
"Purchaser" or "Purchasers" has the meaning specified in the preamble.
"Redemption Date" has the meaning specified in Section 4.3.
"Redemption Event" means (i) the sale of all or substantially all of
the Company's assets to a person or any group (as defined in clause (iii) of
this definition) of persons in a single transaction or a series of transactions,
(ii) the consummation of any consolidation or merger involving the Company
pursuant to which (A) the Company is not the continuing or surviving corporation
(other than a consolidation or merger with a wholly-owned subsidiary in which
all of the Common Stock outstanding immediately prior to the effectiveness
thereof is changed into or exchanged for the same consideration) or (B) the
Common Stock is converted into cash, securities and other property, except, in
the case of each of the immediately preceding clauses (A) and (B), a
consolidation or merger involving the Company pursuant to which the holders of
the issued and outstanding Common Stock immediately prior to such transaction
own or control, directly or indirectly, a majority of the common stock of the
continuing or surviving corporation immediately following such consolidation or
merger, or (iii) any person or any persons acting together which would
constitute a "group" for the purposes of Section 13(d) of the Exchange Act,
together with any affiliates thereof, shall beneficially own (as defined in Rule
13d-3 of the Exchange Act) or control, directly or indirectly, at least 50% of
the total Voting Power of all classes of Equity Interests entitled to vote
generally in the election of directors of the Company.
"Register" means the register maintained pursuant to Section 11.3.
"SEC" means the Securities and Exchange Commission or any other
Governmental Authority at the time administering the Securities Act or the
Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended, and any
similar or successor federal statute, and the rules and regulations of the SEC
thereunder all as of the same may be in effect at the time.
"Security Documents" means a mortgage of shares executed by the Company
in favor of the Holders or their agent or trustee for their benefit in form and
substance reasonably satisfactory to the Purchasers, together with any other
security documents or instruments from time to time executed by the Company in
connection with its obligations hereunder.
"Subsidiary" of any person (a "Parent") means any corporation or other
entity at least a majority of the outstanding Voting Power of which is at the
time owned or controlled directly or indirectly by the Parent, or one or more
Subsidiaries or by the Parent and one or more
- 5 -
<PAGE>
Subsidiaries. Unless the context otherwise requires all references to a
Subsidiary or Subsidiaries shall refer to those of the Company.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to Tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes;
license, registration and documentation fees; and customs duties, tariffs, and
similar charges.
"Trading Day" has the meaning specified in the definition of Current
Market Price.
"Voting Power" means voting securities or other voting interests
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors or persons performing
substantially equivalent tasks and responsibilities.
"Warrant Registration Rights Agreement" means the registration rights
agreement to be dated the Closing Date, substantially in the form of Exhibit 2
hereto, relating to the Detachable Warrants.
In this Agreement and the Notes the singular includes the plural and
the plural the singular; words importing any gender include the other genders;
references to statutes are to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; references to
"writing" include printing, typing, lithography and other means of reproducing
words in a visible form; references to agreements and other contractual
instruments shall be deemed to include all amendments thereto or changes therein
entered into in accordance with their respective terms but only to the extent to
which such amendments or changes are not prohibited by the terms of this
Agreement; references to persons include their permitted successors and assigns;
"including" means including, without limitation; "or" is not exclusive; "day"
means a calendar day unless otherwise specified; and an accounting term not
otherwise defined has the meaning assigned to it, and all determinations
involving any such term required to be made herein shall be made, in accordance
with GAAP.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As of the date hereof and as of the Closing Date, the Company
represents and warrants to each of the Purchasers as follows:
- 6 -
<PAGE>
Section 2.1 Incorporation by Reference of the Company's Representations
and Warranties in the Common Stock Purchase Agreement. All of the
representations and warranties of the Company set forth in Section 4 of that
certain Common Stock Purchase Agreement are hereby incorporated by reference for
the benefit of the Purchasers as if set forth herein in full.
Section 2.2 Exemption from Registration. The purchase and sale of the
Notes pursuant hereto are exempt from the registration requirements of the
Securities Act. No form of general solicitation or general advertising was used
by the Company in connection with the offer and sale of the Notes, including,
but not limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No securities of the same class as the
Notes have been issued and sold by the Company within the six-month period
immediately prior to the date hereof. The Company agrees that neither it, nor
anyone acting on its behalf, will offer the Notes so as to bring the issuance
and sale of the Notes within the provisions of Section 5 of the Securities Act
nor offer any similar securities for issuance or sale to, or solicit any offer
to acquire any of the same from, or otherwise approach or negotiate with respect
thereto with, anyone if the sale of the Notes and any such securities would be
integrated as a single offering for the purposes of the Securities Act,
including, without limitation, Regulation D thereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
As of the date hereof and as of the Closing Date, each Purchaser
severally (but not jointly) represents and warrants to the Company as follows:
Section 3.1 Private Placement. (a) Each Purchaser understands and
acknowledges that the Company has informed such Purchaser that:
(i) the Notes have not been registered under the Securities
Act and the Notes, any securities into which the Notes are converted or any
securities issued upon redemption of the Notes must be held indefinitely unless
they are subsequently registered under the Securities Act or such sale is
permitted pursuant to an available exemption from such registration requirement;
(ii) the offering and sale of the Notes is intended to be
exempt from registration under the Securities Act by virtue of the provisions of
Section 4(2) of the Securities Act; and
(iii) there is no existing public or other market for the
Notes and there can be no assurance that any Purchaser will be able to sell or
dispose of the Notes.
(b) Each Purchaser represents and warrants to the Company
that:
- 7 -
<PAGE>
(i) the Notes to be acquired by it pursuant to this Agreement
are being acquired for its own account not as a nominee or agent for any other
person and without a view to the distribution of such Notes or any interest
therein in violation of the Securities Act;
(ii) the Purchaser is an "Accredited Investor" as such term is
defined in Regulation D under the Securities Act and has such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of its investment in the Notes, and such Purchaser is
capable of bearing the economic risks of such investment; and
(iii) the Purchaser has been provided, to its satisfaction,
the opportunity to ask questions concerning the terms and conditions of the
offering and sale of the Notes has had all such questions answered to its
satisfaction and has been supplied all additional information deemed necessary
by it to verify the accuracy of the information furnished to it.
Section 3.2 Transferees Bound. Each Purchaser understands and
acknowledges with the Company that the Company will not issue or transfer any
Notes, any securities into which the Notes are converted or any securities
issued upon redemption of the Notes unless the person to whom they are being
issued or transferred shall first state in a writing deposited with the
secretary of the Company the provisions of Section 3.1 hereof.
ARTICLE IV
SALE; REPAYMENT AND REDEMPTION
Section 4.1 Sale of the Notes. At the Closing, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to each Purchaser, and
each Purchaser agrees to purchase from the Company the principal amount of Notes
set forth opposite such Purchaser's name on Schedule 1 attached hereto at a
purchase price of 100% of such principal amount, payable by wire transfer of
same day funds on the Closing Date as provided in Section 7.1. The obligations
of each Purchaser shall be several and not joint and no Purchaser shall be
liable for the acts or omissions of any other Purchaser.
Section 4.2 Interest on the Notes. Subject to applicable law, interest
on each Note and Default Interest shall accrue and be payable as provided in
such Note.
- 8 -
<PAGE>
Section 4.3 Redemption Event.
(a) Upon the occurrence of a Redemption Event each Holder
shall have the right to require that the Company repurchase all or any portion
of such Holder's Notes (equal to $1,000 or any integral multiple thereof) at a
repurchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase (the "Redemption
Date"), in accordance with Section 4.3(b).
(b) Within five days following any Redemption Event, the
Company shall mail a notice to each Holder stating:
(i) that a Redemption Event has occurred and that such Holder
has the right to require the Company to redeem such Holder's Notes at a
repurchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase;
(ii) the circumstance and relevant facts regarding such
Redemption Event;
(iii) the Redemption Date (which shall be no earlier than five
days nor later than ten days from the date such notice is mailed); and
(iv) the instructions determined by the Company consistent
with this Section, that a Holder must follow in order to have its Notes
repurchased.
(c) Holders electing to have a Note or Notes repurchased will
be required to surrender such Note or Notes, with an appropriate form duly
completed, to the Company at the address specified in the notice at least two
Business Days prior to the Redemption Date. Holders will be entitled to withdraw
their election if the Company receives not later than three Business Days prior
to the Redemption Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Note which was
delivered for redemption by the Holder and a statement that such Holder is
withdrawing his election to have such Note redeemed.
(d) On the Redemption Date, all Notes redeemed by the Company
under this Section shall be delivered to the Company for cancellation, and the
Company shall pay the redemption price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
Section 4.4 Non-Cash Mergers or Consolidations. (a) In addition to, and
not in limitation of, the rights of the Holders pursuant to Section 4.3 above,
upon the occurrence of a merger or consolidation which constitutes a Redemption
Event pursuant to which the holders of Common Stock receive non-cash
consideration consisting of Equity Interests, Holders who exercise their rights
pursuant to Section 4.3 shall also receive detachable warrants (the "Detachable
Warrants") issued by the surviving corporation substantially in the form
attached hereto as Exhibit 3 to purchase for each $1,000 in principal amount of
the Notes that amount of Equity Interests of the surviving corporation equal to
that amount of Equity Interests received in the merger or consolidation in
respect of one share of Common Stock multiplied by a fraction
- 9 -
<PAGE>
where the numerator is 1000 and the denominator is the Conversion Price then in
effect. The exercise price of the Detachable Warrants per unit of Equity
Interests shall be equal to $1,000 divided by the number of units of Equity
Interests receivable per $1,000. The term of the Detachable Warrants shall be
equal to the remaining term of the Notes immediately prior to the consummation
of the merger or consolidation giving rise to the rights of the Holders under
this Section 4.4. Holders of the Detachable Warrants shall have the registration
rights set forth in the Warrant Registration Rights Agreement. The delivery to
the Holders of a legal, valid and enforceable Warrant Registration Rights
Agreement shall be a non-waivable closing condition of the Company in any
transaction entitling the Holders to receive Detachable Warrants pursuant
hereto.
(b) Upon the occurrence of a Redemption Event described in
Section 4.4(a), the Company shall supplement the notice to be provided to
Holders under Section 4.3(b) above, to include the following additional
information:
(i) that the Redemption Event which has occurred entitles the
Holders to receive Detachable Warrants pursuant to Section 4.4(a) of this
Agreement;
(ii) the number of Detachable Warrants to which each Holder is
entitled per $1,000 of face amount of Notes outstanding;
(iii) the then current exercise price of the Detachable
Warrants per share of common stock of the surviving corporation; and
(iv) instructions determined by the Company consistent with
Section 4.4 hereof, that a Holder must follow in order to receive the Detachable
Warrants to which the Holder is entitled and the Warrant Registration Rights
Agreement.
(c) Holders electing to receive the Detachable Warrants
pursuant to Section 4.4(a) hereof must comply with the requirements of Section
4.3 with respect to the redemption of their Notes, and such Holders shall
receive the Detachable Warrants and Warrant Registration Rights Agreements
concurrently with their receipt of the redemption price pursuant to Section
4.3(c) against surrender to the Company of the Notes to be redeemed.
(d) In the event that the consideration for a merger or
consolidation which constitutes a Redemption Event is a combination of cash and
non-cash consideration, then the percentage of the aggregate dollar amount of
outstanding principal and accrued interest on the Notes for which Holders may
receive Detachable Warrants pursuant to Section 4.4(a) shall be equal to that
percentage of the total merger or consolidation consideration to be received by
holders of the common stock represented by the non-cash portion of such
consideration.
- 10 -
<PAGE>
ARTICLE V
CONVERSION
Section 5.1 Conversion. Subject to and upon compliance with the
provisions of this Article V and subject to Section 4.4 hereof, the Holder of
any Notes shall have the right, at its option, at any time, to convert any Note
or any portion of the principal amount thereof which is $1,000 or an integral
multiple of $1,000 into fully paid and nonassessable shares of Common Stock at
the conversion price of $8.40 per share of Common Stock subject to adjustment as
set forth below, by surrendering the Notes to be converted, in the manner
provided in Section 5.2.
Section 5.2 Exercise of Conversion Rights. In order to exercise the
conversion privilege, the Holder of the Notes to be converted shall surrender
the Notes to the conversion agent designated for such purpose by written notice
to the Holders of such Notes by the Company (which may be the Company itself),
with the Notice of Election to Convert in the form included in Exhibit 4 hereto,
duly completed and signed, at the principal office of the conversion agent.
Unless the shares issuable on conversion are to be issued in the same name as
the name in which the surrendered Notes are registered, each Note surrendered
for conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Company, duly executed by the Holder or its duly authorized
attorney. If the Company fails to designate a conversion agent, the conversion
agent shall be the Company.
Section 5.3 Surrender of Notes; Delivery of Shares. As promptly as
practicable after the surrender by a Holder of the Notes in accordance with this
Section 5.3, and in any event within five Trading Days after such surrender, the
Company shall issue and shall deliver at the office of the conversion agent to
the Holder, or on its written order, (a) a certificate or certificates for the
number of full shares of Common Stock or other securities issuable upon the
conversion of those Notes in accordance with the provisions of this Article V,
(b) the amount of cash required to be paid for any fractional interest in
respect of a share of Common Stock or other security arising upon the conversion
as provided in Section 5.5 and (c) cash in the amount of all accrued and unpaid
interest on the Notes surrendered up to and including the date conversion shall
have been deemed to be effective pursuant to Section 5.4.
Section 5.4 Effective Date of Conversion. Each conversion shall be
deemed to have been effected immediately prior to the close of business on the
date on which all of the conditions specified in Section 5.2 above shall have
been satisfied, and the person or persons in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
shares of Common Stock or other securities represented by those certificates at
such time on such date and such conversion shall be at the Conversion Price (as
hereinafter defined) in effect at such time on such date, unless the stock
transfer books of the Company shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or holders of
record at the close of business on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the Conversion Price in
effect on the date upon
- 11 -
<PAGE>
which all of the conditions specified in Section 5.2 shall have been satisfied.
All shares of Common Stock delivered upon conversion of the Notes will upon
delivery be duly and validly issued and fully paid and nonassessable, free of
all liens and charges, not subject to any preemptive rights and in accordance
with applicable securities laws. Upon the surrender of the Notes to be
converted, such Notes shall no longer be deemed to be outstanding and all rights
of a Holder with respect to the Notes surrendered for conversion shall
immediately terminate except the right to receive the Common Stock or other
securities, cash or other assets as herein provided. In the event of any Note
which is converted in part only, upon such conversion the conversion agent shall
execute and deliver to or on the order of the Holder thereof, at the expense of
the Company, a new Note or Notes of authorized denomination in principal amounts
equal to the unconverted portion of such Note.
Section 5.5 Fractional Shares. No fractional shares or securities
representing fractional shares of Common Stock shall be issued upon conversion
of Notes. Any fractional interest in a share of Common Stock resulting from
conversion of a Note shall be paid in cash (computed to the nearest cent) based
on the Current Market Price of the Common Stock on the Trading Day next
preceding the day of conversion.
Section 5.6 Conversion Price. For purposes of this Article V, the
conversion price shall be $8.40 in principal amount of the Notes per share of
Common Stock subject in each case to adjustment as provided below (the
"Conversion Price")s.
Section 5.7 Adjustment of Conversion Price. (a) In case the Company
shall (i) pay a dividend or make a distribution on its Common Stock in shares of
its Common Stock, (ii) subdivide its outstanding Common Stock into a greater
number of shares, or (iii) combine its outstanding Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to such event
shall be adjusted so that the Holder of any Note thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock of
the Company which it would have owned or have been entitled to receive after the
happening of such event had the Note been converted immediately prior to the
happening of such event. An adjustment made pursuant to this Section 5.7(a)
shall become effective immediately after the record date in the case of a
dividend or distribution except as provided in Section 5.7(f), and shall become
effective immediately after the effective date in the case of subdivision or
combination. If any dividend or distribution is not paid or made, the Conversion
Price then in effect shall be appropriately readjusted.
(b) In case the Company shall issue rights or warrants to all
holders of its Common Stock entitling them (for a period expiring within 45 days
after the record date mentioned below) to subscribe for or purchase Common Stock
at a price per share less than the Current Market Price of the Common Stock at
the record date for the determination of stockholders entitled to receive the
rights or warrants, the Conversion Price in effect immediately prior to the
issuance of such rights or warrants shall be adjusted so that it shall equal the
price determined by multiplying the Conversion Price in effect immediately prior
to the date of issuance of the rights or warrants by a fraction of which the
numerator shall be the number of
- 12 -
<PAGE>
shares of Common Stock outstanding on the date of issuance of the rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares of Common Stock so offered would purchase at the then
Current Market Price per share of Common Stock, and of which the denominator
shall be the number of shares of Common Stock outstanding on the date of
issuance of the rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase. The adjustment provided for
in this Section 5.7(b) shall be made successively whenever any such rights or
warrants are issued, and shall become effective immediately, except as provided
in Section 5.7(f) below after such record date. In determining whether any
rights or warrants entitle the holders of the Common Stock to subscribe for or
purchase shares of Common Stock at less than the Current Market Price, and in
determining the aggregate offering price of the shares of Common Stock so
offered, there shall be taken into account any consideration received by the
Company for such rights or warrants, the value of such consideration, if other
than cash, to be determined by the Board (whose determination, if made in good
faith, shall be conclusive). If any or all of such rights or warrants are not so
issued or expire or terminate without having been exercised, the Conversion
Price then in effect shall be appropriately readjusted.
(c) In case the Company shall distribute to all holders of its
Common Stock any shares of capital stock of the Company (other than Common
Stock) or evidences of indebtedness or assets (excluding cash dividends or
distributions paid from retained earnings of the Company) or rights or warrants
to subscribe for or purchase any of its securities (excluding those referred to
in Section 5.7(b)) then, in each such case, the Conversion Price shall be
adjusted so that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of the distribution by
a fraction of which the numerator shall be the Current Market Price of the
Common Stock on the record date mentioned below less the then fair market value
(as determined by the Board, whose determination, if made in good faith, shall
be conclusive) of the portion of the capital stock or assets or evidences of
indebtedness so distributed, or of the rights or warrants so distributed, with
respect to one share of Common Stock, and of which the denominator shall be the
Current Market Price of the Common Stock on the record date. Such adjustment
shall become effective immediately, except as provided in Section 5.7(f), after
the record date for the determination of shareholders entitled to receive such
distribution. If any such distribution is not made or if any or all of such
rights or warrants expire or terminate without having been exercised, the
Conversion Price then in effect shall be appropriately readjusted.
(d) No adjustment in the Conversion Price shall be required
unless such adjustment would require a change of at least 1% in the Conversion
Price; provided, however, that any adjustments which by reason of this Section
5.7(d) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment; and provided, further, that adjustments
shall be required and made in accordance with the provisions of this Article V
(other than this Section 5.7(d)) not later than such time as may be required in
order to preserve the tax free nature of a distribution to the holders of shares
of Common Stock. All calculations under this Article V shall be made to the
nearest cent or to the nearest one hundredth of a share, as the case may be.
- 13 -
<PAGE>
(e) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the conversion agent an officers'
certificate setting forth the Conversion Price after the adjustment and setting
forth a brief statement of the facts requiring the adjustment, which certificate
shall be conclusive evidence of the correctness of the adjustment if such
adjustment has been made in good faith. Promptly after delivery of the
certificate, the Company shall prepare a notice of the adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the date on
which the adjustment becomes effective and shall mail the notice of such
adjustment of the Conversion Price to the Holder of each Note at its last
address as shown on the Register.
(f) In any case in which this Section 5.7 provides that an
adjustment shall become effective immediately after a record date for an event,
the Company may defer until the occurrence of the event (i) issuing to the
Holder of any Note after the record date and before the occurrence of the event
the additional shares of Common Stock issuable upon the conversion by reason of
the adjustment required by the event over and above the Common Stock issuable
upon such conversion before giving effect to the adjustment and (ii) paying to
the holder any amount in cash in lieu of any fractional share pursuant to
Section 5.5 above.
(g) In addition to the adjustments set forth in subsections
(a), (b) and (c) above, the Company will be permitted to make such reductions in
the Conversion Price as it considers to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the holders of the shares of Common Stock.
(h) In the event that the provisions of this Section 5.7 fail
as a result of an unintentional oversight to provide expressly for the
adjustment of the Conversion Price or the number of shares of Common Stock
issuable upon conversion under circumstances that, based upon the purposes and
intentions expressed in this Article V, would otherwise have been addressed, the
Board of Directors of the Company shall, in good faith cause an equitable
adjustment to be made to the Conversion Price or the number of shares of Common
Stock issuable upon conversion to correct such an oversight.
Section 5.8 Notice of Certain Corporate Action. If:
(a) the Company shall declare a dividend (or any other
distribution) on the Common Stock (other than a dividend in cash out of retained
earnings); or
(b) the Company shall authorize the granting to the holders of
the Common Stock of rights or warrants to subscribe for or purchase any shares
of any class or any other rights or warrants; or
(c) there shall be any reclassification of the Common Stock
(other than a subdivision or combination of the outstanding Common Stock); or
- 14 -
<PAGE>
(d) there shall be a consolidation or merger involving the
Company or sale of all or substantially all of the Company's property and assets
(except a merger or other reorganization in which the Company shall be the
surviving corporation or a consolidation, merger or sale with a wholly-owned
subsidiary); or
(e) there shall be a voluntary or an involuntary dissolution,
liquidation or winding up of the Company; or
(f) any other action shall occur which would give rise to an
adjustment to the Conversion Price or the number of shares of Common Stock
issuable upon conversion.
then the Company shall cause to be filed with the conversion agent, and shall
cause to be mailed to the Holders of Notes then outstanding at their addresses
as shown on the Register, at least 25 days before any record date or other date
set for definitive action), a notice stating (i) the date on which a record is
to be taken for the purpose of the dividend, distribution or rights or warrants,
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to the dividend, distribution or rights or
warrants are to be determined or (ii) the date on which the reclassification,
consolidation, merger, statutory share exchange, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon the reclassification, consolidation, merger, statutory share
exchange, sale, transfer, dissolution, liquidation or winding up. Such notice
shall also set forth such facts as shall indicate the effect of such action (to
the extent such effect may be known at the date of such notice) on the
Conversion Price and the kind and amount of the shares of stock and other
securities and property deliverable upon exercise of the conversion rights set
forth in this Article V. Failure to give any such notice or any defect in the
notice shall not affect the legality or validity of the proceedings described in
this Section 5.8.
Section 5.9 Company to Reserve Stock. The Company covenants that it
will at all times reserve and keep available, free from preemptive rights, out
of the aggregate of its authorized but unissued shares of Common Stock or its
issued shares of Common Stock held in its treasury, or both, for the purpose of
effecting conversions of the Notes, the full number of shares of Common Stock
deliverable upon the conversion of all outstanding Notes not theretofore
converted. For purposes of this Section 5.9, the number of shares of Common
Stock which shall be deliverable upon the conversion of all outstanding Notes
shall be computed as if at the time of computation all the outstanding Notes
were held by a single Holder.
Section 5.10 Validly Issued; etc. Before taking any action which would
cause an adjustment reducing the Conversion Price below the then par value (if
any) of the shares of Common Stock deliverable upon conversion of the Notes, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock at the adjusted Conversion Price.
- 15 -
<PAGE>
Section 5.11 Taxes on Conversion. The Company 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 Notes pursuant
hereto.
Section 5.12 Reclassification, Consolidation, Merger or Sale. 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 Company with, or merger of the Company 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 Company,
each Holder of Notes then outstanding shall have the right thereafter to convert
the Notes 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 Notes immediately
prior to the reclassification, change, consolidation, merger, sale or transfer.
ARTICLE VI
COVENANTS OF THE COMPANY
From the date hereof until all Notes issued pursuant hereto are no
longer outstanding, the Company covenants with the Purchasers and the Holders as
follows. These covenants are in addition to the covenants set forth in the Notes
themselves.
Section 6.1 Use of Proceeds. The Company shall use the net proceeds
received by it from the sale of Notes solely for the purpose of repaying in full
the Company's obligations to Howmedica, Inc. under that certain currently
outstanding Senior Secured Fixed Rate Loan Note due November 4, 2002. To the
extent that the net proceeds from the sale of the Notes are insufficient to
fully discharge the Howmedica Note, the Company shall use other funds available
to it to do so.
Section 6.2 Notice of Default. The Company shall furnish to the
Holders, promptly upon becoming aware of the existence of any condition or event
which constitutes a Default, written notice specifying the nature and period of
existence thereof and the action which the Company is taking or proposes to take
with respect thereto.
Section 6.3 SEC Reports; Information. (a) The Company shall file with
the SEC and, within 15 days thereafter, make available to the Holders, copies of
the annual report and of the information, documents and other reports specified
in Sections 13, 14 and 15(d) of the Exchange Act as being required of issuers
subject to the reporting requirements contained therein so long as the Notes are
outstanding (whether or not the Company would be required to file such reports
with the SEC in the absence of the requirements of this Section 6.3(a)). In
addition, the Company shall, upon the request of a Holder, provide a prospective
purchaser of the Notes with
- 16 -
<PAGE>
any reports or information required to permit the sale of the Notes to a
Qualified Institutional Buyer pursuant to Rule 144A under the Securities Act.
(b) The Company shall promptly provide such other information
concerning the business, properties or financial condition of the Company and
its Subsidiaries as the Purchaser or any Holder may reasonably request, it being
understood that if the Company is bound by a confidentiality obligation with
respect to such information or if the Company provides information which the
Company notifies the receiving party in writing is confidential, the Holder
receiving such information will also hold it confidential exercising the same
degree of care that it exercises for its own confidential information.
Section 6.4 Authorizations and Approvals. The Company shall and shall
cause its Subsidiaries to promptly obtain, from time to time at their own
expense, all such governmental and third party licenses, authorizations,
consents, permits and approvals as may be required to enable the Company to
comply in all material respects with its obligations under this Agreement and
the Notes.
Section 6.5 Payment of Principal and Interest. The Company covenants
and agrees that it will duly and promptly pay or cause to be paid the principal
of, and interest on, each of the Notes at the place or places, at the respective
times and in the manner provided in this Agreement and the Notes and that it
will comply with each and every of the other obligations set forth in the Notes.
In addition, following a Default or an Event of Default the Company shall pay,
upon demand therefor, all of the costs and expenses of the Holders (and any of
them) incurred in collecting any amounts payable under the Notes. All payments
shall be made by check or electronic wire transfer of immediately available
United States funds.
Section 6.6 Corporate Existence. The Company and its Subsidiary shall
do or cause to be done all things necessary to preserve and keep in full force
and effect the corporate existence of each of them, in accordance with its
respective organizational documents (as the same may be amended from time to
time) and its rights (charter and statutory), licenses and franchises; provided,
however, that neither the Company nor its Subsidiary shall be required to
preserve any such right, license or franchise if the Company's Board shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and that the loss thereof is not disadvantageous in
any material respect to the Holders.
Section 6.7 Negative Covenants. So long as any amounts are owing under
this Note, neither the Company nor any of its Subsidiaries shall after the date
of this Agreement, without the written consent of the holders of at least 50.1%
in aggregate principal amount of all of the Notes issued pursuant to the Note
Purchase Agreement and outstanding, take any act to create, incur, assume,
guarantee or become liable, contingently or otherwise, on any Debt for borrowed
money except:
(i) the Company and/or its Subsidiaries (on a consolidated
basis) may incur unsecured Debt not in existence on the date of this Agreement
provided that the aggregate amount
- 17 -
<PAGE>
of such Debt at any time outstanding does not exceed $1,000,000, it being
understood that unsecured repayment obligations in respect of commercial letters
of credit obtained in the ordinary course of business to pay trade payables
shall not count against such limit;
(ii) the Company and/or its Subsidiaries (on a consolidated
basis) may incur Debt from commercial banks solely for working capital needs and
secured solely by accounts receivable, provided the aggregate amount of such
working capital loans at any time outstanding does not exceed $5,000,000;
(iii) the Company and/or its Subsidiaries may incur Debt
secured by other Liens on its property only (i) under its credit facilities in
existence on the date of this Agreement within the limits of such facilities as
disclosed pursuant to the Schedule of Exceptions to Common Stock Purchase
Agreement, (ii) for Capitalized Lease Obligations, (iii) in favor of suppliers
of goods or equipment in the ordinary course of business, if the Liens granted
to such suppliers extend in each case only to such supplier and only for the
unpaid portion of the purchase price of the goods or equipment so supplied.
ARTICLE VII
CLOSING; CONDITIONS OF THE PURCHASERS' OBLIGATIONS
Section 7.1 Closing. Upon satisfaction of the conditions set forth
herein, each Purchaser shall pay the purchase price for the Note or Notes to be
purchased by such Purchaser on such Closing Date (as hereinafter defined) by
wire transfer of immediately available funds to the account designated by the
Company against delivery to each Purchaser of such Note or Notes issued in such
denominations as the Purchaser may request (the "Closing"). The Closing shall
take place at the same time and place as the "Closing" pursuant to the Common
Stock Purchase Agreement. The date on which the Closing occurs is referred to
herein as the "Closing Date".
Section 7.2 Conditions of the Purchaser's Obligations. The obligation
of each Purchaser to purchase and pay for the Notes to be purchased by it
hereunder on the Closing Date is subject to the satisfaction or waiver in
writing of each of the following conditions:
(a) Representations and Warranties; No Default. The
representations and warranties of the Company set forth in Article II shall be
true in all material respects (except with respect to representations and
warranties that are qualified as to materiality or material adverse effect,
which representations and warranties shall be true and correct in all respects)
when made and as of the Closing Date or any other date, if a representation or
warranty specifically refers to such other date, and the Purchasers shall have
received a certificate signed by the chief executive officer and chief financial
officer of the Company, or such other Officers of the Company as agreed upon by
the parties hereto, that each of such representations and warranties is true and
correct in all material respects (except with respect to representations and
warranties that are qualified as to materiality or material adverse effect,
which representations and warranties shall be true and correct in all respects)
on and as of the Closing Date with the same effect as though
- 18 -
<PAGE>
such representations and warranties had been made or given on and as of the
Closing Date, and that such party has performed and complied with all of its
obligations under this Agreement which are to be performed or complied with on
or prior to the Closing Date and no Default or Event of Default shall have
occurred and be continuing.
(b) Notes, Security Documents and Share Certificates for DML
The Purchasers shall have received the Notes, and all of the Security Documents
(including without limitation a duly executed mortgage of shares in form and
substance satisfactory to the Purchasers), all certificates representing
outstanding shares of stock of DML, duly endorsed in blank) and an opinion of
English counsel acceptable to the Purchasers in form and substance reasonably
satisfactory to the Purchasers with respect to the validity and priority of the
Liens created by and granted pursuant to the Security Documents.
(c) Closing Papers; Opinions. The Purchasers shall have
received the following, addressed to them and in form and substance reasonably
satisfactory to them:
(i) certified copies of the resolutions adopted by the Board
of the Company authorizing the execution, delivery and performance of this
Agreement, the Notes, the Security Documents and each of the other agreements,
instruments and transactions contemplated hereby and by the Notes, together with
certified copies of the resolutions adopted by a committee of disinterested
members of the Board approving the same and dated prior to the date of the
Common Stock Purchase Agreement;
(ii) certified copies of the certificate of incorporation and
By-laws of each of the Company and each of its Subsidiaries as in effect on the
Closing Date;
(iii) a certificate of the Secretary of the Company dated the
Closing Date, as to the incumbency and signatures of the Officers executing this
Agreement and all instruments executed pursuant hereto;
(iv) Officers' Certificates, dated as of the Closing Date of
the Company to the effect set forth in clause (a) of this Section 7.2; and
(v) the opinion of Dorsey & Whitney LLP, counsel for the
Company addressed to the Purchasers substantially in the form attached as
Exhibit F to the Common Stock Purchase Agreement.
(d) Documentation; Legal Matters, etc. All matters relating to
this Agreement, the Notes and the transactions contemplated hereby and thereby
and the legal and organizational structure of the Company and its Subsidiaries
shall be reasonably satisfactory from a legal point of view to the Purchasers
and their counsel, and the Purchasers shall have received such additional
certificates, legal opinions and other documentation as they may have reasonably
requested with respect to this Agreement, the Notes and the transactions
contemplated hereby and thereby, such legal and organizational structure and
compliance with the provisions of this Agreement, and
- 19 -
<PAGE>
applicable law, including federal and state securities. All corporate and other
proceedings taken or to be taken in connection with the issuance of the Notes,
the transactions contemplated hereby and thereby and all documents incident
hereto and thereto shall be reasonably satisfactory in form and substance to the
Purchasers and their counsel and the Purchasers shall have received such other
documents relating to the transactions contemplated by this Agreement as the
Purchasers may have reasonably requested.
(e) Requisite Approvals. The Company shall have obtained all
requisite consents of or approvals from federal, state and any other
Governmental Authority and any other person necessary to consummate the
transactions contemplated by this Agreement and issue the Notes and permit the
utilization of the proceeds of the Notes as described herein.
(f) Compliance with Law; Margin Regulations. The issuance of
the Notes and the use of proceeds thereof as contemplated herein, shall not, in
the reasonable judgment of the Purchasers, violate any law or regulation or any
order or decree of any court or government instrumentality applicable to any
Purchaser or `the Company. After giving effect to the purchase of the Notes and
the use of proceeds thereof as contemplated hereby, the purchase of the Notes
shall not, in the reasonable judgment of the Purchasers, be prohibited by any
applicable law or governmental regulations (including Regulations G, T, U and X
of the Board of Governors of the Federal Reserve System).
(g) Satisfaction of the Howmedica Note; Discharge of Liens.
The Purchasers shall have received evidence satisfactory to the Purchasers that
the Howmedica Note has been fully satisfied, that all Liens granted by the
Company with respect thereto have been fully discharged, and that any stock
transfer powers granted with respect to the shares of DML have been cancelled.
ARTICLE VIII
EVENTS OF DEFAULT OF NOTES
Section 8.1 Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of the principal of
any of the Notes, when the same shall become due and payable, whether at stated
maturity, upon redemption, upon acceleration or otherwise, including any failure
by the Company to repurchase any of the Notes when required pursuant to Section
4.3; or
- 20 -
<PAGE>
(b) the Company defaults in the payment of any interest upon
any of the Notes or any other amount due hereunder, when the same becomes due
and payable; or
(c) the Company fails to perform or comply in any material
respect with the covenants contained in Article 6 of this Agreement and (except
for failure in respect of Sections 6.1, 6.2, 6.5 or 6.7 for which no further
notice is required) such default or breach continues for a period of 30 days
after written notice thereof has been given to the Company; or
(d) the Company defaults in the performance or observance of
any obligation, covenant, condition or provision binding on it under the
Security Documents or fails to add shares of DML for security when required
under Section 1.2 (v) of the Notes, and, in either case, except where such
default is not capable of remedy (in which case no such notice or continuation
as is hereinafter mentioned shall be required), such default continues for 7
days after written notice thereof has been given to the Company; or
(e) the Company fails to perform or comply in any material
respect with any other covenant or agreement contained herein (other than
Article X) or in the Notes and, unless such covenant or agreement contains a
specific time for performance or a shorter notice provision (in which case it
shall govern), such failure or non-compliance continues of a period of 60 days
after written notice, or
(f) the Company fails to comply with Article X; or
(g) (i) any present or future Debt of the Company or any
Subsidiary for or in respect of moneys borrowed or raised in excess of $50,000
(in the aggregate determined on a consolidated basis for the Company and its
Subsidiaries) becomes (or becomes capable of being declared) due and payable
prior to its stated maturity otherwise than at the option of the Company or the
Subsidiary; or (ii) any such Debt is not paid when due or, as the case may be,
within any applicable grace period; or (iii) the Company or any Subsidiary fails
to pay when due or expressed to be due any amount payable or expressed to be
payable by it under any present or future guarantee for any moneys borrowed or
raised in excess of $50,000 (in the aggregate determined on a consolidated basis
for the Company and its Subsidiaries); or (iv) any Lien, present or future,
created or assumed by the Company or any Subsidiary becomes enforceable and the
holder thereof takes any steps to enforce it; or
(h) the Company or any Subsidiary (i) is, or is deemed for the
purposes of any law to be, unable to pay its debts as they fall due or to be
insolvent, or admits inability to pay its debts as they fall due; or (ii)
suspends making payments on all or any class of its debts or announces an
intention to do so, or a moratorium is declared in respect of any of its Debt;
or (iii) by reason of financial difficulties, begins negotiations with all or
any class of its creditors with a view to the readjustment or rescheduling of
any of its Debt; or
(i) (i) any step (including petition, proposal or convening a
meeting) is taken with a view to a composition, assignment or arrangement with
all or any class of the creditors of the
- 21 -
<PAGE>
Company or any Subsidiary; or (ii) a meeting of the Company or any Subsidiary is
convened for the purpose of considering any resolution for (or petition for) its
winding-up or its administration or any such resolution is passed; or (iii) any
person presents a petition for the winding-up of the Company or any Subsidiary
or the grant of an administration order (unless such petition is frivolous,
vexatious or an abuse of process and (in any such case) is discharged within 60
days); or (iv) any order for the winding- up or administration of the Company or
any Subsidiary is made; or (v) any other step (including petition, proposal or
convening a meeting) is taken with a view to the rehabilitation, administration,
custodianship, liquidation, winding-up or dissolution of the Company or any
Subsidiary or any other insolvency proceedings involving the Company or any
Subsidiary; or
(j) (i) any liquidator, trustee in bankruptcy, judicial
custodian, compulsory manager, receiver, administrative receiver, administrator
or the like is appointed in respect of the Company or any Subsidiary or any part
of its assets; or (ii) the Board of the Company or any Subsidiary requests the
appointment of a liquidator, trustee in bankruptcy, judicial custodian,
compulsory manager, receiver, administrative receiver, administrator or the
like; or (iii) any other steps are taken to enforce any security interest over
any part of the assets of the Company or any Subsidiary unless in the case of
any Lien of any nature whatsoever, the amount secured by it is less than 5% of
Consolidated Tangible Net Worth; or
(k) any attachment sequestration, distress or execution
affects any asset of the Company or any Subsidiary and is not lifted or
discharged within 14 days or, if both the aggregate amount of the relevant claim
and the aggregate market value of all assets subject to the relevant process are
less than 5% of Consolidated Tangible Net Worth, 30 days.
(l) the Company defaults in the performance of any of its
obligations with regard to registration rights of Holders under the Common Stock
Purchase Agreement.
A Default under the Notes or under clause (e) above is not an Event of
Default until the holders of at least 50.1% in principal amount of the Notes
notify the Company of the Default and the Company does not cure such Default
within the time specified after receipt of such notice. Such notice must specify
the Default, demand that it be remedied and state that such notice is a "Notice
of Default."
Section 8.2 Acceleration. If an Event of Default with respect to the
Company occurs and is continuing, the Holders of at least 50.1% in principal
amount of the Notes upon written notice to the Company may declare the principal
of and accrued interest on all the Notes to be due and payable without
presentment, demand or protest of any kind, all of which are expressly waived by
the Company. The Holders of at least 50.1% in principal amount of the Notes, by
notice to the Company may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured (except nonpayment of principal or interest
that has become due solely because of acceleration) or waived. No such
rescission shall affect any subsequent Default or impair any right arising
therefrom.
- 22 -
<PAGE>
Section 8.3 Application of Money Collected. Any money collected by any
Holder pursuant to this Article shall be applied in the following order:
FIRST: To the payment of all of the costs and expenses of
such Holder in collecting such amounts as provided
herein;
SECOND: To the payment of the amounts then due and unpaid in
respect of Interest and Default Interest; and
THIRD: To the payment of the amounts then due and unpaid in
respect of the Principal Amount.
Section 8.4 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent or subsequent assertion or employment of any other
appropriate right or remedy.
Section 8.5 Delay or Omission Not Waiver. No delay or omission of the
Holders to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Holders may be exercised from time to time, and as often as may
be deemed expedient, by the Holders.
Section 8.6 Waiver of Stay or Extension Laws. The Company covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of any Note; and the
Company (to the extent that it may lawfully do so) hereby expressly waives all
benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Holders but
will suffer and permit the execution of every such power as though no such law
had been enacted.
Section 8.7 Waiver of Past Defaults. The Holders of at least 50.1% in
principal amount of the Notes then outstanding by notice to the Company may
waive any existing Default or Event of Default and its consequences except a
Default in the payment of the principal or interest on a Note. When a Default is
waived, it is deemed cured, but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any consequent right.
Section 8.8 Rights of Holders To Receive Payment. Notwithstanding any
other provision of this Agreement or the Notes, the right of any Holder to
receive payment of principal of and interest on the Notes held by such Holder,
on or after the respective due dates expressed in
- 23 -
<PAGE>
the Notes, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
ARTICLE IX
SECURITY FOR NOTES AND REGISTRATION RIGHTS
Section 9.1 Provisions in Notes and Security Documents. The provisions
for the security for payment of the Notes and performance of the obligations
contained therein are set forth in the Notes and in the Security Documents.
Section 9.2 Incorporation by Reference of Registration Rights
Provisions. The provisions for registration rights with respect to the
Conversion Shares set forth in Section 10 of the Common Stock Purchase Agreement
are hereby incorporated by reference as if set forth herein in full and shall
constitute a covenant of the Company to the Holders hereunder.
ARTICLE X
CONSOLIDATION, MERGER AND SALE
The Company shall not merge or consolidate with any person and will not
sell, lease or convey all or substantially all of its assets to any person,
unless the Company shall be the surviving entity or the successor entity that
acquires all or substantially all of the assets of the Company or any
Subsidiary, as the case may be, shall be a corporation, partnership or limited
liability company or trust organized under the laws of the United States or a
State therein or the District of Columbia and such entity shall expressly assume
in writing all obligations of the Company under this Agreement, the Notes and,
to the extent applicable, the Common Stock Purchase Agreement. The Company shall
not and shall not permit any Subsidiary to merge or consolidate with any person
and will not sell, lease or convey all or substantially all of its assets to any
person unless immediately after giving effect to such merger, consolidation,
sale, lease or conveyance (a) no Default or Event of Default, and no event
which, after notice or lapse of time would become a Default or Event of Default,
shall have happened and be continuing and (b) the Company would be able to incur
at least $1.00 in Debt without violating the terms of any agreement or
instrument to which it is a party.
ARTICLE XI
TRANSFER OF THE NOTES
Section 11.1 Transfer of the Notes. No Holder shall sell, transfer,
assign or convey the Notes to any person unless such transfer is made pursuant
to an available exemption from registration under, or otherwise in compliance
with, the Securities Act and applicable state securities laws and the
requirements of Section 10.1 of the relevant Note have been satisfied.
- 24 -
<PAGE>
Subject to the preceding sentence, the Holders shall not be prohibited
or limited in any respect from transferring any Note to or among Affiliates of
the Holders or pledging any such Note to a commercial bank or other
institutional lender or granting a participation in any such Note.
Each Purchaser hereby severally covenants and agrees that it will not
consent to any amendment of any participation agreement pursuant to which it
grants a participation in any Note that will amend the provision thereof
permitting such Purchaser to call or repurchase such participation at a call or
repurchase price equal to 100% of the principal amount thereof.
Section 11.2 Registration of Transfer. Each Note shall be issued in
registered form. Ownership of a Note shall be proved by the register to be
maintained pursuant to Section 11.3, and a Note shall be transferable only upon
the surrender of such Note for registration of transfer and subject to Section
3.2, duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the Holder thereof or such Holder's attorney duly authorized in
writing. Upon surrender of any Note for registration of transfer, the Company
will execute and deliver in exchange therefor a new Note, as the case may be, of
the same tenor and registered as such Holder may request. The Company may
require payment by such Holder of a sum sufficient to cover any stamp Tax or
governmental charge imposed in respect of any such transfer. Prior to due
presentment for registration or transfer of any Note, the Company or any paying
agent for the Notes, or any registrar or co-registrar for the Notes may deem and
treat the person in whose name a Note is registered as the absolute owner of
such Note for all purposes whatsoever, and none of the Company or such paying
agent, or such registrar or co-registrar shall be affected by notice to the
contrary.
Section 11.3 Register. The Company shall maintain a register of the
Holders of all the Notes issued pursuant to this Agreement. The Company will
allow any Holder of a Note to inspect and copy such list at the Company's
principal place of business during normal business hours.
ARTICLE XII
INDEMNITY
The Company agrees to indemnify each Purchaser, and its shareholders,
partners, directors, officers, employees, Affiliates and agents (collectively,
"Indemnified Persons") against, and agree to hold each such Indemnified Person
harmless from, any and all losses, claims, damages and liabilities, including
direct or derivative claims brought by any stockholder or former stockholder of
the Company and related expenses, including reasonable counsel fees and
expenses, incurred by such Indemnified Person arising out of, in any way
connected with, or as a result of (i) the consummation of the transactions
contemplated by this Agreement or the Notes, (ii) the use of any of the proceeds
of the Notes by the Company or the consummation of the transactions contemplated
by this Agreement, (iii) the performance by the parties hereto of their
respective obligations hereunder or (iv) any claim, litigation, investigation or
proceeding relating
- 25 -
<PAGE>
to any of the foregoing, whether or not any Purchaser or any such person is a
party thereto; provided, however, that such indemnity shall not apply to any
such losses, claims, damages, liabilities or related expenses finally determined
by a court of competent jurisdiction to have arisen from the gross negligence or
willful misconduct of such Indemnified Person; provided further, however, the
indemnity set forth in this Article shall not apply to losses, claims, damages
or liabilities relating to (i) the payment or withholding of Taxes or (ii) the
actual or alleged failure by the Company to make any payment on the Notes,
whether of interest or principal or at maturity or otherwise or any other breach
by the Company of any representation, warranty or covenant under this Agreement,
the Common Stock Purchase Agreement, the Detachable Warrants or the Notes. If
any litigation or proceeding is brought against any Indemnified Person in
respect of which indemnity may be sought against the Company pursuant to this
Article, such Indemnified Person shall promptly notify the Company in writing of
the commencement of such litigation or proceeding, but the omission so to notify
the Company shall not relieve the Company, from any other obligation or
liability which it may have to any Indemnified Person otherwise than under this
Article XII unless the Company is materially prejudiced thereby. In case any
such litigation or proceeding shall be brought against any Indemnified Person
and such Indemnified Person shall notify the Company of the commencement of such
litigation or proceedings, the Company shall be entitled to participate in such
proceedings, and, after written notice to such Indemnified Person, will have the
right to assume control of any litigation for which indemnification is sought
and no settlement of any claim may be agreed to without the prior written
consent of the Company. However, any Indemnified Person shall have the right to
hire its own counsel for any reason; provided, however, that the fees and
expenses of such counsel shall be at the Indemnified Person's own expense unless
(a) the Company has agreed to pay such fees and expenses or (b) the Company
shall have failed properly to assume the defense in such action or proceeding
and employ counsel reasonably satisfactory to such Indemnified Person in any
such action or proceeding or (c) either (x) the named parties to such action or
proceeding include such Indemnified Person and the Company or such Indemnified
Person shall have been advised in writing by counsel reasonably satisfactory to
the Company that there may be one or more legal defenses available to such
Indemnified Person which are different from or in addition to those available to
the Company or (y) such Indemnified Person concludes that taking into account
the position of such Indemnified Person (or any Affiliate) as a lender to the
Company such Indemnified Person reasonably believes that it is advisable for
such Indemnified Person to employ separate counsel on its behalf, recognizing
that in such case the Company and its counsel shall remain primarily responsible
for the overall strategic control and direction of such action or proceeding. In
any case referred to in (b) or (c) above, if such Indemnified Person notifies
the Company in writing that it elects to employ separate counsel at the expense
of the Company, the Company shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Person, it being
understood, however, that the Company shall not in connection with any one such
action or proceeding, or separate but substantially similar proceedings or
related actions or proceedings arising out of the same general allegations or
circumstances be liable for the fees and expenses of more than one separate firm
of attorneys, together with appropriate local counsel (but not more than one
separate firm of attorneys per state), at a time for all Indemnified Persons.
The
- 26 -
<PAGE>
foregoing indemnity shall remain operative and in full force and effect
regardless of the expiration of the term of this Agreement, the consummation of
the transactions contemplated by this Agreement, the repayment of any of the
Notes, the invalidity or unenforceability of any term or provision of this
Agreement or the Notes, any investigation made by or on behalf of any
Indemnified Person or the Company, and the content or accuracy of any
representation or warranty made under this Agreement. All amounts due under this
Article XII shall be payable as incurred upon written demand therefor.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Expenses: Documentary Taxes. In the Common Stock Purchase
Agreement the Company has agreed to pay a certain amount towards the expenses of
counsel for the Purchasers, in connection with the negotiation and preparation
of the Common Stock Purchase Agreement and related documents, including this
Agreement. The Company agrees to pay in addition (a) all reasonable
out-of-pocket expenses of the Holders, including the reasonable fees and
disbursements of counsel for the Holders, all additional and subsequent
documentation contemplated hereby, any waiver or consent hereunder or thereunder
or any amendment hereof or thereof or any Default or Event of Default or alleged
Default or Event of Default hereunder or thereunder, (b) if a Default or Event
of Default occurs, all reasonable out-of-pocket expenses incurred by the
Holders, including fees and disbursements of counsel, in connection with such
Default or Event of Default and collection and other enforcement proceedings
resulting therefrom, including, without limitation, costs and expenses incurred
in a bankruptcy case and (c) the reasonable out-of-pocket expenses of holders of
participations in Notes or Notes in connection with any waiver or consent
hereunder or any Default or Event of Default or alleged Default or Event of
Default hereunder. Notwithstanding the foregoing, (i) in any instance, the
Company will pay the reasonable fees and expenses of only one counsel and one
local counsel and (ii) if more than one Holder retains counsel and requests
reimbursement, the Company will pay reasonable fees and expenses only of counsel
(and local counsel) for the holder of the largest aggregate principal amount of
Notes outstanding. The Company shall indemnify the Holders against any transfer
Taxes, documentary Taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement and the
Notes. The obligations of the Company under this Section 13.1 shall survive
transfer by the Purchaser of the Notes.
Section 13.2 Notices. All notices and other communications pertaining
to this Agreement or the Notes shall be in writing, shall be sent by confirmed
facsimile or mailed by first-class registered or certified airmail, or
nationally recognized overnight express courier, postage prepaid, and shall be
deemed to have been duly given when so sent in the case of facsimile
transmission, or when so received in the case of mail or courier, and addressed
as follows:
- 27 -
<PAGE>
(i) If to a Purchaser, to the address and fax numbers set
forth below its name on the signature pages hereto:
with a copy to:
Heller Ehrman White & McAuliffe
333 Bush Street
San Francisco, CA 94104
Attention: George H. Shenk, Esq.
Phone: (415) 772-6000
Fax: (415) 772-6268
(i) If to the Company:
Diametrics Medical, Inc.
2658 Patton Road
Roseville, Minnesota 56113
Attention: David T. Giddings, Chairman, CEO and President
Phone: (612) 639-8035
Fax: (612) 638-1197
with a copy to:
Dorsey & Whitney LLP
220 South 6th Street
Minneapolis, Minnesota 55402
Attention: Kenneth Cutler, Esq.
Phone: (612) 340-2740
Fax: (612) 340-8738
or to such other person or address as shall be furnished to the other party in
writing.
Section 13.3 Consent to Amendments and Waivers. The provisions of this
Agreement may be amended and the Company may take any action herein prohibited,
or omit to perform any action herein required to be performed by it, only if the
Company has obtained the written consent of 50.1% in aggregate principal amount
of the outstanding Notes; provided, however, that no amendment, modification or
waiver shall be effective unless consented to in writing by the Holder of such
Note if such amendment, modification or waiver would (a) modify any requirement
hereunder or under the Note that any specified action be taken by Holders of a
specified percentage of the principal amount of the Notes shall be effective
unless consented to by such percentage of Holders, (b) change the due date for,
or reduce the amount of, any payment or prepayment of principal of or premium or
interest on any Note (or reduce the principal amount of or rate of interest on
any Note), (c) change the place or currency of payment of principal of, or
premium or interest on any Note, or (d) impair the right to institute legal
proceedings for the
- 28 -
<PAGE>
enforcement of any payment on or with respect to any Note on or after the
occurrence of a Redemption Event. No course of dealing between the Company and
any Purchaser or any subsequent Holder of any Note or any delay in exercising
any rights hereunder or under any Note shall operate as a waiver of any rights
of such Purchaser or any subsequent Holder. Any consideration given to any
Holder to obtain its consent shall be given pro rata to all such Holders of a
Note or Notes whether or not they give consent. Each Holder of any Note at the
time or thereafter outstanding shall be bound by any consent authorized by this
paragraph, whether or not such Note shall have been marked to indicate such
consent, but any Note issued thereafter may bear a notation referring to any
such consent. The foregoing notwithstanding, the parties hereto agree that they
will not amend, modify or supplement (i) Section 8.7 hereof or (ii) this
sentence.
Section 13.4 Parties. This Agreement shall inure to the benefit of and
be binding upon the parties hereto, each subsequent Holder and each of their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, other than the parties hereto
and their respective successors, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the parties hereto, any subsequent Holder and
their respective successors, and for the benefit of no other person.
Notwithstanding the foregoing and subject to Section 3.2 of this Agreement, a
Purchaser may, without the consent of the Company grant participations in the
Notes.
Section 13.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota but without
giving effect to applicable principles of conflicts of laws to the extent that
the application of the laws of another jurisdiction would be required thereby.
Section 13.6 Replacement Notes. If any Note becomes mutilated and is
surrendered by the Holder thereof to the Company or if the Holder thereof claims
that any Note has been lost, destroyed or wrongfully taken, the Company shall
execute and deliver to such Holder a replacement Note, upon the affidavit of the
Holder thereof attesting to such loss, destruction or wrongful taking with
respect to such Note. Such affidavit shall be accepted as satisfactory evidence
of the loss, wrongful taking or destruction thereof, but a reasonable indemnity
may be required as a condition for the execution and delivery of a replacement
Note. The Company may charge the Holder of any mutilated, lost, destroyed or
wrongfully taken Note for expenses incurred by it in replacing such Note.
Section 13.7 Severability Clause. In case any provision in this
Agreement or any Note shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby and such provision shall be ineffective only to the
extent of such invalidity, illegality or unenforceability.
Section 13.8 Representations, Warranties and Agreements To Survive
Delivery. All representations, warranties and agreements contained in or
incorporated into this Agreement, or
- 29 -
<PAGE>
contained in certificates of officers of the Company submitted pursuant hereto,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Purchaser or any controlling person of
any Purchaser, or by or on behalf of the Company, and shall survive delivery of
the Notes and any transfer thereof other than any such transfer subsequent to
the effectiveness of a registration statement under the Securities Act (except
with respect to any representation or warranty which the Purchasers have
knowledge is untrue and have waived in writing). The representations
incorporated by reference in Section 2.1 hereof shall be subject to the same
survival limitations as apply to them under the Common Stock Purchase Agreement
and the representations set forth in Section 2.2 shall survive indefinitely.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
THE COMPANY:
------------
DIAMETRICS MEDICAL, INC.
By: /s/ David T. Giddings
Title: Chairman, President and CEO
THE PURCHASERS:
---------------
[see attached signature pages]
<PAGE>
PURCHASER:
BCC ACQUISITION II LLC
By: THE BAY CITY CAPITAL
FUND I, L.P.
Its: Manager
By: Bay City Capital Management LLC
Its: General Partner
By: /s/ Roger H. Alquist
---------------------------------
Name:
Title:
[This is a signature page to the Note Purchase Agreement]
<PAGE>
PURCHASER:
GERALD L. COHN REVOCABLE TRUST
By: /s/ Martin D. Cohn
Name: Martin D. Cohn
Title: Trustee
[This is a signature page to the Note Purchase Agreement]
<PAGE>
PURCHASER:
HANNAH S. AND SAMUEL A. COHN MEMORIAL
FOUNDATION
By: /s/ Edward A. Kramer
Name: Edward A. Kramer
Title: Vice Pres. Summit Bank, Trustee
[This is a signature page to the Note Purchase Agreement]
<PAGE>
PURCHASER:
AEOW 96, LLC
By: /s/ Will K. Weinstein
Name: Will K. Weinstein
Title:
[This is a signature page to the Note Purchase Agreement]
<PAGE>
EXHIBIT 1
[Form of Convertible Senior Secured Fixed Rate Note]
<PAGE>
EXHIBIT 2
WARRANT REGISTRATION RIGHTS AGREEMENT
This Warrant Registration Rights Agreement (this "Agreement"), dated as
of [Date], is made by and between [Purchaser of Diametrics Medical, Inc.] (the
"Company") and the Persons whose signatures appear on the signature pages hereto
as of the date hereof.
R E C I T A L S:
A. This Agreement is made pursuant to the [Name of Purchase Agreement]
dated as of the date hereof (the "Purchase Agreement") between the Company and
Diametrics Medical, Inc. ("DMI"). Capitalized terms not otherwise defined herein
shall have the meanings set forth in the Purchase Agreement.
B. The Purchase Agreement provides the Company's [Describe Purchase
Agreement].
C. As part of that Note Purchase Agreement dated August 4, 1998 between
DMI and the Holder(s) (as hereinafter defined), DMI agreed that, if DMI entered
into an agreement with a company similar to the Purchase Agreement, Company
would be required, as a non-waivable condition of closing of DMI to the Purchase
Agreement to (i) issue certain detachable Warrants (as defined below) to the
Holder(s) and (ii) execute this Agreement in favor of the Holder(s).
D. In order to permit DMI to close under the Purchase Agreement, the
Company has agreed to provide the registration rights set forth in this
Agreement to the Holder(s).
NOW,THEREFORE, the parties hereby agree as follows:
1. Definitions. In addition to terms defined elsewhere in this Agreement, as
used in this Agreement, the following capitalized terms shall have the following
meanings:
"Common Stock" means the common stock of the Company, with a par value
of $[__] per share.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar or successor federal statute and the rules and regulations of the
SEC promulgated thereunder, all as the same shall be in effect at the time.
"Holder" means any Person who executes a counterpart of this Agreement
on or after the date hereof and any Person who becomes a Holder after the date
of this Agreement pursuant to Paragraph 14(a).
"Indemnified Party" has the meaning set forth in Paragraph 8(c).
"Indemnifying Party" has the meaning set forth in Paragraph 8(c).
"NASD" means the National Association of Securities Dealers, Inc.
<PAGE>
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof, or any other entity of any kind.
"Registered Securities" means Registrable Securities which have been
registered under the Securities Act pursuant to a registration statement filed
with and declared effective by the SEC.
"Registrable Securities" means (i) the Warrants; (ii) the shares of
Common Stock issued or issuable on exercise of the Warrants; and (iii) any other
security issued or issuable in exchange for, or in replacement of, any of the
Warrants, in each case until any such security ceases to be a Registrable
Security in accordance with Paragraph 2 hereof.
"Registration Expenses" means all expenses (excluding Selling Expenses)
incident to the Company's performance of or compliance with Paragraphs 3, and 4
of this Agreement, including without limitation all registration and filing
fees, including fees with respect to filings required to be made with any stock
exchange or the NASD, fees and expenses of compliance with state securities or
blue sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities),
messenger, telephone and delivery expenses, and the fees and expenses of counsel
for the underwriter, costs of printing prospectuses, and fees and disbursements
of counsel for the Company and of all independent certified public accountants
of the Company (including the expenses of any special audit and "cold comfort"
letters required by or incident to such performance).
"Registration Statement" means any registration statement of the
Company which includes any of the Registrable Securities pursuant to the
provisions of this Agreement, including the prospectus included or deemed
included in the Registration Statement and all amendments and supplements to the
Registration Statement or the prospectus, including post-effective amendments,
and all exhibits to, and all materials incorporated by reference in, the
Registration Statement.
"SEC" means the United States Securities and Exchange Commission or any
similar agency then having the authority to enforce the Exchange Act or the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar or successor statute, and the rules and regulations of the SEC
promulgated thereunder, all as the same shall be in effect at the time.
"Selling Expenses"means (i) all fees and expenses of counsel and
accountants for the Holder(s), (ii) all discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities, (iii)
transfer taxes and (iv) any other expenses of the Holder(s) incident to this
Agreement (excluding Registration Expenses).
"Selling Holder(s)" has the meaning set forth in Paragraph 6(b).
"Warrant" means a warrant in the form of Exhibit A attached hereto.
<PAGE>
2. Securities Subject to this Agreement. The securities entitled to the benefits
of this Agreement are the Registrable Securities, but such benefits shall
continue with respect to each such security only so long as such security
continues to be a Registrable Security. A security ceases to be a Registrable
Security when (a) a Registration Statement covering the sale of such Registrable
Security has been declared effective under the Securities Act and the
Registrable Security has been sold in accordance with the Registration
Statement; (b) it is distributed to the public pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act; (c) a new certificate
representing such security has been delivered (to the original Holder or any
subsequent transferee) by the Company free from any restrictive legend and
without issuance of stop transfer or other instructions to the Company's
transfer agent and the Holder of such security has been advised by counsel
reasonably acceptable to it that subsequent disposition of such security will
not require registration or qualification under the Securities Act then in
effect; or (d) the security has ceased to be outstanding.
3. Shelf Registration.
(a) The Company shall file within 60 days following the date hereof
with the SEC, and shall use its best efforts to cause the SEC to promptly
declare effective, a Registration Statement relating to the Registrable
Securities, which Registration Statement shall provide for the sale by the
holders thereof of the Registrable Securities from time to time on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act (the "Shelf
Registration").
(b) The foregoing notwithstanding, the Company shall have the right in
order to avoid the disclosure of any corporate development that the Company is
not otherwise obligated to disclose to delay the filing of the Registration
Statement with respect to the Shelf Registration for a reasonable length of time
(a "Delay Period"); provided, that the aggregate number of days in the Delay
Period shall not exceed 30. The Company shall provide written notice to each
holder of Registrable Securities to be covered by the Shelf Registration of the
beginning and end of the Delay Period.
(c) Failure to file a Registration Statement or cause such Registration
Statement to become effective pursuant to the provisions of this Section 3 by
reason of delays caused by any of the Holder(s) in connection with their rights
set forth in Section 6(l) of this Agreement shall not result in a breach of this
Section 3.
(d) To the extent that the holders of Registrable Securities would not
be adversely effected, the Company may include other securities in such Shelf
Registration (whether for the account of the Company or otherwise, including
without limitation any securities of the Company held by security holders, if
any, who have piggyback registration rights with respect thereto) or otherwise
combine the offering of the Registrable Securities with any offering of other
securities of the Company (whether for the account of the Company or otherwise).
4. Registration under the Securities Act: Piggy-Back Registration.
(a) Piggy-Back Registration. If at any time the Company proposes to
register for itself or any of its stockholders any of its capital stock under
the Securities Act in connection with the public offering of such securities on
a form and in a manner that would permit registration of Registrable Securities
for sale to the public under the Securities Act, then:
<PAGE>
(i) the Company in each case will notify in writing each
Holder of the filing or intended filing of a Registration Statement in
connection therewith prior to the proposed effective date thereof;
(ii) the Company will offer each Holder the opportunity to
include in such registration all or such lesser amount of Registrable Securities
as each Holder may request. Upon the request of one or more Holder(s) given in
writing within 20 days after receipt of the notice described under clause (i)
above, the Company, subject to the provisions of Paragraph 4(b), shall cause any
of the Registrable Securities specified by such Holder to be included in the
Registration Statement; and
(iii) if the registration of which the Company gives written
notice under clause (i) above involves an underwriting, the Company shall use
its best efforts to cause the managing underwriter(s) of the proposed
underwritten offering to permit each Holder to include their Registrable
Securities in the underwriting on the same terms and conditions as similar terms
of the Company included therein.
(b) Limitations on the Company's Obligations to Effect Piggy-Back
Registration. Notwithstanding the provisions of Paragraph 4(a) above:
(i) if and to the extent that the managing underwriter(s)
advise the Company in writing that, in its good faith determination, inclusion
of the number of Registrable Securities held by Holder(s) requesting inclusion
in the Registration Statement would materially interfere with the underwriter's
ability to effectuate the registration and sale of securities proposed to be
offered and sold pursuant to the Registration Statement, the managing
underwriter(s) shall select the permissible quantity of Registrable Securities
to be sold by the Holder(s) (which may be none) by reducing the total number of
securities to be sold by the holders of securities other than Registrable
Securities and the Holder(s) on a pro rata basis; provided, however, that no
such reduction may reduce the securities being offered by the Company for its
own account. For purposes of apportionment pursuant to this Paragraph 4(b), for
any selling holder that is a partnership or a corporation, the affiliates of
such partnership or corporation shall collectively, with such holder be deemed
to be one "selling holder," and any pro rata reduction with respect to such
"selling holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by entities and individuals included in such "selling
holder"; and
(ii) if, at any time after giving such written notice of its
intention to register any of its securities and prior to the effective date of
the applicable Registration Statement filed in connection with such
registration, the Company shall determine for any reason not to register such
securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and thereupon shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration.
(c) Underwritten Offer. If the registration of which the Company gives
written notice under Paragraph 4(a)(i) above involves an underwriting, the
Company shall so advise in such written notice. In such event the right of any
Holder to registration pursuant to Paragraph 4(a) shall be conditioned upon such
Holder(s)'s participation in such underwriting and the inclusion of such
Holder's Registrable Securities in such underwriting. All Holder(s) proposing to
distribute their Registrable Securities through such underwriting shall
(together with the
<PAGE>
Company and the other holders distributing their Registrable Securities through
such underwriting) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
If any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw from the underwriting by prompt written notice to the Company
and the underwriter.
5. Registration Obligations of the Company. In connection with the filing of a
Registration Statement pursuant to Paragraphs 3 and 4 the Company shall:
(a) Use its best efforts to cause such Registration Statement to remain
in effect until the earlier of (i) the completion of the distribution of the
Registrable Securities included in the Registration Statement, and (ii) two
years after the date on which the Registration Statement is declared effective.
(b) Notify the Holder(s) whose Registrable Securities are included in
such Registration Statement (the "Selling Holder(s)") as to the filing of the
Registration Statement and of all amendments or supplements thereto filed prior
to the effective date of such Registration Statement;
(c) Notify the Selling Holder(s), promptly after the company shall
receive notice thereof, of the time when such Registration Statement became
effective or when any amendment or supplement to any prospectus forming a part
of said Registration Statement has been filed;
(d) Notify the Selling Holder(s) promptly of any request by the SEC for
the amending or supplementing of such Registration Statement or prospectus or
for additional information;
(e) During the period in which the Company is obligated to use its
reasonable best efforts to keep a Registration Statement effective pursuant to
this Paragraph 5, prepare and promptly file with the SEC and promptly notify the
Selling Holder(s) of the filing of any amendments or supplements to such
Registration Statement or prospectus as may be necessary to correct any
statements or omissions if, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the Securities Act, any
event with respect to the Company shall have occurred as a result of which any
such prospectus or any other prospectus as then in effect would include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading; and, in addition, during such
period, prepare and file with the SEC, promptly upon the Selling Holder(s)'
written request, any amendments or supplements to such Registration Statement or
prospectus which may be reasonably necessary or advisable in connection with the
distribution of the Registrable Securities;
(f) Prepare promptly upon request of the Selling Holder(s) or any
underwriters for the Selling Holder(s) made during the period in which the
Company is obligated to use its best efforts to keep a Registration Statement
effective, such amendment or amendments to such Registration Statement and such
prospectus or prospectuses as may be reasonably necessary to permit compliance
with the requirements of Section 10(a)(3) of the Securities Act;
(g) Advise the Selling Holder(s) promptly after the Company shall
receive notice or obtain knowledge of the issuance of any stop order by the SEC
suspending the effectiveness of
<PAGE>
any such Registration Statement or amendment thereto or of the initiation or
threatening of any proceeding for that purpose, and promptly use its reasonable
best efforts to prevent the issue of any stop order or obtain its withdrawal
promptly if such stop order should be issued;
(h) Use its best efforts to qualify as soon as reasonably practicable
the Registrable Securities for sale under the securities or blue sky laws of
such states and jurisdictions within the United States as shall be reasonably
requested by the Selling Holder(s); provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business, to become subject to taxation or to file a consent to service of
process generally in any of the aforesaid states or jurisdictions;
(i) Furnish the Selling Holder(s), as soon as available, copies of any
Registration Statement and each preliminary or final prospectus, or supplement
or amendment required to be prepared pursuant hereto, all in such quantities as
the Selling Holder(s) may from time to time reasonably request;
(j) Furnish the Selling Holder(s) with copies of such opinions of
counsel and accountants' "comfort" letters as it reasonably may request with
respect to the registration of its Registrable Securities, the Registration
Statement covering such Registrable Securities and the financial statements
included therein;
(k) Apply for listing and use its best efforts to list the Registrable
Securities, if any, being registered on any national securities exchange on
which a class of the Company's equity securities is listed (and to maintain such
listing during the pendency of the relevant registration period) or, if the
Company does not have a class of equity securities listed on a national
securities exchange, apply for qualification and use its reasonable best efforts
to qualify the Registrable Securities, if any, being registered for inclusion on
the automated quotation system of the NASD (and to maintain such qualification
during the pendency of the relevant registration period);
(l) In connection with the preparation and filing of each Registration
Statement registering Registrable Securities under the Securities Act, give the
holders of Registrable Securities on whose behalf such Registrable Securities
are to be so registered and their underwriters, if any, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such Registration Statement, each prospectus included therein or filed with the
SEC, and each amendment thereof or supplement thereto, and will give each of
them such access to its books and records and such opportunities to discuss the
business of the Company with its officers and the independent public accountants
who have certified its financial statements as shall be necessary, in the
opinion of such holders and such underwriters, or their respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act; and
(m) Make senior executives of the Company reasonably available to
assist the underwriters with respect to, and accompanying the underwriters on
the so-called "road show", in connection with marketing efforts for, and the
distribution and sale of Registrable Securities pursuant to a Registration
Statement in connection with an underwritten public offering.
6. Expenses. The Company will pay all Registration Expenses in connection with
registrations of Registrable Securities effected pursuant to Paragraphs 3 and 4.
All Selling
<PAGE>
Expenses in connection with any registration effected pursuant to this Agreement
shall be borne by the Holder(s).
7. Indemnification.
(a) To the extent permitted by applicable law, the Company will
indemnify each Holder of the Registrable Securities requesting or joining in a
registration, each Person who controls such Holder within the meaning of Section
15 of the Securities Act, and each underwriter of the securities so registered
and each person who controls such underwriter, and their respective officers,
directors, partners, agents, employees and successors (each a "Section 7(a)
Indemnitee"), against all costs, expenses, demands, claims, losses, damages,
liabilities, fines and penalties (or actions in respect thereof), to which such
Section 7(a) Indemnitee may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such claims, losses, damages, liabilities,
fines and penalties arise out of or are based on any untrue statement (or
alleged untrue statement) of a material fact contained in any Registration
Statement or prospectus, or arise out of or are based upon any omission (or
alleged omission) to state therein a fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law and will reimburse each such
Section 7(a) Indemnitee for (and will make periodic advances to cover) any legal
and any other expenses reasonably incurred in connection with investigating or
defending any such demand, claim, loss, damage, liability or action promptly
after submission of supporting materials with respect to such expenses;
provided, however, that the Company shall not be required to indemnify any
Section 7(a) Indemnitee for any cost, expense, demand, claim, loss, damage,
liability, fine or penalty which arises out of or is based upon (i) any written
information provided by any such Section 7(a) Indemnitee, respectively,
expressly for inclusion in the Registration Statement or (ii) the circumstances
set forth in clause (y) of paragraph (b) below.
(b) To the extent permitted by applicable law, each Holder requesting
or joining in a registration, severally and not jointly, will indemnify the
Company, each of its officers, directors, employees, agents, successors and
controlling persons (within the meaning of Section 15 of the Exchange Act)
(each, a "Section 7(b) Indemnitee"), against all costs, expenses, demands,
claims, losses, damages, liabilities, fines and penalties (or actions in respect
thereof) to which such Section 7(b) Indemnitee may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages, liabilities, fines and penalties arise out of or are based upon an
untrue statement (or alleged untrue statement) of a material fact contained in
any Registration Statement or prospectus, or arise out of or are based upon (x)
the omission (or alleged omission) to state therein a fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement (or alleged
untrue statement or omission (or alleged omission) was made in any Registration
Statement or prospectus in reliance upon and in conformity with information
furnished to the Company by such Holder requesting or joining in a registration
specifically for use in the preparation thereof, or (y) any untrue statement or
alleged untrue statement of a material fact contained in, or any omission or
alleged omission of a material fact from, a prospectus if (i) a later prospectus
corrected the untrue statement or alleged untrue statement, or omission or
alleged omission, (ii) at such time the Company had advised the Holder of the
availability of the revised prospectus, and (iii) there would have been no such
liability had such
<PAGE>
later prospectus actually been delivered to the purchaser at or prior to
confirmation of sale; provided, however, that the obligations of such Holder(s)
hereunder shall be limited to an amount equal to the proceeds to each Holder of
the Registrable Securities sold in connection with such registration.
(c) Each party entitled to indemnification under this Paragraph 7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has received written notice of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided such counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld or delayed). The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall bear the expense of such defense of the Indemnified Party if (i) the
Indemnifying Party has agreed in writing to pay such expenses, (ii) the
Indemnifying Party shall have failed to assume the defense of such claim or
employ counsel reasonably satisfactory to the Indemnified Party, or (iii) in the
reasonable judgment of the Indemnified Party, based upon the written advice of
such Indemnified Party's counsel, representation of both parties by the same
counsel would be inappropriate due to actual or potential conflicts of interest.
In the event that the Indemnifying Party properly does not assume such defense,
the Indemnifying Party shall not be subject to any liability for any settlement
made without its prior written consent, which consent shall not be unreasonably
withheld or delayed. The failure of any Indemnified Party to give notice as
provided herein shall relieve the Indemnifying Party of its obligations under
this Paragraph 7 only to the extent that such failure to give notice shall
materially adversely prejudice the Indemnifying Party in the defense of any such
claim or any such litigation. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the prior written consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation in form and substance reasonably
satisfactory to such Indemnified Party.
8. Contribution.
(a) If the indemnification provided for in Paragraph 7 from the
Indemnifying Party is unavailable to or unenforceable by the Indemnified Party
in respect to any losses, claims, damages, liabilities or expenses referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. 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
<PAGE>
forth in Paragraph 7, any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding.
(b) The Company and the Holder(s) agree that it would not be just and
equitable if contribution pursuant to this Paragraph 8 were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. 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.
(c) If Indemnification is available under Paragraph 7, the Indemnifying
Parties shall indemnify each Indemnified Party to the full extent provided in
Paragraph 7 without regard to the relative fault of the Indemnifying Party or
Indemnified Party or any other equitable consideration provided for in this
Paragraph 8.
9. Holdback Agreements.
(a) Restrictions on Public Sale by Holder of Registrable Securities. To
the extent requested by the Company and the managing underwriter with respect to
the applicable Registration Statement, each Holder whose Registrable Securities
are included in a Registration Statement filed pursuant to Paragraphs 3 and 4
hereof agrees not to effect any public sale or distribution of the issue being
registered or any similar security of the Company, including a sale pursuant to
Rule 144 or Rule 144A under the Securities Act, during the seven (7)-day period
prior to, and during the 90-day period beginning on, the effective date of such
Registration Statement, to the extent such sales may prevent the Company from
being in compliance with the Exchange Act; provided, however, that all officers
and directors of the Company enter into similar agreements. Such agreement shall
be in writing reasonably satisfactory to the Company and such managing
underwriter.
(b) Restrictions on Public Sale by the Company and Others. The Company
shall not make any public or nonpublic sale or distribution of any securities of
the same class as those being registered, or any securities convertible into or
exchangeable or exercisable for any such securities, during the seven day period
prior to, and during the 60-day period beginning on, the effective date of any
Registration Statement in which holders of Registrable Securities are
participating or the commencement of a public distribution of Registrable
Securities pursuant to any such Registration Statement (except (i) as part of
such registration or pursuant to registrations on SEC Forms S-4 or S-8 or any
similar or successor form, or on any form filed in connection with an exchange
offer or an offering of securities solely to the existing stockholders or
employees of the Company or (ii) for sales or other issuances of securities
pursuant to outstanding options, warrants, rights or similar obligations).
10. Rule 144 and Stock Exchange Listings. To the extent that the Company is
subject to the filing and reporting requirements of the Securities Act and the
Exchange Act, and so long as there are Registrable Securities outstanding:
(a) The Company will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder, and will take such further action as any holder of
Registrable Securities may reasonably request, all to the
<PAGE>
extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 or Rule 144A under the Securities
Act, as such Rule may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such information and requirements
(b) The Company will use its best efforts to avoid taking any action
which would cause the Common Stock to cease to be eligible for inclusion on
either of the NASD Automated Quotation System or for listing on any securities
exchange on which it may become listed.
11. Obligations of Holder.
(a) Each Holder of Registrable Securities included in any registration
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder, and shall otherwise use reasonable best
efforts to cooperate with the Company and any underwriter(s), as the Company may
reasonably request and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Agreement.
(b) Each Holder of the Registrable Securities agrees by acquisition of
such Registered Securities that upon receipt of any notice from the Company
pursuant to Paragraph 5(g), such Holder will forthwith discontinue such Holder's
disposition of Registered Securities pursuant to the Registration Statement
relating to such Registered Securities under such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Paragraph 5(g) and if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the prospectus relating to such Registered Securities at the time
of receipt of such notice.
12. Mergers, etc. The Company shall not, directly or indirectly, enter into any
merger, consolidation or reorganization in which the Company shall not be the
surviving corporation unless the surviving corporation shall, prior to such
merger, consolidation or reorganization, agree in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Securities" shall be deemed to include the securities
which the Holder(s) would be entitled to receive in exchange for Common Stock
under any such merger, consolidation or reorganization, provided that to the
extent such securities to be received are convertible into shares of common
stock of the issuer thereof, then any such shares of common stock or other
securities as are issued or issuable upon conversion of said convertible
securities shall also be included within the definition of "Registrable
Securities."
13. Miscellaneous.
(a) Transfer of Certain Rights. The rights granted to the Holder(s)
under this Agreement may be transferred only to a transferee who delivers to the
Company, within a reasonable time after such transfer, a written instrument by
which such transferee agrees to be bound by the applicable terms of this
Agreement. Notwithstanding the foregoing, nothing herein shall prohibit: (i) any
Holder from transferring any of its rights under this Agreement to any
wholly-owned subsidiary of such Holder or to any entity which merges or
consolidates with or acquires all or substantially all of the equity securities
or assets of such Holder, (ii) any Holder
<PAGE>
which is a partnership from transferring any of its rights under this Agreement
to a partner of such partnership where such partner receives Registrable
Securities in a distribution from such partnership, (iii) any Holder who is an
individual from transferring any of its rights under this Agreement to such
Holder's spouse or to other relatives, or to a trust for the benefit of the
Holder, or his or her spouse or other relatives; or (iv) any trustee of a trust
which holds Registerable Securities from distributing such Registrable
Securities to the beneficiaries of such trusts; provided that any such
transferee under subparagraphs (i), (ii), (iii) or (iv) above will hold the
Registrable Securities subject to the terms and conditions of this Agreement.
Upon any transfer of the rights of a Holder permitted by and completed in
compliance with the terms of this Agreement, the transferee shall become a
"Holder" for purposes of this Agreement.
(b) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, each holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby agrees to waive the defense in
any action for specific performance that a remedy at law would be adequate.
(c) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given without the written consent of the
Company and Holder(s) of at least a majority of the Registrable Securities
affected by such amendment, modification, supplementation, waiver or consent.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter which relates exclusively to the
rights of Holder(s) of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and which does not directly or indirectly
affect the rights of other Holder(s) of Registrable Securities may be given by
the Holder(s) of a majority of the Registrable Securities being sold by such
Holder(s), provided that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be delivered by hand,
overnight courier service, registered or certified first-class mail, return
receipt requested, or telecopier; if to a Holder, at the address set forth
opposite such Holder's name on the signature pages attached hereto or such other
address as may have been furnished to the Company in writing; if to the Company,
at 2658 Patton Road, Roseville, Minnesota 55113, Attention: President and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Paragraph 13(d).
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; one business day after
sent if sent by courier service.
(e) No Inconsistent Agreements. The Company shall not on or after the
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
To the extent the Company on or after the date of this Agreement grants any
superior or more favorable rights or terms to any Person with respect to its
securities,
<PAGE>
any such superior or more favorable rights or terms shall also be deemed to have
been granted simultaneously to the holders of Registrable Securities. The
Company agrees to deliver to representatives of the initial Holder(s) hereunder,
upon the request of such initial Holder(s), copies of all agreements which it
has previously entered into or become a party to, or by which it is bound, with
respect to its securities granting any registration rights to any Person which
is inconsistent with the rights granted hereunder. The rights granted to the
holders of Registrable Securities hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the securities of
the Company under any other agreements.
(f) Governing Law; Forum. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota without
regarding to the conflict of laws provisions thereof. The parties irrevocably
agree that all actions arising directly or indirectly as a result or in
consequence of this Agreement and the transactions contemplated hereby, shall be
instituted and litigated only on federal, state or local courts sitting in the
City of Minneapolis, Minnesota and each of the parties hereby consents to the
exclusive jurisdiction and venue of any such court, and waives any objection
based on forum nonconveniens.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provisions in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement and the Purchase Agreement (and
all exhibits and/or schedules attached hereto and thereto) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the securities now or hereafter owned by the Holder(s).
(k) Attorneys' Fees. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or proceeding, in
addition to any other relief to which it may be entitled.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first above written.
[PURCHASER]
By: ________________________
Its: ________________________
HOLDERS:
If an individual:
___________________________
Signature
___________________________
Print Name
If an entity:
___________________________
Print Name of Entity
By: ________________________
Its: ________________________
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT 3
[PURCHASER OF DIAMETRICS MEDICAL, INC.]
[DETACHABLE] STOCK PURCHASE WARRANT
THE WARRANTS EVIDENCED HEREBY AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE
THEREOF HAVE NOT BEEN REGISTERED UNDER SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE UNDER SUCH ACT OR THE RULES OR REGULATIONS PROMULGATED
THEREUNDER.
--------- --, -----
WARRANT
To Subscribe for and Purchase Common Stock of [Purchaser of Diametrics
Medical, Inc.]
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON JULY ___, 2003, OR IF NOT A
BUSINESS DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK CITY TIME, ON THE
IMMEDIATELY PRECEDING BUSINESS DAY
This certifies that, for valuable consideration, receipt of which is
hereby acknowledged, each of the "Purchasers" under the Note Purchase Agreement
by and among Diametrics Medical, Inc., a Minnesota corporation, and the
Purchasers signatories thereto, dated as of August 4, 1998 (the "Note Purchase
Agreement"), and permitted successors and assigns of any of them ("Holders"; and
each individually, a "Holder") is entitled to purchase from [Purchaser of
Diametrics Medical, Inc.], a ___________ ________________ (the "Company") up to
and including such number of fully paid and nonassessable shares of the common
stock of the Company, [____] par value (the "Common Stock") as such Holder would
have been entitled to receive had such Holder exercised its conversion rights
under Section 4.4 or Article V of the Note Purchase Agreement immediately prior
to the Redemption Event (as defined in the Note Purchase Agreement) which has
entitled such Holder to receive this Warrant (the "Number of Shares"), on the
terms set forth herein at an exercise price per share equal to $[_____] (the
"Purchase Price"). The Number of Shares and the Purchase Price may be adjusted
from time to time as described in this Warrant.
1. Exercise.
1.1 Time for Exercise. This Warrant may be exercised in whole or in
part at any time, and from time to time, during the period commencing on the
date of this Warrant and expiring on July __, 2003.
1.2. Manner of Exercise. This Warrant shall be exercised by delivering
it to the Company with the exercise form duly completed and signed, specifying
the number of shares as to which the Warrant is being exercised at that time
(the "Exercise Number"). The Holder shall simultaneously deliver to the Company
cash or a certified check or wire transfer in an amount
<PAGE>
equal to the Exercise Number multiplied by the Purchase Price, and the Holder
shall be entitled to receive the full Exercise Number of shares of Common Stock.
1.3 Effective Date of Exercise. Promptly (but in any case within ten
(10) business days) after any exercise, the Company shall deliver to the Holder
(a) duly executed certificates in the name or names specified in the exercise
notice representing the aggregate number of shares issuable upon such exercise,
and (b) if this Warrant is exercised only in part, a new Warrant of like tenor
exercisable for the balance of the Number of Shares. Such certificates shall be
deemed to have been issued, and the person receiving them shall be deemed to be
a holder of record of such shares, as of the close of business on the date the
actions required in Section 1.2 shall have been completed or, if on that date
the stock transfer books of the Company are closed, as of the next business day.
2. Transfer of Warrants and Stock.
2.1 Transfer Restrictions. This Warrant shall be freely transferable by
the Holder in accordance with the terms hereof; provided, however, that neither
this Warrant nor the securities issuable upon its exercise may be sold,
transferred or pledged unless the Company shall have been supplied with
reasonably satisfactory evidence that such transfer is not in violation of the
Securities Act of 1933, as amended (the "Securities Act"), and any applicable
state securities laws. The Company may place a legend to that effect on this
Warrant, any replacement Warrant and each certificate representing shares
issuable upon exercise of this Warrant. Subject to the satisfaction of this
condition only, this Warrant shall be freely transferable by the Holder.
2.2 Manner of Transfer. Upon delivery of this Warrant to the Company
with the assignment form duly completed and signed, the Company will promptly
(but in any case within five (5) business days) execute and deliver to each
transferee and, if applicable, the Holder, Warrants of like tenor evidencing the
rights (a) of the transferee(s) to purchase the Number of Shares specified for
each in the assignment forms, and (b) of the Holder to purchase any
untransferred portion, which in the aggregate shall equal the number of Shares
of the original Warrant. If this Warrant is properly assigned in compliance with
Section 2, it may be exercised by an assignee without having a new Warrant
issued.
2.3 Loss, Destruction of Warrant Certificates. Upon receipt of (a)
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Warrant and (b) except in the case of mutilation, an
indemnity or security reasonably satisfactory to the Company, the Company will
promptly (but in any case within five (5) business days) execute and deliver a
replacement Warrant of like tenor representing the right to purchase the same
Number of Shares.
3. Cost of Issuances. The Company shall pay all expenses, transfer taxes and
other charges payable in connection with the preparation, issuance and delivery
of stock certificates or replacement Warrants, except for any transfer tax or
other charge imposed as a result of (a) any issuance of certificates in any name
other than the name of the Holder, or (b) any transfer of the Warrant. The
Company shall not be required to issue or deliver any Stock certificate or
Warrant until it receives reasonably satisfactory evidence that any such tax or
other charge has been paid by the Holder.
<PAGE>
4. Anti-Dilution Provisions. If any of the following events occur at any time
hereafter during the life of this Warrant, then the Purchase Price and the
Number of Shares immediately prior to such event shall be changed as described
in order to prevent dilution:
4.1 Dividends; Stock Splits Etc. In case the Company shall (a) pay a
dividend in shares of Common Stock or make a distribution in shares of Common
Stock, (b) subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (c) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, the Number of Shares purchasable
upon the exercise of this Warrant immediately prior thereto shall be adjusted so
that the Number of Shares purchasable upon exercise of this Warrant shall be
determined by multiplying the Number of Shares theretofore purchasable upon the
exercise of this Warrant by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding immediately following such action
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately prior thereto. Such adjustment shall be made whenever
any event listed above shall occur and shall become effective immediately after
the record date in the case of a dividend and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification. If the Company declares a dividend in money on its Common
Stock and at substantially the same time offers its Stockholders a right to
purchase new shares of Common Stock from the proceeds of such dividend, or for
an amount substantially equal to such dividend, all shares of Common Stock so
issued shall for purposes hereof be deemed issued as a Stock dividend.
4.2 Issuance of Rights or Warrants to Holders. In case the Company
shall issue rights, options or warrants to all holders of its shares of Common
Stock entitling them (for a period expiring within 45 days after the record date
therefor) to subscribe for or purchase shares of Common Stock at a price per
share which is lower at the record date mentioned below than the then Current
Market Price per share of Common Stock (as hereinafter defined), the Number of
Shares thereafter purchasable upon the exercise of this Warrant shall be
determined by multiplying the Number of Shares theretofore purchasable upon
exercise of this Warrant by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares which the aggregate
offering price of the total number shares of Common Stock so offered would
purchase at the then Current Market Price per share of Common Stock.
4.3 Merger; Consolidation; Sale of Assets. In case of (a) the
consolidation or the merger of the Company, (b) the sale of all or substantially
all of the properties and assets of the Company to any Person, (c) any capital
reorganization by the Company, or (d) any voluntary or involuntary dissolution,
liquidation or winding up of the Company, this Warrant shall, after any such
event, entitle the Holder to receive upon exercise the number of shares of Stock
or other securities or property (including cash) of the Person (if applicable)
resulting from such event, which the holder of securities deliverable upon
exercise of this Warrant (at the time of such event) would have been entitled to
receive upon such event; and in any such case the provisions of Section 4 with
respect to the rights and interests thereafter of the holders of Warrants shall
be appropriately adjusted so as to be applicable, as nearly as practicable, to
any shares of Stock or other securities or any property (including cash)
thereafter deliverable upon exercise of this Warrant. The Person resulting from
such sale or consolidation or surviving such merger or to
<PAGE>
which such sale shall be made shall execute and deliver to the Holder a
supplemental agreement as provided in Section 5.5 below. Any adjustment pursuant
to this Section 4.3 which shall be approved in good faith by the Board of
Directors of the Company pursuant to a resolution delivered to the Holder shall
be conclusive for all purposes hereof. For the purposes of this Agreement
"person" means any individual, partnership, firm, corporation, limited liability
company or partnership, association, trust, unincorporated organization or other
entity, as well as any syndicate or group that would be deemed to be a person
under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
4.4 Other Distributions. In case the Company shall distribute to all
holders of its shares of Common Stock shares of Stock other than Common Stock or
evidences of its indebtedness or assets (excluding cash dividends or
distributions payable out of consolidated earnings or retained earnings and
dividends or distributions referred to in Section 4.1 above) or rights, options
or warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred to in
Section 4.2 above), then in each case the Number of Shares thereafter
purchasable upon the exercise of this Warrant shall be determined by multiplying
the Number of Shares theretofore purchasable upon the exercise of this Warrant,
by a fraction of which the numerator shall be the Current Market Price per share
of Common Stock on the record date mentioned below in this Section 4.4 plus the
then fair value (as reasonably determined by the Board of Directors of the
Company in good faith, whose determination shall be conclusive absent manifest
error, irrespective of the accounting treatment thereof) of the portion of the
shares of Stock other than Common Stock or assets or evidences of indebtedness
so distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock,
and of which the denominator shall be the Current Market Price per share of
Common Stock on such record date. Such adjustment shall be made whenever any
such distribution is made, and shall become effective immediately after the
record date for the determination of Stockholders entitled to receive such
distribution.
4.5 Additional Adjustment of Purchase Price. Whenever the Number of
Shares purchasable upon the exercise of this Warrant is adjusted, as provided
herein, the Purchase Price payable upon exercise of this Warrant shall be
adjusted by multiplying such Purchase Price immediately prior to such adjustment
by a fraction, of which the numerator shall be the Number of Shares purchasable
upon the exercise of this Warrant immediately prior to such adjustment, and of
which the denominator shall be the Number of Shares so purchasable immediately
thereafter.
4.6 No De Minimis Adjustments. No adjustment in the Purchase Price
shall be required unless such adjustment would require an increase or decrease
of at least 1% in such price; provided, however, that any adjustments which by
reason of this Section 4.6 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 4.6 shall be made to the nearest one-twentieth of a cent or to the
nearest one-hundredth of a share, as the case may be.
4.7 Treasury Shares. For the purpose of Section 4, shares of Common
Stock or other securities held in the treasury of the Company shall not be
deemed to be outstanding, and the sale or other deposition of any shares of
Common Stock or other securities held in the treasury of the Company shall be
deemed an issuance thereof.
<PAGE>
4.8 Corporate Action. Before taking any action which would cause an
adjustment reducing the Purchase Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of this Warrant, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Purchase Price.
4.9 Independent Public Accountants. The certificate of a "Big Six" firm
of independent public accountants selected by the Board of Directors of the
Company shall be conclusive evidence of the correctness of any computation made
under Section 4.
4.10 Notice of Certain Events. In case at any time prior to the
expiration date of this Warrant:
(i) the Company shall authorize the granting to all the
holders of Common Stock of rights to subscribe for or purchase
any shares stock of any class or of any other rights; or
(ii) there shall be any reclassification of the Common Stock
of the (other than a subdivision or combination of its Common
Stock); or
(iii) there shall be any capital reorganization by the
Company; or
(iv) there shall be a consolidation or merger involving the
Company or sale of all or substantially all of the Company's
property assets (except a merger or other reorganization in
which Company shall be the surviving corporation or a
consolidation, merger or sale with a wholly-owned subsidiary);
or
(v) there shall be voluntary or involuntary dissolution, and
winding up by the Company or dividend or to holders of Common
Stock (other than the customary cash and stock dividends); or
(vi) any other action shall occur which would give rise to an
adjustment to the Purchase Price or the Number of Shares
hereunder,
then in any one or more of said cases, the Company shall cause to be delivered
to the Holder, at the earliest practicable time (and, in any event, not less
than 25 days before any record date or other date set for definitive action),
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution or subscription rights or such
reorganization, sale, consolidation, merger, dissolution, liquidation or winding
up shall take place, as the case may be. Such notice shall also set forth such
facts as shall indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the Purchase Price and the kind and
amount of the shares of stock and other securities and property deliverable upon
exercise of the Warrants. Such notice shall also specify the date, if known, as
of which the holders of record of the Common Stock shall participate in said
dividend, distribution or subscription rights or shall be entitled to exchange
their shares of the Common Stock for securities or other property (including
cash) deliverable upon such reorganization, sale, consolidation, merger,
dissolution, liquidation or winding up, as the case may be (on which date, in
the event of voluntary or involuntary dissolution, liquidation, or winding up of
the Company, other than dissolution, liquidation or winding up following a
consolidation or merger of the
<PAGE>
Company with or into, or sale of substantially all of its assets to, another
corporation, the rights to exercise this Warrant shall terminate).
4.11 Other Securities Adjustments. If as a result of Section 4, a
Holder is entitled to receive any securities other than Common Stock upon
exercise of this Warrant, the number and purchase price of such securities shall
thereafter be adjusted from time to time in the same manner as provided pursuant
to Section 4 for Common Stock. The allocation of purchase price between various
securities shall be made in writing by the Board of Directors of the Company in
good faith at the time of the event by which the holder became entitled to
receive new securities, and a copy sent to the Holder.
4.12 Notices of Adjustments. When any adjustment is required to be made
under Section 4, the Company shall promptly (a) determine such adjustments, (b)
prepare and retain on file a statement describing in reasonable detail the
method used in arriving at the adjustment; and (c) cause a copy of such
statement, together with any agreement required by Section 5.5, to be mailed to
the Holder within 10 days after the date on which the circumstances giving rise
to such adjustment occurred.
4.13 Computations and Adjustments. Upon each computation of an
adjustment under this Section 4, the Purchase Price shall be computed to the
nearest cent and the Number of Shares shall be calculated to the next highest
whole share. However, the fractional amount shall be used in calculating any
future adjustments. No fractional shares of Common Stock shall be issued in
connection with the exercise of this Warrant, but the Company shall, in the case
of the final exercise under this Warrant, make a cash payment for any fractional
shares based on the Current Market Price of the Common Stock on the date of
exercise. Notwithstanding any changes in the Purchase Price or the Number of
Shares, this Warrant, and any Warrants issued in replacement or upon transfer
thereof, may continue to state the initial Purchase Price and the Number of
Shares. Alternatively, the Company may elect to issue a new Warrant or Warrants
of like tenor for the additional shares of Common Stock purchasable hereunder
or, upon surrender of the existing Warrant, to issue a replacement Warrant
evidencing all the Warrants to which the Holder is entitled after such
adjustments.
4.14 Exercise Before Payment Date. In the event that this Warrant is
exercised after the record date for any event requiring an adjustment, but prior
to the actual event, the Company may elect to defer payment of the adjusted
amount to the Holder until the actual event occurs; provided, however, that the
Company shall deliver a due bill or other appropriate instrument to the Holder
transferable to the same extent as the other Securities issuable on exercise
evidencing the Holder's right to receive such additional amount upon the
occurrence of the event requiring such adjustment.
4.15 Current Market Price. "Current Market Price" means the average of
the last reported sale prices per share for the ten consecutive Trading Days (as
defined below) preceding the date of such computation. The last reported sale
price for each day shall be (i) the last sale price, or the closing bid price if
no sale occurred, of the Common Stock on the principal securities exchange on
which the Common Stock is listed, (ii) if not listed as described in clause (i),
the last reported sale price of the Common Stock on the Automated Quotation
System of the National Association of Securities Dealers, Inc. (the "NASDAQ
System"), or any similar system of automated dissemination of quotations of
securities prices then in common use, if so quoted,
<PAGE>
or (iii) if not quoted as described in clauses (i) or (ii), the mean of the high
and low bid quotations for the Common Stock as reported by the National
Quotation Bureau Incorporated if at least two securities dealers have inserted
bid quotations for the Common Stock on at least five of the ten preceding days.
If the Common Stock is quoted on a national securities or central market system,
in lieu of a market or quotation system described above, the last reported sale
price shall be determined in the manner set forth in clause (iii) of the
preceding sentence if bid and asked quotations are reported but actual
transactions are not, and in the manner set forth in clause (i) of the preceding
sentence if actual transactions are reported. If none of the conditions set
forth above is met, the last reported sale price of the Common Stock on any day
or the average of such last reported sales prices for any period shall be the
fair market value of such class of stock as determined by a member firm of the
New York Stock Exchange, Inc. selected by the Company. As used herein the term
"Trading Days" means (x) if the Common Stock is quoted on the NASDAQ System or
any similar system of automated dissemination of quotations of securities
prices, days on which trades may be made on such system, or (y) if not quoted as
described in clause (x), days on which quotations are reported by the National
Quotation Bureau Incorporated, or (z) if the Common Stock is listed or admitted
for trading on any national securities exchange, days on which such national
securities exchange is open for business.
5. Covenants. The Company agrees that:
5.1 Reservation of Stock. During the period in which this Warrant may
be exercised, the Company will reserve sufficient authorized but unissued
securities to enable it to satisfy its obligations on exercise of this Warrant
and shall use its reasonable best efforts to cause all shares of Common Stock
issued upon the exercise of this Warrant to be listed on any exchanges on which
the Common Stock is then listed. If at any time the Company's authorized
securities shall not be sufficient to allow the exercise of this Warrant, the
Company shall take such corporate action as may be necessary to increase its
authorized but unissued securities to be sufficient for such purpose;
5.2 No Liens, etc. All securities that may be issued upon exercise of
this Warrant will, upon issuance, be validly issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and shall be listed on any exchanges on which that class of securities is
listed;
5.3 Furnish Information. During the term of this Warrant, the Company
will promptly deliver to the Holder copies of all financial statements, reports
and proxy statements which the Company shall have sent to its stockholders
generally;
5.4 Stock and Warrant Transfer Books. Except upon dissolution,
liquidation or winding up or for ordinary holidays and weekends, the Company
will not at any time close its stock or warrant transfer books so as to result
in preventing or delaying the exercise or transfer of this Warrant; and
5.5 Merger; Consolidation or Sale of Assets of the Company. Except in
the case of a merger or consolidation where the consideration is payable
entirely in cash or obligations, the Company will not merge or consolidate with
or into any Person, or sell or otherwise transfer its property, assets and
business substantially as an entirety to a successor Person, unless the Person
resulting from such merger or consolidation (if not the Company), or such
successor Person,
<PAGE>
shall expressly assume, by supplemental agreement reasonably satisfactory in
form to the then Majority Holders (as defined below) and executed and delivered
to the Holder, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company. "Majority Holders", as of any date, shall mean holders of this Warrant
(or replacement warrants issued pursuant hereto) and of the substantially
similar warrants issued pursuant to the Note Purchase Agreement (or replacement
warrants issued pursuant thereto) who together have rights to exercise such
warrants for a majority of the shares of the common stock of the Company
issuable upon exercise of such warrants.
6. Status of Holder.
6.1 Not a Stockholder. Unless the Holder exercises this Warrant in
writing, the Holder shall not be entitled to any rights (a) as a stockholder of
the Company with respect to the shares as to which the Warrant is exercisable
including, without limitation, the right to vote or receive dividends or other
distributions, or (b) to receive any notice of any proceedings of the Company
except as otherwise provided in this Warrant.
6.2 Limitation of Liability. Unless the Holder exercises this Warrant
in writing, the Holder's rights and privileges hereunder shall not give rise to
any liability for the Purchase Price or as a stockholder of the Company, whether
to the Company or its creditors.
7. Registration Rights. The shares purchasable upon exercisable of this Warrant
shall be Registerable Securities as defined in that certain Warrant Registration
Rights Agreement between the Company and the initial Holders signatories thereto
dated as of even date herewith (the "Registration Rights Agreement").
8. General Provisions.
8.1 Complete Agreement; Modifications. This Warrant and any documents
referred to herein or executed contemporaneously herewith constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. The Warrant may not be amended, altered or modified except by a writing
signed by the parties.
8.2 Cooperation. Each party hereto agrees to execute any and all
further documents and writings and to perform such other reasonable actions
which may be or become necessary or expedient to effectuate and carry out this
Warrant.
8.3 Notices. All notices under this Warrant shall be in writing and
shall be delivered by personal service or telecopy or certified mail return
receipt requested (if such service is not available, then by first class mail),
postage prepaid, to such address as may be designated from time to time by the
relevant party, and which shall initially be:
(a) If to the Company:
<PAGE>
With a copy to:
(b) If to ___________________:
With a copy to:
Any notice sent by certified mail shall be deemed to have been given three (3)
days after the date on which it is mailed. All other notices shall be deemed
given when received. No objection may be made to the manner of delivery of any
notice actually received in writing by an authorized agent of a party.
8.4 No Third-Party Benefits; Successors and Assigns. None of the
provisions of this Warrant shall be for the benefit of, or enforceable by, any
third-party beneficiary. Except as provided herein to the contrary, this Warrant
shall be binding upon and inure to the benefit of the parties, their respective
successors and permitted assigns.
8.5 Governing Law. This Warrant concerns a __________ ___________, and
all questions with respect to the Warrant and the rights and liabilities of the
parties will be governed by the laws of _____________ regardless of the choice
of law provisions of _____________ or any other jurisdiction.
8.6 Waivers Strictly Construed. With regard to any power, remedy or
right provided herein or otherwise available to any party hereunder (a) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or other indulgence.
8.7 Severability. The validity, legality or enforceability of the
remainder of this Warrant shall not be affected even if one or more of its
provisions shall be held to be invalid, illegal or unenforceable in any respect.
8.8 Attorneys' Fees. Should any litigation or arbitration be commenced
(including any proceedings in a bankruptcy court) between the parties hereto or
their representatives concerning any provisions of this Warrant or the rights
and duties of any person or entity hereunder the party or parties prevailing in
such proceeding shall be entitled, in addition to such other relief as may be
granted, to the attorneys' fees and court costs incurred by reason of such
litigation.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed effective as of ___________ __, ______.
[PURCHASER OF DIAMETRICS MEDICAL, INC.]
By:_______________________________
Name: _________________________
Title:__________________________
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________ hereby sells, assigns and
transfers to the transferee named below the rights to purchase ______________ of
the Number of Shares under this Warrant, together with all rights, title and
interest therein. The rights to purchase the remaining Number of Shares shall
remain the property of the undersigned.
Dated: _____________________
[NAME OF HOLDER]
By:____________________________
(Signature)
Name:__________________________
(Please Print)
Address:_________________________
___________________________________________
Employer Identification Number, Social
Security Number or other identifying number:
TRANSFEREE:
Name:____________________________
(Please Print)
Address:____________________________
__________________________________
Employer Identification Number, Social
Security Number or other identifying number:
<PAGE>
EXERCISE FORM
To Be Executed Upon Exercise of Warrant
The undersigned hereby exercises the Warrant with regard to ___________
shares of Common Stock and herewith makes payment of the purchase price in full.
The undersigned requests that certificate(s) for such shares and the Warrant for
any unexercised portion of this Warrant be issued to the Holder.
Dated: __________________
[NAME OF HOLDER]
By:____________________________
(Signature)
Name:__________________________
(Please Print)
Address:_________________________
___________________________________________
Employer Identification Number, Social
Security Number or other identifying number:
<PAGE>
EXHIBIT 4
FORM OF NOTICE OF ELECTION TO CONVERT
To Be Executed Upon Exercise Of CONVERSION
OF NOTE TO SHARES OF DIAMETRICS MEDICAL, INC.
The undersigned hereby exercises its rights as Holder of the
accompanying Convertible Senior Secured Fixed Rate Note issued pursuant to the
Note Purchase Agreement referred to therein. The undersigned instructs that
obligations with respect to principal in the amount of $___________ (must be an
integral multiple of $1,000) hereby be converted into shares of Common Stock of
Diametrics Medical, Inc. pursuant to Article V of that Note Purchase Agreement.
The undersigned requests that certificate(s) for such shares and a replacement
Note for any unconverted portion of the principal amount of this Note be issued
to the Holder.
The original Note must accompany presentation of this form.
Dated:_______________________________
[NAME OF HOLDER]
By:____________________________
Name:
_______________________________
(Please Print)
Address:_________________________
_________________________________
_________________________________
Employer Identification Number, Social
Security Number or other identifying
number:
_______________________________________
<PAGE>
EXHIBIT 10.4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT') OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED ("TRANSFERRED") EXCEPT IN
COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT OR PURSUANT TO AN
EXEMPTION THEREFROM.
DIAMETRICS MEDICAL, INC.
CONVERTIBLE SENIOR SECURED FIXED RATE NOTE
DUE AUGUST 4, 2003
Principal Amount: [$ ]
Return Interest Rate: 7% P.A.
Return Date of Issue: August 4, 1998
FOR VALUE RECEIVED, the undersigned, DIAMETRICS MEDICAL, INC. a
corporation incorporated in the State of Minnesota with its principal office at
2658 Patton Road, St. Paul, Minnesota 56113 (herein called the "Company"),
promises to pay to the order of [______________________], a [______________]
organized under the laws of [___________], with an office at
______________________________, or its registered assigns (the "Holder") the
amount of [____________________________ ($_________)] or such lesser amount as
may be owing hereunder on or before the Final Payment Date together with
interest thereon from the Issue Date at the rate and on the dates specified in
Article 3, in accordance with the terms hereof.
This is one of a duly authorized issue of Notes of the Company,
originally issued pursuant to a certain Note Purchase Agreement dated August 4,
1998 by the Company and the signatories thereto, and is entitled to the benefit
of the Note Purchase Agreement, and each holder of this Note, by his acceptance
hereof, agrees to be bound by the provisions of the Note Purchase Agreement. The
Note Purchase Agreement sets forth, among other things certain covenants of the
Company and Events of Default and rights and remedies related thereto.
Capitalized terms used herein without definition shall have the
meanings given such terms in Article 9 hereof or the Note Purchase Agreement
referred to below.
Article 1. Security
Section 1.1 Nature of Security. The obligations of the Company under
this Note are secured pursuant to the provisions of the Security
Documents.
<PAGE>
Section 1.2 Release of Security. Provided that no Default or Event
of Default shall then exist and subject as hereinafter provided, the
Company may at any time during any calendar year (commencing with
1999) require, by notice given to the holders of all of the notes
issued pursuant to the Note Purchase Agreement and then outstanding,
that all or any of the Shares that are the subject of the Security
Documents shall cease to form security for the obligations of the
Company under such notes and be released from the Security Documents
PROVIDED THAT:
(i) only one such notice may be given in any calendar year;
(ii) the Book Value of the Shares must, within four months
preceding the date upon which any such notice is given,
have exceeded three times the unpaid aggregate principal
amounts of all such notes outstanding as at the date
such notice is given;
(iii) such notice shall include a copy of audited financial
statements of DML evidencing the Book Value referred to
in (ii) above;
(iv) the maximum number of Shares which may cease to form
security as aforesaid and be released as aforesaid shall
be such number of Shares (and if there is more than one
class of Shares, of each class of Shares) as is
proportionate (relative to the number of Shares then
forming such security) to the amount by which the Book
Value of the Shares (as shown in such audited financial
statements) exceeds three times the then aggregate
unpaid principal amounts under all notes issued pursuant
to the Note Purchase Agreement; and
(v) in the event that the Book Value of the Shares forming
the security for the obligations of the Company under
this Note shall at any time be less than three times the
aggregate unpaid principal amounts under all such notes
issued pursuant to the Note Purchase Agreement, the
Company shall cause such number of Shares (if any) not
then forming part of such security as is equivalent in
value to the deficit to form part of such security and
to become subject to the Security Documents.
Article 2. The Principal Amount
Section 2.1 Payment of the Principal Amount. The Principal Amount,
to the extent not previously paid under the terms of this Note,
shall be due and payable in full on the Final Payment Date.
Section 2.2 No Early Payment of Principal Amount. Subject to the
other provisions of this Note (including, but not limited to,
Sections 2.3 and 4.5 below), the Company may not, prior to the Final
Payment Date, pay all or any part of the Principal Amount.
<PAGE>
Section 2.3 Conversion. This Note shall be convertible by the
Holder, in whole or in part, into shares of common stock of the
Company on the terms and conditions set forth in the Note Purchase
Agreement. If the Principal Amount is paid in part by such a
conversion, then the Company shall execute and deliver to the
Holder, at the expense of the Company, a new Note in accordance with
Section 4.4 below.
Article 3. Interest and Default Interest.
Section 3.1 Interest. Interest shall be payable at the rate of 7 per
cent per annum by the Company on the outstanding Principal Amount
from time to time. Such interest shall accrue, on a daily basis,
from the Issue Date and be payable, at the Interest Rate, on 31
December 1998 (in respect of the period from the Issue Date until
and including 31 December 1998) and thereafter quarterly in arrears
on 31 March, 30 June, 30 September and 31 December of each year, or
if any such date is not a Business Day, then on the next Business
Day. If the Principal Amount (or any part thereof) shall become due
and payable, interest up to and including the relevant Payment Date
shall also be due and payable on such Payment Date.
Section 3.2 Default Interest. If any sum due and payable by the
Company is not paid on its due date for payment under this Note,
interest shall accrue at the Interest Rate plus 2 per cent per annum
on such unpaid sum until the date on which the full amount of such
unpaid sum is paid to the Holder.
Section 3.3 Calculation Period. Interest in respect of a period of
less than one year shall be calculated on the basis of the actual
number of days elapsed and a 365 day year.
Article 4. Payment.
Section 4.1 Place and Method of Payment. All payments made by the
Company in respect of Principal Amount shall be made to the Holder,
upon presentation and endorsement (in the case of part payment of
Principal Amount) or, in the case of payment of the whole of the
outstanding Principal Amount, surrender of this Note by the Holder
to the Company, in same day funds to such account of the Holder as
shall be notified by the Holder to the Company. All payments made by
the Company in respect of Interest and Default Interest will be paid
to the Holder as shown in the Register on the last Business Day
preceding the date fixed for payment of any Interest or Default
Interest. Payments of Interest and Default Interest will be made by
electronic funds transfer for value on the due date to such US
dollar account maintained by the Holder as shall be notified to the
Company at least 5 Business Days before the due date for payment.
Upon application by the Holder to the Company not less than 5
Business Days before the due date for payment of any Interest or
Default Interest, payments of Interest
<PAGE>
and Default Interest will be made by US dollar check and mailed to
the Holder (or the first named of joint Holders) at its address
appearing in the Register.
Section 4.2 Currency of Payments. All payments made by the Company
in respect hereof, whether for the Principal Amount, Interest,
Default Interest or otherwise shall be made in US Dollars.
Section 4.3 Payment without Deduction, Etc. Each payment under this
Note shall be made free and clear of and without any deduction for
or on account of any set-off or counterclaim.
Section 4.4 Principal Amount Paid in Part. Upon surrender of this
Note when the Principal Amount is paid in part the Company shall
either execute and deliver to the Holder a new Note in substitution
for this Note reflecting the reduced outstanding Principal Amount or
otherwise endorse this Note recording the fact of such payment and
redeliver the Note to the Holder.
Section 4.5 Setoffs by Holder Against Principal Amounts. Company
hereby agrees to permit Holder to setoff any obligations owed by
Holder to Company against the Principal Amount owed under this Note.
If the Principal Amount is paid in part by such a setoff, then
Company shall execute and deliver to the Holder a new Note in
accordance with Section 4.4 above.
Article 5. Redemption.
In the event of a Redemption Event, any Holder of this Note shall
have the right to require that the Company repurchase all or any portion of this
Note (equal to $1,000 or any integral multiple thereof) at a repurchase price in
cash equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase in accordance with Sections 4.3 of
the Note Purchase Agreement.
Article 6. Covenants. [Intentionally deleted. See Note Purchase Agreement
Article VI.]
Article 7. Events of Default and Remedies. "[Intentionally deleted. See Note
Purchase Agreement Article VIII]
Article 8 Registration.
The Company will keep a register of the holders of the notes issued
pursuant to the Note Purchase Agreement and outstanding from time to
time, including the particulars of this Note. Any transfers or
assignments of this Note will be recorded by the Company in the
Register.
<PAGE>
Article 9 Definitions.
Section 9.1 Certain Defined Terms. As used herein, the following
terms, unless the context otherwise requires, have the following
meanings:
"Book Value" means total stockholders equity as shown by audited
financial statements of DML less any non-cash additions to
shareholders' equity after June 1, 1998, and less the amounts of any
intra-Group obligations to the extent counted as assets of DML or
any of its Subsidiaries.
"Company" has the meaning given such term in the preamble hereof and
includes a corporation which shall succeed to or assume the
obligations of the Company under this Note.
"Default Interest" means interest in accordance with Section 3.2.
"DML" means Diametrics Medical, Ltd., an English company formerly
known as Biomedical Sensors Limited.
"Dollars" means the lawful currency of the USA.
"Final Payment Date" means August 4, 2003.
"Group" means the Company and its Subsidiaries from time to time.
"Holder" has the meaning given such term in the preamble hereof.
"Interest Rate" means the rate of 7 per cent per annum.
"Issue Date" means the date upon which this Note was originally
issued.
"Lien" means any pledge, mortgage, hypothecation, security interest,
lien or encumbrance.
"Note" means this note and any replacement therefor.
"Note Purchase Agreement" has the meaning given such term in the
preamble hereof.
"Payment Date" means the Final Payment Date and/or, if earlier, any
date fixed for payment of all or any part of the Principal Amount
pursuant to Article 2.
"Principal Amount" means the principal amount of this Note set forth
on the face hereof, as reduced from time to time by any payment of
part pursuant to Section 2.2 thereof.
<PAGE>
"Register" means the Register in respect of the Note maintained by
the Company pursuant to Article 8.
"Security Documents" means the a mortgage of shares of even date
herewith executed by the Company in favor of the holders of the
notes issued pursuant to the Note Purchase Agreement, or their agent
or trustee on their behalf, in form and substance satisfactory to
purchasers of 50.1% in aggregate principal amount of all of the
notes to be purchased at the Closing pursuant to the Note Purchase
Agreement, together with any other security documents or instruments
from time to time executed by the Company in connection with its
obligations under this Note or the Note Purchase Agreement.
"Shares" means the ordinary, redeemable preference, and other shares
of DML.
Article 10 Miscellaneous.
Section 10.1 Transfer. Subject as hereafter mentioned, this Note may
be transferred or assigned without any restriction thereon. This
Note may only be transferred or assigned in whole and not in part.
The transfer or assignment must not be in favor of more than four
transferees as joint holders. No transfer of the Note may be made if
in the reasonable opinion of the directors of the Company the
proposed transferee is engaged in the business of commercializing
products for critical care blood analysis in humans. The transfer or
assignment documentation must be delivered for registration to the
principal office for the time being of the Company together with the
Note. The Company shall be entitled to retain the transfer or
assignment documentation. The Company shall not be obliged to
register any transfer during the 14 days immediately preceding any
interest payment date. No transfer or assignment shall be effective
unless and until the transfer or assignment is registered in the
Register. The Company shall be obliged to register any transfer or
assignment subject to the foregoing.
Section 10.2 Article and Section Titles. The article and section
titles contained in this Note are and shall be without substantive
meaning or content of any kind whatsoever.
Section 10.3 Governing Law. This Note is governed by and is to be
construed in accordance with the laws of Minnesota, excluding the
body of law relating to conflict of laws.
<PAGE>
IN WITNESS WHEREOF, the Company has executed this document as of the
date first above written.
DIAMETRICS MEDICAL, INC.
By: _____________________________
Name: David T. Giddings
Title: Chairman, Chief Executive Officer
and President
<PAGE>
EXHIBIT 10.5
DIAMETRICS MEDICAL, INC.
AMENDED AND RESTATED
1990 STOCK OPTION PLAN
1. Purpose of Plan.
This Plan shall be known as the "DIAMETRICS MEDICAL, INC. 1990
STOCK OPTION PLAN" and is hereinafter referred to as the "Plan." The purpose of
the Plan is to aid in maintaining and developing personnel capable of assuring
the future success of Diametrics Medical, Inc., a Minnesota corporation (the
"Company"), to offer such personnel additional incentives to put forth maximum
efforts for the success of the business, and to afford them an opportunity to
acquire a proprietary interest in the Company through stock options and other
long-term incentive awards as provided herein. Options granted under this Plan
may be either incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986 (the "Code"), or
options which do not qualify as Incentive Stock Options. Awards granted under
this Plan shall be SARs, restricted stock or performance awards as hereinafter
described.
2. Stock Subject to Plan.
Subject to the provisions of Section 15 hereof, the stock to
be subject to options or other awards under the Plan shall be the Company's
authorized but unissued shares of Common Stock, par value $.01 per share. Such
shares may be either authorized but unissued shares, or issued shares which have
been reacquired by the Company. Subject to adjustment as provided in Section 15
hereof, the maximum number of shares on which options may be exercised or other
awards issued under this Plan shall be 3,750,000 shares. If an option or award
under the Plan expires, or for any reason is terminated or unexercised with
respect to any shares, such shares shall again be available for options or
awards thereafter granted during the term of the Plan.
3. Administration of Plan.
(a) The Plan shall be administered by a committee (the
"Committee") of two or more members of the Board of Directors of the Company,
none of whom shall be officers or employees of the Company and all of whom shall
be "disinterested persons" with respect to the Plan within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor rule or regulation thereto. The members of any such
committee shall be appointed by and serve at the pleasure of the Board of
Directors.
(b) The Committee shall have plenary authority in its
discretion, but subject to the express provisions of the Plan: (i) to determine
the purchase price of the
<PAGE>
Common Stock covered by each option or award, (ii) to determine the employees to
whom and the time or times at which such options and awards shall be granted and
the number of shares to be subject to each, (iii) to determine the form of
payment to be made upon the exercise of an SAR or in connection with performance
awards, either cash, Common Stock of the Company or a combination thereof, (iv)
to determine the terms of exercise of each option and award, (v) to accelerate
the time at which all or any part of an option or award may be exercised, (vi)
to amend or modify the terms of any option or award with the consent of the
optionee, (vii) to interpret the Plan, (viii) to prescribe, amend and rescind
rules and regulations relating to the Plan, (ix) to determine the terms and
provisions of each option and award agreement under the Plan (which agreements
need not be identical), including the designation of those options intended to
be Incentive Stock Options, and (x) to make all other determinations necessary
or advisable for the administration of the Plan, subject to the exclusive
authority of the Board of Directors under Section 16 herein to amend or
terminate the Plan.
(c) The Committee shall select one of its members as its
Chairman and shall hold its meetings at such times and places as it may
determine. A majority of its members shall constitute a quorum, provided that if
the Committee is comprised of no more than two members, all of its members must
be present to constitute a quorum. All determinations of the Committee shall be
made by not less than a majority of its members, provided that if the Committee
is comprised of no more than two members, such determinations may not be made by
less than all of its members. Any decision or determination reduced to writing
and signed by all of the members of the Committee shall be fully effective as if
it had been made by a majority vote at a meeting duly called and held. The grant
of an option or award shall be effective only if a written agreement shall have
been duly executed and delivered by and on behalf of the Company following such
grant. The Committee may appoint a Secretary and may make such rules and
regulations for the conduct of business as it shall deem advisable.
(d) The Chief Executive Officer of the Company shall have the
authority, as granted by the Committee pursuant to clause (ix) of subsection (b)
of this Section 3, to grant, pursuant to the Plan, options or other awards to
eligible persons who are not considered by the Company as its officers or
directors for purposes of Section 16 of the Securities Exchange Act of 1934, as
amended. The Chief Executive Officer of the Company shall provide information as
to any grants made pursuant to this subsection to the Committee at their next
meeting.
-2-
<PAGE>
4. Eligibility.
Incentive Stock Options may only be granted under this Plan to
any full or part-time employee (which term as used herein includes, but is not
limited to, officers and directors who are also employees) of the Company and of
its present and future subsidiary corporations within the meaning of Section
424(f) of the Code (herein called "subsidiaries"). Full or part-time employees,
consultants or independent contractors to the Company or one of its subsidiaries
shall be eligible to receive options which do not qualify as Incentive Stock
Options and awards. In determining the persons to whom options and awards shall
be granted and the number of shares subject to each, the Committee may take into
account the nature of services rendered by the respective employees or
consultant their present and potential contributions to the success of the
Company and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted an option or award under this Plan may
be granted additional options or awards under the Plan if the Committee shall so
determine; provided, however, that for Incentive Stock Options granted after
December 31, 1986, to the extent the aggregate fair market value (determined at
the time the Incentive Stock Option is granted) of the Common Stock with respect
to which all Incentive Stock Options are exercisable for the first time by an
employee during any calendar year (under all plans described in subsection (d)
of Section 422 of the Code of his employer corporation and its parent and
subsidiary corporations) exceeds $100,000, such options shall be treated as
options which do not qualify as Incentive Stock Options. Nothing in the Plan or
in any agreement thereunder shall confer on any employee any right to continue
in the employ of the Company or any of its subsidiaries or affect, in any way,
the right of the Company or any of its subsidiaries to terminate his or her
employment at any time.
5. Price.
The option price for all Incentive Stock Options granted under
the Plan shall be determined by the Committee but shall not be less than 100% of
the fair market value of the Common Stock at the date of grant of such option.
The option price for options granted under the Plan which do not qualify as
Incentive Stock Options and, if applicable, the price for all awards shall also
be determined by the Committee. For purposes of the preceding sentence and for
all other valuation purposes under the Plan, the fair market value of shares of
Common Stock shall be (i) the closing price of the Common Stock as reported for
composite transactions if the Common Stock is then traded on a national
securities exchange, (ii) the last sale price if the Common Stock is then quoted
on the NASDAQ National Market System, or (iii) the average of the closing
representative bid and asked prices of the Common Stock as reported on NASDAQ on
the date as of which the fair market value is being determined. If on the date
of grant of any option or award hereunder the Common Stock is not traded on an
established
-3-
<PAGE>
securities market, the Committee shall make a good faith attempt to satisfy the
requirements of this Section 5 and in connection therewith shall take such
action as it deems necessary or advisable.
6. Term.
Each option and award and all rights and obligations
thereunder shall expire on the date determined by the Committee and specified in
the option or award agreement. The Committee shall be under no duty to provide
terms of like duration for options or awards granted under the Plan, but the
term of an Incentive Stock Option may not extend more than ten (10) years from
the date of grant of such option and the term of options granted under the Plan
which do not qualify as Incentive Stock Options may not extend more than fifteen
(15) years from the date of granting of such option.
7. Exercise of Option or Award.
(a) The Committee shall have full and complete authority to
determine whether an option or award will be exercisable in full at any time or
from time to time during the term thereof, or to provide for the exercise
thereof in such installments, upon the occurrence of such events (such as
termination of employment for any reason) and at such times during the term of
the option as the Committee may determine and specify in the option or award
agreement.
(b) The exercise of any option or award granted hereunder
shall only be effective at such time that the sale of Common Stock pursuant to
such exercise will not violate any state or federal securities or other laws.
Only to the extent required in order to comply with Rule 16b-3 under the
Exchange Act, in the case of an option or other award granted to a person
considered by the Company as one of its officers or directors for purposes of
Section 16 of the Exchange Act, the terms of the option or other award will
require that such shares are not disposed of by such officer or director for a
period of at least six months from the date of grant.
(c) An optionee or grantee electing to exercise an option or
award shall give written notice to the Company of such election and of the
number of shares subject to such exercise. The full purchase price of such
shares shall be tendered with such notice of exercise. Payment shall he made to
the Company in cash (including bank check, certified check, personal check, or
money order), or, at the discretion of the Committee and as specified by the
Committee, (i) by delivering certificates for the Company's Common Stock already
owned by the optionee or grantee having a fair market value as of the date of
grant equal to the full purchase price of the shares, or (ii) by delivering the
optionee's or grantee's promissory note, which shall provide for interest at a
rate not less than the minimum rate required to avoid the imputation of
-4-
<PAGE>
income, original issue discount or a below-market-rate loan pursuant to Sections
483, 1274 or 7872 of the Code or any successor provisions thereto, or (iii) a
combination of cash, the optionee's or grantee promissory note and such shares.
The fair market value of such tendered shares shall be determined as provided in
Section 5 herein. The optionee's or grantee's promissory note shall be a full
recourse liability of the optionee and may, at the discretion of the Committee,
be secured by a pledge of the shares being purchased. Until such person has been
issued the shares subject to such exercise, he or she shall possess no rights as
a shareholder with respect to such shares.
8. Stock Appreciation Rights.
(a) Grant. At the time of grant of an option or award under
the Plan (or at any other time), the Committee, in its discretion, may grant a
Stock Appreciation Right ("SAR") evidenced by an agreement in such form as the
Committee shall from time to time approve. Any such SAR may be subject to
restrictions on the exercise thereof as may be set forth in the agreement
representing such SAR, which agreement shall comply with and be subject to the
following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan.
(b) Exercise. An SAR shall be exercised by the delivery to the
Company of a written notice which shall state that the holder thereof elects to
exercise his or her SAR as to the number of shares specified in the notice and
which shall further state what portion, if any, of the SAR exercise amount
(hereinafter defined) the holder thereof requests be paid to in cash and what
portion, if any, is to be paid in Common Stock of the Company. The Committee
promptly shall cause to be paid to such holder the SAR exercise amount either in
cash, in Common Stock of the Company, or any combination of cash and shares as
the Committee may determine. Such determination may be either in accordance with
the request made by the holder of the SAR or in the sole and absolute discretion
of the Committee. The SAR exercise amount is the excess of the fair market value
of one share of the Company's Common Stock on the date of exercise over the per
share exercise price in respect of which the SAR was granted, multiplied by the
number of shares as to which the SAR is exercised. For the purposes hereof, the
fair market value of the Company's shares of Common Stock shall be determined as
provided in Section 5 herein.
9. Restricted Stock Awards.
Awards of Common Stock subject to forfeiture and transfer
restrictions may be granted by the Committee. Any restricted stock award shall
be evidenced by an agreement in such form as the Committee shall from time to
time approve, which agreement shall comply with and be subject to the following
terms and conditions and
-5-
<PAGE>
any additional terms and conditions established by the Committee that are
consistent with the terms of the Plan:
(a) Grant of Restricted Stock Awards. Each restricted stock
award made under the Plan shall be for such number of shares of Common Stock as
shall be determined by the Committee and set forth in the agreement containing
the terms of such restricted stock award. Such agreement shall set forth a
period of time during which the grantee must remain in the continuous employment
of the Company in order for the forfeiture and transfer restrictions to lapse.
If the Committee so determines, the restrictions may lapse during such
restricted period in installments with respect to specified portions of the
shares covered by the restricted stock award. The agreement may also, in the
discretion of the Committee, set forth performance or other conditions that will
subject the Common Stock to forfeiture and transfer restrictions. The Committee
may, at its discretion, waive all or any part of the restrictions applicable to
any or all outstanding restricted stock awards.
(b) Delivery of Common Stock and Restrictions. At the time of
a restricted stock award, a certificate representing the number of shares of
Common Stock awarded thereunder shall be registered in the name of the grantee.
Such certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions of
the Plan, and shall bear such a legend setting forth the restrictions imposed
thereon as the Committee, in its discretion, may determine. The grantee shall
have all rights of a shareholder with respect to the Common Stock, including the
right to receive dividends and the right to vote such shares, subject to the
following restrictions: (i) the grantee shall not be entitled to delivery of the
stock certificate until the expiration of the restricted period and the
fulfillment of any other restrictive conditions set forth in the restricted
stock agreement with respect to such Common Stock; (ii) none of the shares of
Common Stock may be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered or disposed of during such restricted period or until after
the fulfillment of any such other restrictive conditions; and (iii) except as
otherwise determined by the Committee, all of the Common Stock shall be
forfeited and all rights of the grantee to such Common Stock shall terminate,
without further obligation on the part of the Company, unless the grantee
remains in the continuous employment of the Company for the entire restricted
period in relation to which such shares of Common Stock were granted and unless
any other restrictive conditions relating to the restricted stock award are met.
Any Common Stock, any other securities of the Company and any other property
(except for cash dividends) distributed with respect to the Common Stock subject
to restricted stock awards shall be subject to the same restrictions, terms and
conditions as such restricted Common Stock.
-6-
<PAGE>
(c) Termination of Restrictions. At the end of the restricted
period and provided that any other restrictive conditions of the restricted
stock award are met, or at such earlier time as otherwise determined by the
Committee, all restrictions set forth in the agreement relating to the
restricted stock award or in the Plan shall lapse as to the restricted Common
Stock subject thereto, and a stock certificate for the appropriate number of
shares of Common Stock, free of the restrictions and the restricted stock
legend, shall be delivered to the grantee or his beneficiary or estate, as the
case may be.
10. Performance Awards.
The Committee is further authorized to grant performance
awards ("Performance Award"). Subject to the terms of this Plan and any
applicable award agreement, Performance Awards granted under the Plan (i) may be
denominated or payable in cash, Common Stock (including, without limitation,
restricted stock), other securities, other awards, or other property and (ii)
shall confer on the holder thereof rights valued as determined by the Committee,
in its discretion, and payable to, or exercisable by, the holder of the
Performance Awards, in whole or in part, upon the achievement of such
performance goals during such performance periods as the Committee, in its
discretion, shall establish. Subject to the terms of this Plan and any
applicable award agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Awards granted, and the amount of any payment or transfer to be made
by the grantee and by the Company under any Performance Awards shall be
determined by the Committee.
11. Income Tax Withholding and Tax Bonuses.
(a) In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of an
optionee or grantee under the Plan, are withheld or collected from such optionee
or grantee. In order to assist an optionee or grantee in paying all federal and
state taxes to be withheld or collected upon exercise of an option or award
which does not qualify as an Incentive Stock Option hereunder, the Committee, in
its absolute discretion and subject to such additional terms and conditions as
it may adopt, shall permit the optionee or grantee to satisfy such tax
obligation by (i) electing to have the Company withhold a portion of the shares
otherwise to be delivered upon exercise of such option or award with a fair
market value, determined in accordance with Section 5 herein, equal to such
taxes or (ii) delivering to the Company Common Stock other than the shares
issuable upon exercise of such option or award with a fair market value,
determined in accordance with Section 5, equal to such taxes.
-7-
<PAGE>
(b) The Committee shall have the authority, at the time of
grant of an option under the Plan or at any time thereafter, to approve tax
bonuses to designated optionees or grantees to be paid upon their exercise of
options or awards granted hereunder. The amount of any such payments shall be
determined by the Committee. The Committee shall have full authority in its
absolute discretion to determine the amount of any such tax bonus and the terms
and conditions affecting the vesting and payment thereafter.
12. Additional Restrictions.
The Committee shall have full and complete authority to
determine whether all or any part of the Common Stock of the Company acquired
upon exercise of any of the options or awards granted under the Plan shall be
subject to restrictions on the transferability thereof or any other restrictions
affecting in any manner the optionee's or grantee's rights with respect thereto,
but any such restriction shall be contained in the agreement relating to such
options or awards.
13. Ten Percent Shareholder Rule.
Notwithstanding any other provision in the Plan, if at the
time an option is otherwise to be granted pursuant to the Plan the optionee owns
directly or indirectly (within the meaning of Section 424(d) of the Code) Common
Stock of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations, if any (within the meaning of Section 422(b)(6) of the
Code), then any Incentive Stock Option to be granted to such optionee pursuant
to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and
the option price shall be not less than 110% of the fair market value of the
Common Stock of the Company determined as described herein, and such option by
its terms shall not be exercisable after the expiration of five (5) years from
the date such option is granted.
14. Non-Transferability.
No option may be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than (i) by will or by the laws
of descent or distribution, or (ii) in the case of options that are not
Incentive Stock Options, to members of the optionee's immediate family or to one
or more trusts for the benefit of the optionee or members of his or her
immediate family, and the option may be exercised, during the lifetime of the
Optionee, only by the optionee or a permitted transferee.
-8-
<PAGE>
15. Dilution or Other Adjustments.
If there shall be any change in the Common Stock through
merger, consolidation, reorganization, recapitalization, dividend in the form of
stock (of whatever amount), stock split or other change in the corporate
structure, appropriate adjustments in the Plan and outstanding options and
awards shall be made by the Committee. In the event of any such changes,
adjustments shall include, where appropriate, changes in the aggregate number of
shares subject to the Plan, the number of shares and the price per share subject
to outstanding options and awards and the amount payable upon exercise of
outstanding awards, in order to prevent dilution or enlargement of option or
award rights.
16. Amendment or Discontinuance of Plan.
The Board of Directors may amend or discontinue the Plan at
any time. Subject to the provisions of Section 15 no amendment of the Plan,
however, shall without shareholder approval: (i) increase the maximum number of
shares under the Plan as provided in Section 2 herein, (ii) decrease the minimum
price provided in Section 5 herein, (iii) extend the maximum term under Section
6, or (iv) modify the eligibility requirements for participation in the Plan.
The Board of Directors shall not alter or impair any option or award theretofore
granted under the Plan without the consent of the holder of the option.
17. Time of Granting.
Nothing contained in the Plan or in any resolution adopted or
to be adopted by the Board of Directors or by the shareholders of the Company,
and no action taken by the Committee or the Board of Directors (other than the
execution and delivery of an option or award agreement), shall constitute the
granting of an option or award hereunder.
18. Effective Date and Termination of Plan.
(a) The Plan was approved by the Board of Directors on June
29, 1990 and shall be approved by the shareholders of the Company within twelve
(12) months thereof.
(b) Unless the Plan shall have been discontinued as provided
in Section 16 hereof, the Plan shall terminate June 29, 2005. No option or award
may be granted after such termination, but termination of the Plan shall not,
without the consent of the optionee or grantee, alter or impair any rights or
obligations under any option or award theretofore granted.
-9-
<PAGE>
EXHIBIT 10.6
DIAMETRICS MEDICAL, INC.
AMENDED AND RESTATED
1993 DIRECTORS' STOCK OPTION PLAN
1. Purpose of the Plan. The purpose of this Diametrics Medical, Inc.
1993 Directors' Stock Option Plan is to attract and retain the best available
individuals for service as Directors of the Company and provide additional
incentive to the Outside Directors of the Company to serve as Directors.
None of the options granted hereunder shall be "incentive stock
options" within the meaning of Section 422 of the Code (as hereinafter defined).
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Diametrics Medical, Inc., a Minnesota
corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and
Directors, employed by the Company or any parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
(j) "Option Value" shall mean, with respect to an option described
in Section 4(b)(iv) of the Plan, the value of such option determined on the date
of grant using the same methodology as was used by the Company's independent
public
<PAGE>
accountants to value stock options for the purposes of the Company's most recent
annual audited financial statements.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean an Outside Director who receives an
Option.
(m) "Outside Director" shall mean a Director who is not an Employee.
(n) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(o) "Plan" shall mean this 1993 Directors' Stock Option Plan.
(p) "Shares" shall mean shares of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 367,500 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan
shall be administered by the Board.
(b) Procedure for Grants. The provisions set forth in this Section
4(b) shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as
-2-
<PAGE>
amended, or the rules thereunder. All grants of Options hereunder shall be made
in accordance with the following provisions:
(i) The Board shall have discretion to grant options to Outside
Directors in addition to the Options described in Sections 4(b)(ii),
(iii) and (iv) and to determine the number of Shares to be covered by
such Options.
(ii) Effective August 14, 1997, each Outside Director shall be
automatically granted an Option (an "Initial Grant") to purchase 18,000
Shares on the date on which such person first becomes a Director,
whether through election by the shareholders of the Company or
appointment by the Board of Directors to fill a vacancy. Options
granted under this section 4(b)(ii) shall become vested and thereby
exercisable with respect to 50% of such Initial Grant on the twelve
month anniversary date of such Initial Grant and with respect to 25% at
each successive anniversary date; provided, however, an unvested
portion of an Initial Grant shall only vest so long as the Outside
Director remains a Director on the date such portion vests.
(iii) Effective August 14, 1997, each Outside Director shall
automatically receive, on the date of each Annual Meeting of
Shareholders, an Option to purchase 8,000 Shares of the Company's
Common Stock, such Option to become exercisable six months subsequent
to the date of grant; provided however, that such Option shall only be
granted to Outside Directors who have served since the date of the last
Annual Meeting of Shareholders and will continue to serve after the
date of grant of such Option.
(iv) Each Outside Director may elect, not later than the last
day of the Company's fiscal year, to be granted Options in lieu of the
compensation and fees otherwise payable to such Outside Director for
the next fiscal year. Such Options shall be granted quarterly on the
last day of each fiscal quarter in which such compensation and fees are
earned, to be exercisable immediately. The number of Shares covered by
each such Option shall be the number determined by dividing the total
amount of compensation and fees payable at the end of such quarter by
the Option Value of one such Share on the date of grant.
(v) The terms of an Option granted hereunder shall be as
follows:
(A) the term of the Option shall be ten (10) years.
-3-
<PAGE>
(B) the Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth
in Section 8 hereof.
(C) the exercise price per Share shall be 100% of the fair
value per Share on the date of grant of the Option.
(D) to the extent necessary to comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act
("Rule 16b-3"), no Option will be exercisable until a date more
than six months subsequent to the date of the grant of that
Option.
(c) Powers of the Board. Subject to the provisions and restrictions
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
7(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 7(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier of
(i) its adoption by the Board or (ii) its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 12 of the Plan.
-4-
<PAGE>
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be 100% of the fair market
value per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value ("Fair Market Value")
of a Share shall be determined by the Board in its discretion; provided however,
that where there is a public market for the Common Stock, the fair market value
per Share shall be the closing price of the Common Stock in the over-the-counter
market on the date of grant, as reported in The Wall Street Journal (or, if not
so reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation ("NASDAQ") System) or, in the event the Common Stock
is traded on the NASDAQ National Market System or listed on a stock exchange,
the fair market value per Share shall be the closing price on such system or
exchange on the date of grant of the Option, as reported in The Wall Street
Journal.
(c) Form of Consideration. Subject to compliance with applicable
provisions of Section 16(b) of the Exchange Act, (or other applicable law), the
consideration to be paid for the Shares to be issued upon exercise of an Option,
including the method of payment, shall be determined by the Board and may
consist entirely of (i) cash, (ii) check, (iii) other Shares which (X) in the
case of Shares acquired upon exercise of an Option, have been owned by the
Optionee for more than six months on the date of surrender, and (Y) have a Fair
Market Value on the date of exercise equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) authorization for
the Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(vi) by delivering an irrevocable subscription agreement for the Shares which
irrevocably obligates the option holder to take and pay for the Shares not more
than twelve months after the date of delivery of the subscription agreement,
(vii) any combination of the foregoing methods of payment or (viii) such other
consideration and method of payment for the issuance of Shares as may be
permitted under applicable laws. In making its determination as to the type of
consideration to accept, the Board shall consider whether acceptance of such
consideration may be reasonably expected to benefit the Company.
-5-
<PAGE>
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 10 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. If an Outside Director
ceases to serve as a Director, he may, but only within seven (7) months after
the date he ceases to be a Director of the Company, exercise his Option to the
extent that he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise an Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 8(b) above, in the event an Optionee is unable to continue his service
as a Director with the Company as a result of his total and permanent disability
(as defined in Section 22(e)(3) of the Code) he may, but only within seven (7)
months from the date of termination, exercise his Option to the extent he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise the Option at the
-6-
<PAGE>
date of termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section
4(b), in the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his
death a Director of the Company and who has been in Continuous Status
as a Director since the date of grant of the Option, the Option may be
exercised, at any time within seven (7) months following the date of
death, by the Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had the
Optionee continued living and remained in Continuous Status as a
Director for six (6) months after the date of death; or
(ii) within thirty (30) days after the termination of Continuous
Status as a Director, the Option may be exercised, at any time within
seven (7) months following the date of death, by the Optionee's estate
or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent of the right to exercise that
had accrued at the date of termination.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than (i)
by will, (ii) by the laws of descent or distribution, (iii) to members of the
Optionee's immediate family or (iv) to one or more trusts for the benefit of the
Optionee or members of his or her immediate family, and the Option may be
exercised, during the lifetime of the Optionee, only by the Optionee or a
permitted transferee.
10. Adjustments Upon Changes in Capitalization, Dissolution or Merger.
(a) In the event that the number of outstanding shares of Common
Stock of the Company is changed by a stock dividend, stock split, reverse stock
split, combination, reclassification or similar change in the capital structure
of the Company without consideration, the number of Shares available under this
Plan and the number of Shares subject to outstanding Options and the exercise
price per share of such Options shall be proportionately adjusted, subject to
any required action by the Board or shareholders of the Company and compliance
with applicable securities laws; provided however, that no certificate or scrip
representing fractional shares shall be issued upon exercise of any Option and
any resulting fractions of a Share shall be ignored. Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive.
-7-
<PAGE>
(b) In the event of a dissolution or liquidation of the Company, a
merger in which the Company is not the surviving corporation, a transaction or
series of related transactions in which 100% of the then outstanding voting
stock is sold or otherwise transferred, or the sale of substantially all of the
assets of the Company, any or all outstanding Options shall, notwithstanding any
contrary terms of the written agreement governing such Option, accelerate and
become exercisable in full at least ten days prior to (and shall expire on) the
consummation of such dissolution, liquidation, merger or sale of stock or sale
of assets on such conditions as the Board shall determine unless the successor
corporation assumes the outstanding Options or substitutes substantially
equivalent options.
11. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuance shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act (or any other applicable law or regulation), the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
-8-
<PAGE>
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of the Shares available
for issuance pursuant to this Plan as shall be sufficient to satisfy the
requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval.
(a) The Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months of its adoption by the Board. If such
shareholder approval is obtained at a duly held shareholders' meeting, it may be
obtained by the affirmative vote of the holders of a majority of the outstanding
shares of the Company present or represented and entitled to vote thereon. If
such shareholder approval is obtained by written consent, it may be obtained by
the written consent of the holders of a majority of the outstanding shares of
the Company.
(b) Any required approval of the shareholders of the Company shall
be substantially in accordance with Section 14(a) of the Exchange Act and the
rules and regulations promulgated thereunder.
17. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports to shareholders, proxy statements and
other information provided to all shareholders of the Company.
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,610,274
<SECURITIES> 0
<RECEIVABLES> 4,701,490
<ALLOWANCES> 288,599
<INVENTORY> 4,057,544
<CURRENT-ASSETS> 11,618,079
<PP&E> 19,218,051
<DEPRECIATION> (12,095,724)
<TOTAL-ASSETS> 20,350,338
<CURRENT-LIABILITIES> 6,552,027
<BONDS> 8,331,916
0
0
<COMMON> 211,984
<OTHER-SE> 5,193,405
<TOTAL-LIABILITY-AND-EQUITY> 20,350,338
<SALES> 5,468,751
<TOTAL-REVENUES> 5,468,751
<CGS> 5,212,758
<TOTAL-COSTS> 8,467,813
<OTHER-EXPENSES> 417,813
<LOSS-PROVISION> 118,058
<INTEREST-EXPENSE> 437,831
<INCOME-PRETAX> (8,629,633)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,629,633)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,629,633)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
