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EXHIBIT 10.2
*** Portions of this Exhibit have been omitted pending a confidential treatment
request by the Company.
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT ("Agreement") is made and entered
into effective as of August 11, 2000, by and among Optical Sensors Incorporated,
a Delaware corporation (the "Company"), with its principal place of business at
7615 Golden Triangle Drive, Suite A, Eden Prairie, Minnesota 55344, and the
investor listed on Schedule A hereto (the "Investor").
A. The Company desires to raise up to $1,500,000 of additional
capital in order to fund its operations.
B. The Investor desires to make an investment in the Company on
the terms and conditions set forth in this Agreement.
Accordingly, in consideration of the foregoing, the mutual promises set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Authorization of Securities. The Company proposes to authorize, issue
and sell the number of shares of Series A Convertible Preferred Stock,
$.01 par value (the "Series A Preferred") as provided herein, which
will be entitled to the preferences, rights and benefits set forth in
the capital stock provisions of the Company's Certificate of
Designation, which has been filed in the form set forth in Exhibit A
attached hereto (the "Certificate of Designation"). The Series A
Preferred will be convertible into shares of the Company's common
stock, $.01 par value, as set forth in the Certificate of Designation.
2. Purchase of Securities.
(a) Subject to the terms and conditions hereof, the Company agrees
to sell to the Investor, and the Investor agrees to purchase
from the Company in accordance with this Agreement, up to Four
Million Thirty Three Thousand Three Hundred Thirty Four
(4,333,334) shares of the Company's Series A Preferred (the
"Shares") in the amounts set forth on Schedule A. The purchase
price for the first One Million (1,000,000) shares of Series A
Preferred purchased by the Investor (in the aggregate) will be
Fifty Cents ($.50) per share, the purchase price for the next
One Million Three Hundred Thirty Three Thousand Three Hundred
Thirty Four (1,333,334) shares of Series A Preferred purchased
by the Investor (in the aggregate) will be Thirty Seven and
One-Half Cents ($.375) per share and the purchase price for
the next Two Million (2,000,000) purchased shares by the
Investor (in the aggregate) of Series A Preferred will be
Twenty-Five Cents ($.25) per share.
(b) From time to time after the date of this Agreement, the
Company will send a written notice to the Investor indicating
the number of shares of Series A Preferred that the Company
wishes to sell to the Investor (the "Notice") and the
applicable per share price in accordance with Section 2(b).
Within five (5) business days after the receipt of the Notice,
the Investor shall purchase the
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number of shares of Series A Preferred specified in the Notice
(the "Purchased Shares") by delivering to the Company within
such five (5) day period a certified check or wire transfer in
an amount equal to the number of Purchased Shares multiplied
by the applicable price, as determined by reference to Section
2(a) (the "Purchase Price"); provided, however, that the
Investor (in the aggregate) shall be required to purchase a
maximum of Four Million Thirty Three Thousand Three Hundred
Thirty Four (4,333,334) shares of Series A Preferred (the
"Maximum Commitment") with an aggregate maximum purchase price
of One Million Five Hundred Thousand Dollars ($1,500,000).
(c) At the time of delivery of the Purchase Price, the Company
shall deliver to the Investor stock certificate(s) for the
number of shares of Series A Preferred being purchased by such
Investor, which such shares will be registered in the
Investor's name or as otherwise designated by the Investor.
(d) Notwithstanding any other provision of this Agreement to the
contrary, the ability of the Company to sell shares of Series
A Preferred to the Investor is subject to the existing
contractual right of Instrumentation Laboratory Company
("ILC") to participate in equity financings of the Company. In
the event that ILC elects to purchase any or all of the shares
of the Series A Preferred that would otherwise be offered to
the Investor under this Agreement, the number of shares so
purchased will reduce the Maximum Commitment by an equal
number. Any shares of Series A Preferred purchased by ILC will
be deemed to have been purchased by the Investor for purposes
of determining the Purchase Price for any shares of Series A
Preferred sold to the Investor.
3. Adjustment of Notes and Warrants.
--------------------------------
(a) Conversion Price of Notes. The conversion price of the
convertible promissory notes (the "Notes") issued to the
Investor pursuant to the Investment Agreement by and among the
Company and the other investors named therein dated March 10,
2000 (the "Investment Agreement"), as specified in Section 2.1
of the Note, is hereby amended so that such conversion price
at any time is equal to Fifty Thousand (50,000) multiplied by
the lowest price at which the Company sells any shares of its
capital stock (other than a sale pursuant to the exercise of
an option, right or warrant to subscribe for shares of Common
Stock that are outstanding on the date hereof or options
granted under the Company's stock option plan) after the first
date on which the Investor purchases shares of Series A
Preferred (the "Lowest Issue Price"). Subject to the foregoing
amendment, the foregoing conversion price otherwise remains
subject to adjustment as provided in Section 2.4 of the Note.
(b) Exercise Price of Warrants. The Exercise Price (as defined in
the warrant issued to the Investor pursuant to the Investment
Agreement (the "Warrant")) of the Warrant is hereby amended so
that the Exercise Price at any time is equal to the Lowest
Issue Price. Subject to the foregoing amendment, the foregoing
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conversion price otherwise remains subject to adjustment as
provided in Section 4 of the Warrant.
4. Representations and Warranties of the Company. The Company represents
and warrants to the Investor as follows:
(a) Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and
authority to own, lease or operate its properties and to carry
on its business as it is now being conducted and as it is
proposed to be conducted. The Company has no subsidiaries or
direct or indirect ownership in any firm, corporation or
business which either, individually or in the aggregate, is
material to the business of the Company. The Company is
qualified to do business and is in good standing as a foreign
corporation in every jurisdiction in which its ownership of
property or conduct of business requires it so to be qualified
and in which the failure to so qualify would have a material
adverse effect on the financial condition or business of the
Company.
(b) Authorization. The Company has the corporate power and
authority to execute and deliver this Agreement, the Shares
and to perform its obligations hereunder and thereunder,
including the issuance of the Shares and the Conversion
Securities (as defined below). This Agreement and the Shares
have been duly authorized by all necessary corporate action on
behalf of the Company, have been duly executed and delivered
by authorized officers of the Company, are valid and binding
agreements on the part of the Company and are enforceable
against the Company in accordance with their respective terms,
except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting the enforcement of creditors rights
generally and to judicial limitations on the enforcement of
the remedy of specific performance and other equitable
remedies. All corporate actions necessary for reservation and
issuance of the shares of Common Stock issuable upon
conversion of the Shares ("Conversion Securities") has been
taken. The Conversion Securities when issued pursuant to the
Certificate of Designation will be duly authorized, validly
issued, fully paid and nonassessable, free and clear of any
and all liens, charges, claims, encumbrances and preemptive
rights.
(c) No Violation. Neither the execution and delivery of this
Agreement nor any of the Shares by the Company, nor the
performance by the Company of its obligations hereunder or
thereunder, nor the consummation of the transactions
contemplated hereby or thereby will: (a) conflict with or
result in any breach of any provision of the Certificate of
Incorporation or By-Laws of the Company; (b) result in a
default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms,
conditions or provisions of any note, lease, mortgage,
license, agreement or other instrument or obligation to which
the Company is a party or by which any of its assets may be
bound, except for such defaults (or rights of termination,
cancellation or acceleration) as to which requisite waivers or
consents have been obtained or which, in the aggregate,
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would not result in a material adverse effect on the Company;
(c) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to the Company or any of its assets,
except for violations which would not result in a material
adverse effect on the Company; or (d) result in the creation
or imposition of any liens, charges or encumbrances upon any
assets of the Company.
(d) SEC Reports. The Company has filed all reports, registration
statements and other filings with the Securities and Exchange
Commission (the "Commission") required to be filed by it
pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All such reports, registration
statements and other filings (including all notes, exhibits
and schedules thereto, all documents incorporated by reference
therein, and any amendments thereto) are collectively referred
to herein as the "SEC Reports." As of their respective dates
of filing with the Commission, the SEC Reports complied in all
material respects with all of the rules and regulations of the
Commission and did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they
were made, not misleading.
(e) Financial Statements. The financial statements of the Company
included in the SEC Reports (the "Financial Statements") have
been prepared in accordance with United States generally
accepted accounting principles consistently applied and fairly
present the financial position of the Company at the dates
thereof and the results of the Company's operations and cash
flows for the periods then ended (subject, in the case of
unaudited statements, to normal adjustments and the omission
of footnotes). The Company has no material liabilities, known
or unknown, absolute, contingent or otherwise, except for (i)
liabilities that are set forth in the Financial Statements,
the notes thereto or the SEC Reports and (ii) liabilities that
have been incurred in the ordinary course of business since
June 30, 2000.
(f) No Material Adverse Change. There have not been any changes in
the assets, properties, liabilities, financial condition,
business or operations of the Company from that reflected in
the Financial Statements except for (i) changes in the
ordinary course of business which have not been, either
individually or in the aggregate, materially adverse and (ii)
the Company's continued operating losses and negative cash
flow.
(g) Authorized Capital Stock. The authorized capital stock of the
Company is as set forth in the SEC Reports. The issued and
outstanding shares of capital stock of the Company have been
duly authorized, validly issued and are fully paid and
nonassessable. As of the date hereof, the Company has
outstanding options and warrants to purchase 755,109 shares of
Common Stock, and there are no other outstanding warrants,
options or other rights to acquire any shares of capital stock
of the Company, except for the shares issued upon conversion
of the Notes, the Warrants issuable upon conversion of the
Notes and as disclosed in the SEC
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Reports. All of the above securities of the Company were
issued in compliance with all applicable federal and state
securities laws and were not issued in violation of or subject
to any preemptive rights or other rights to subscribe for or
purchase securities. Except for IL, no holder of any security
of the Company is entitled to any preemptive or similar rights
to purchase any securities of the Company.
(h) Intellectual Property. The Company owns or possesses adequate
rights to use all patents, patent rights, inventions,
trademarks, trade names, copyrights, licenses, domain names,
governmental authorizations, trade secrets and know-how that
are used or necessary for the conduct of its business; neither
the Company nor any of its subsidiaries has received any
notice of, or has any knowledge of, any infringement of or
conflict with asserted rights of others with respect to any
patents, patent rights, inventions, trademarks, trade names,
copyrights, licenses, governmental authorizations, trade
secret or know-how that, individually or in the aggregate, if
the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of
the Company and its subsidiaries considered as a whole.
(i) Securities Laws. Subject to the accuracy of the
representations of the Investor in Section 5, no consent,
authorization, approval, permit or order of or filing with any
governmental or regulatory authority is required under current
laws and regulations in connection with the execution and
delivery of this Agreement or the offer, issuance, sale or
delivery to the Investor of the Shares or the Conversion
Securities other than (i) the filing with the Commission of a
Form D pursuant to Regulation D under the Securities Act, and
the qualification thereof, if required, under applicable state
securities laws, which qualification has been or will be
effected as a condition of the sale of the Shares and the
issuance of the Conversion Securities, and (ii) the filing of
a registration statement or statements pursuant to Section 7.
Under the circumstances contemplated by this Agreement, the
offer, issuance, sale and delivery of the Shares will not,
under current laws and regulations, require compliance with
the prospectus delivery or registration requirements of the
Securities Act.
(j) Litigation. Except for the informal investigation by the
Commission regarding recent trading in the Company's Common
Stock there are no actions, suits, proceedings or
investigations pending or, to the best of the Company's
knowledge, threatened against the Company or any of its
properties before or by any court or arbitrator or any
governmental body, agency or official in which there is a
reasonable likelihood (in the judgment of the Company) of an
adverse decision that (a) would have a material adverse effect
on the Company's properties or assets or the business of the
Company as presently conducted or proposed to be conducted or
(b) would impair the ability of the Company to perform in any
material respect its obligations under this Agreement. The
Company is not in default with respect to any judgment, order
or decree of any court or governmental agency or
instrumentality which, individually or in the
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aggregate, would have a material adverse effect on the assets,
properties or business of the Company.
(k) Properties. The Company has good and marketable title to all
the properties and assets reflected as owned in the Financial
Statements, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in
such Financial Statements, or (ii) those which are not
material in amount and do not adversely affect the use made
and promised to be made of such property by the Company. The
Company 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. The Company owns
or leases all such properties as are necessary to its
operations as now conducted or as proposed to be conducted.
(l) Brokers or Finders. To the knowledge of the Company, no
person, firm or corporation has or will have, as a result of
any act or omission of the Company, any right, interest or
valid claim against any Investor for any commission, fee or
other compensation as a finder or broker in connection with
the transactions contemplated by this Agreement. The Company
shall indemnify and hold the Investor harmless for any claims
made for any commission, fee or other compensation concerning
the transactions contemplated by this Agreement.
5. Representations and Warranties of the Investor. The Investor represents
and warrants to the Company as follows:
(a) The Shares are being purchased for investment for such
Investor's own account and not with the view to, or for resale
in connection with, any distribution or public offering
thereof. Each Investor understands that neither the Shares nor
the Conversion Securities have been registered under the
Securities Act or any state securities laws by reason of their
contemplated issuance in transactions exempt from the
registration requirements of the Securities Act and applicable
state securities laws and that the reliance of the Company and
others upon these exemptions is predicated in part upon this
representation by the Investor. The Investor further
understands that its shares of Series A Preferred and the
Conversion Securities may not be transferred or resold without
registration under the Securities Act and any applicable state
securities laws, or pursuant to an exemption from the
requirements of the Securities Act and applicable state
securities laws.
(b) The Investor's principal place of business is located at the
address set forth on Schedule A. The Investor qualifies as an
"accredited investor," as defined in Rule 501 of Regulation D
under the Securities Act. The Investor acknowledges that the
Company has made available to such Investor at a reasonable
time prior to the execution of this Agreement the opportunity
to ask questions and receive answers concerning the business,
operations and financial condition of the Company and the
terms and conditions of the sale of securities contemplated by
this Agreement and to obtain any additional information
requested by such
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Investor. The Investor is able to bear the loss of its entire
investment in the Shares and the Conversion Securities and has
such knowledge and experience of financial and business
matters that he is capable of evaluating the merits and risks
of the investment to be made pursuant to this Agreement.
However, neither the foregoing nor any other due diligence
investigation conducted by such Investor or on its behalf
shall limit, modify or affect the representations and
warranties of the Company set forth in Section 4 of this
Agreement or the right of such Investor to rely thereon.
(c) This Agreement has been duly authorized by all necessary
action on the part of the Investor, has been duly executed and
delivered by such Investor and is a valid and binding
agreement of such Investor.
6. Use of Proceeds. The Company will use the proceeds from the sale of the
Shares for general corporate purposes, including obtaining regulatory
clearance for the Company's CapnoProbe sublingual CO2 monitor and
disposable sensors.
7. Registration Rights.
-------------------
(a) Filing of Registration Statement. Within one hundred twenty
(120) days of the issuance of at least Two Million Five
Hundred Thousand shares of Series A Preferred, the Company
will file a registration statement with the Commission under
the Securities Act covering the Conversion Securities issuable
upon conversion of all of the Shares. The Company may, on not
more than one occasion, delay the filing of any registration
statement required hereunder for a period of not more than 90
days in the event that the Company has furnished the Investor
with a certificate executed by the Company's President or
Chief Executive Officer stating that such delay is necessary
in order to (i) not significantly adversely affect financing
efforts then underway at the Company or (ii) avoid disclosure
of material non-public information. Any registration of
Conversion Securities hereunder shall cover any additional
Conversion Securities issued or issuable pursuant to
anti-dilution or other similar rights.
(b) Registration Procedures. If and whenever the Company is
required by the provisions of Section 7(a) to effect the
registration of any Conversion Securities under the Securities
Act, the Company will:
(i) prepare and file with the Commission a registration
statement (on any available form to effect
registration) with respect to such securities, and
use its best efforts to cause such registration
statement to become and remain effective until such
securities are sold pursuant to such registration
statement or are eligible to be sold pursuant to Rule
144(k);
(ii) prepare and file with the Commission such amendments
to such registration statement and supplements to the
prospectus contained therein as may be necessary to
keep such registration statement effective until
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such securities are sold pursuant to such registration
statement or are eligible to be sold pursuant to Rule 144(k);
(iii) furnish to the Investor and to any underwriters of
the securities being registered such reasonable
number of copies of the registration statement,
preliminary prospectus, final prospectus and such
other documents as the Investor and underwriters may
reasonably request in order to facilitate the public
offering of such securities;
(iv) use its best efforts to register or qualify the
securities covered by such registration statement
under such state securities or blue sky laws of such
jurisdictions as the Investor may reasonably request,
except that the Company shall not for any purpose be
required to execute a general consent to service of
process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so
qualified;
(v) prepare and promptly file with the Commission and
promptly notify the Investor of the filing of such
amendment or supplement to such registration
statement or prospectus as may be necessary to
correct any statements or omissions if, at the time
when a prospectus relating to such securities is
required to be delivered under the Securities Act,
any event shall have occurred as the 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, in the
light of the circumstances in which they were made,
not misleading; and
(vi) use its best efforts to cause all securities covered
by such registration statement to be listed on any
securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which the
Common Stock shall then be listed and trading.
(c) Expenses. Except as set forth in the last sentence of this Section
7(c), with respect to any registration of securities pursuant to
Section 7(a), the Company shall bear all fees, costs and expenses,
including, without limitation: all registration, filing and NASD fees,
printing expenses, fees and disbursements of counsel and accountants
for the Company, all internal Company expenses, the premiums and other
costs of policies of insurance against liability arising out of the
public offering, and all legal fees and disbursements and other
expenses of complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and
accountants for the Investor, underwriting discounts and commissions
and transfer taxes for the Investor and any other expenses incurred by
the Investor not expressly included above shall be borne by the
Investor.
(d) Indemnification. In the event that any Conversion Securities owned by
the Investor are included in a registration statement under Section
7(a):
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(i) The Company will indemnify and hold harmless the Investor
(including for this purpose its directors, officers and
partners) and any underwriter (as defined in the Securities
Act) from and against any and all loss, damage, liability,
cost and expense (including, subject to Section 7(d)(iii),
reasonable fees and expenses of counsel) to which any such
Investor or any such underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading; provided, however, that the Company will not be
liable in any such case to the extent that any such loss,
damage, liability, cost or expense arises out of or is based
upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with
written information furnished by such Investor or such
underwriter.
(ii) The Investor will indemnify and hold harmless the Company and
any underwriter from and against any and all loss, damage,
liability, cost or expense (including, subject to Section
7(d)(iii), reasonable fees and expenses of counsel) to which
the Company or any underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue or
alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, 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 so made in reliance upon and in strict conformity
with written information furnished by such Investor.
Notwithstanding the provisions of this clause (ii), no
Investor shall be required to indemnify any person pursuant to
this Section 7 in an amount in excess of the amount of the
aggregate net proceeds received by such Investor in connection
with any such registration under the Securities Act.
(iii) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (i) or (ii) of this Section 7(d) of
notice of the commencement of any action involving the subject
matter of the foregoing indemnity provisions, such indemnified
party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of said
paragraph (i) or (ii), promptly notify the indemnifying party
of the commencement thereof; but the omission to so notify the
indemnifying party will not relieve the indemnifying
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party from any liability which it may have to any indemnified
party otherwise than hereunder nor of its obligations or
liabilities pursuant to this Agreement, except to the extent
that the failure to so notify materially prejudices the
indemnifying party. In case such action is brought against any
indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party shall have
the right to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if
the defendants in any action include both the indemnified
party and the indemnifying party and there is a conflict of
interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the
indemnified party or parties shall have the right to select
one separate counsel to participate in the defense of such
action on behalf of such indemnified party or parties, which
counsel shall be reasonably satisfactory to the indemnifying
party. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party pursuant to the provisions of said paragraph
(i) or (ii) for any legal or other expense subsequently
incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation,
unless (x) the indemnified party shall have employed counsel
in accordance with the proviso of the preceding sentence, (y)
the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of
the commencement of the action, or (z) the indemnifying party
has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. No
indemnifying party shall, without the prior written consent of
the 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 the
plaintiff to such indemnified party of a release from all
liability in respect of such action, and no indemnified party
shall consent to entry of any judgment or settle such action
without the prior written consent of the indemnifying party.
(e) SEC Reports. The Company will file with the Commission, on a timely
basis, all SEC Reports required to be filed under the Exchange Act and
any other documents required to meet the public information
requirements of Rule 144(c) under the Securities Act.
(f) Bonus. Upon a Change in Control, as defined below, the Company's
employees, in the aggregate, will be paid a bonus (the "Bonus") equal
to (A) One Hundred Percent (100%) of the proceeds to the Company or its
shareholders from the Change in Control transaction between Fifteen
Million Dollars ($15,000,000) and Sixteen Million Dollars ($16,000,000)
plus (B) Ten Percent (10%) of the proceeds to the Company or its
shareholders from the Change in Control
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transaction between Sixteen Million Dollars ($16,000,000) and Twenty
Million Dollars ($20,000,000). The allocation of the Bonus among the
individual employees of the Company shall be as set forth in Schedule
A, as amended from time to time by the President and Chief Executive
Officer of the Company as necessary to reflect changes in personnel.
For purposes of this Agreement, Change in Control shall mean the
occurrence of any of the following on or after the date hereof:
(i) the sale, lease, exchange or other transfer, directly or
indirectly, of all or substantially all of the assets of the
Company, in one transaction or in a series of related
transactions, to any Person;
(ii) the approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company;
(iii) any Person is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
(a) 20 percent or more, but not more than 50 percent, of the
combined voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors,
unless the transaction resulting in such ownership has been
approved in advance by the "continuity directors," as defined
at Subsection (b), or (b) more than 50 percent of the combined
voting power of the Company's outstanding securities
ordinarily having the right to vote at elections of directors
(regardless of any approval by the continuity directors);
(iv) a merger or consolidation to which the Company is a party if
the shareholders of the Company immediately prior to the
effective date of such merger or consolidation have, solely on
account of ownership of securities of the Company at such
time, "beneficial ownership" (as defined in Rule 13d-3 under
the Exchange Act) immediately following the effective date of
such merger or consolidation of securities of the surviving
company representing (a) 50 percent or more, but not more than
80 percent, of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having
the right to vote at elections of directors, unless such
merger or consolidation has been approved in advance by the
continuity directors, or (b) less than 50 percent of the
combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at
elections of directors (regardless of any approval by the
continuity directors);
(v) the continuity directors cease for any reason to constitute at
least a majority the Board;
(vi) or a change in control of a nature that is determined by
outside legal counsel to the Company, in a written opinion
specifically referencing this provision of the Plan, to be
required to be reported (assuming such event
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has not been "previously reported") pursuant to section 13 or
15(d) of the Exchange Act, whether or not the Company is then
subject to such reporting requirement, as of the effective
date of such change in control.
The sale, lease, exchange or other transfer, directly or indirectly, of
the assets comprising the Company's CapnoProbe Product Line, in one
transaction or in a series of related transactions, to any Person shall
constituted a Change in Control under Subsection (a)(i).
For purposes of this section: "continuity director" means any
individual who is a member of the Board on the date hereof, while he or
she is a member of the Board, and any individual who subsequently
becomes a member of the Board whose election or nomination for election
by the Company's shareholders was approved by a vote of at least a
majority of the directors who are continuity directors (either by a
specific vote or by approval of the proxy statement of the Company in
which such individual is named as a nominee for director without
objection to such nomination). For example, if a majority of the four
individuals constituting the Board on the date hereof, approved a proxy
statement in which two different individuals were nominated to replace
two of the individuals who were members of the Board on the date
hereof, upon their election by the Company's shareholders, the two
newly elected directors would join the two remaining directors who were
members of the Board on date hereof as continuity directors. Similarly
if a majority of those four directors approved a proxy statement in
which two different individuals were nominated to replace the two other
directors who were members of the Board on date hereof, upon their
election by the Company's shareholders, the two newly elected directors
would also become, along with the two other directors, continuity
directors. Individuals subsequently joining the Board could become
continuity directors under the principles reflected in this example.
8. Repricing of Options. As soon as practicable after each sale of any of
the Shares to the Investor, the exercise price of all option agreements
held by current employees and current directors of the Company will be
changed to the figure equal to (i) the aggregate purchase price that
was paid for all shares of Series A Preferred issued to the Investor
prior to the date of determination (whether or not all such shares are
then outstanding) divided by (ii) the aggregate number of shares of
Series A Preferred that were issued to the Investor prior to the date
of determination (whether or not all such shares are then outstanding).
9. Miscellaneous.
-------------
(a) This Agreement and the rights and obligations of the parties
hereunder shall not be assignable, in whole or in part, by the
Company without the prior written consent of the Investor.
This Agreement and the rights and obligations of the parties
hereunder shall not be assignable, in whole or in part, by an
Investor without the prior written consent of the Company,
except that any Investor may assign its rights under this
Agreement to any affiliate without the prior written
12
<PAGE>
consent of the Company. This Agreement shall inure to the
benefit of and be binding upon and be enforceable by the
successors and permitted assigns of the parties hereto.
Neither this Agreement nor any provision hereof may be
amended, modified, waived or discharged without the written
consent of the parties hereto.
(b) This Agreement, including the exhibits attached hereto,
constitutes the entire agreement of the parties relative to
the subject matter hereof and supersedes any and all other
agreements and understanding, whether written or oral,
relative to the matters discussed herein.
(c) All representations and warranties contained herein shall
survive after the execution and delivery of this Agreement for
a period of two (2) years from the date hereof. All covenants
and agreements which by their terms are to be performed after
the date hereof will survive indefinitely, unless such
covenants and agreements by their terms expire at an earlier
date, in which case they will expire on such earlier date.
(d) All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall
be given in writing by personal delivery, facsimile,
commercial air delivery service or by registered or certified
mail, postage prepaid, return receipt requested, addressed to
the Company at the address set forth in the introductory
paragraph to this Agreement and to the Investor at the
addresses set forth on Schedule A, or at such other address as
the respective parties may designate by like notice from time
to time. Notices so given shall be effective upon the earlier
of: (a) receipt by the party to which notice is given (which,
in the instance of a facsimile, shall be deemed to have
occurred at the time that the machine transmitting the
facsimile verifies a successful transmission of the
facsimile); (b) on the fifth business day following the date
such notice was deposited in the mail; or (c) on the second
business day following the date such notice was delivered to a
commercial air delivery service.
(e) This Agreement shall be construed and enforced in accordance
with the laws of the State of Minnesota.
(f) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This
Agreement may be executed by facsimile.
[Next Page is Signature Page]
13
<PAGE>
IN WITNESS WHEREOF, the Company and the Investor have executed this
Agreement effective as of the date first written above.
OPTICAL SENSORS INCORPORATED
By
---------------------------------------
Paulita LaPlante,
President and Chief Executive Officer
CIRCLE F VENTURES LLC
By
---------------------------------------
Its
--------------------------------------
14
<PAGE>
SCHEDULE A
Investor
Circle F Ventures LLC
17797 North Perimeter Drive
Suite 105
Scottsdale, Arizona 85255
15
<PAGE>
SCHEDULE A
BONUS
EMPLOYEES DESIGNATION
--------- -----------
Paulita LaPlante ***
Wes Peterson ***
Dan Bartnik ***
Victor Kimball ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
Totals
Bonus Breakout:
Tier 1 = 60%
Tier 2 = 30%
Tier 3 = 10%
*** Portions of this Exhibit have been omitted pending a confidential treatment
request by the Company.
