Exhibit 10.4

SECURITY AND PLEDGE AGREEMENT
(Diametrics)

1. Identification.

This Security and Pledge Agreement (the “Agreement”), dated as of December 15,
2004, is entered into by and between Diametrics Medical, Inc., a Minnesota
corporation (“Diametrics” or “Debtor”), and Barbara Mittman, as collateral agent
acting in the manner and to the extent described in the Collateral Agent
Agreement defined below (the “Collateral Agent”), for the benefit of the parties
identified on Schedule A hereto (collectively, the “Lenders”).

2. Recitals.

2.1 The Lenders have made or are making loans and will make additional loans to
Diametrics (the “Loans”). It is beneficial to Diametrics that the Loans were
made, are being made and will be made.

2.2 The Loans are and will be evidenced by certain variable interest rate
convertible promissory notes (each a “Convertible Note”) issued by Diametrics on
or about the date of this Agreement and issuable after the date of this
Agreement, pursuant to subscription agreements (each a “Subscription Agreement”)
to which Diametrics and Lenders are parties. The Notes are further identified on
Schedule A hereto and were and will be executed by Diametrics as “Borrower” or
“Debtor” for the benefit of each Lender as the “Holder” or “Lender” thereof.

2.3 In consideration of the Loans made by Lenders to Diametrics and for other
good and valuable consideration, and as security for the performance by
Diametrics of its obligations under the Notes and as security for the repayment
of the Loans and all other sums due from Debtor to Lenders arising under the
Notes presently outstanding or to be outstanding in the future, Subscription
Agreements, and any other agreement between or among them (collectively, the
“Obligations”), Diametrics, for good and valuable consideration, receipt of
which is acknowledged, has agreed to grant to the Collateral Agent, for the
benefit of the Lenders, a security interest in the Collateral (as such term is
hereinafter defined), on the terms and conditions hereinafter set forth.
Obligations include all future advances by Lenders to Diametrics advanced by all
Lenders on a pro rata basis on substantially the same terms.

2.4 The Lenders have appointed Barbara Mittman as Collateral Agent pursuant to
that certain Collateral Agent Agreement dated at or about December 15, 2004
(“Collateral Agent Agreement”), among the Lenders and Collateral Agent.

2.5 The following defined terms which are defined in the Uniform Commercial Code
in effect in the State of New York on the date hereof are used herein as so
defined: Accounts, Chattel Paper, Documents, Equipment, General Intangibles,
Instruments, Inventory and Proceeds.

3. Grant of General Security Interest in Collateral.

3.1 As security for the Obligations of Debtor, Diametrics hereby grants the
Collateral Agent, for the benefit of the Lenders, a security interest in the
Collateral.

3.2 “Collateral” shall mean all of the following property of Diametrics:

(A) All now owned and hereafter acquired right, title and interest of Diametrics
in, to and in respect of all Accounts, Goods, real or personal property, all
present and future books and records relating to the foregoing and all products
and Proceeds of the foregoing, and set forth below:

(i) Accounts: All now owned and hereafter acquired right, title and interest of
Diametrics in, to and in respect of all: Accounts, interests in goods
represented by Accounts, returned, reclaimed or repossessed goods with respect
thereto and rights as an unpaid vendor; contract rights; Chattel Paper;
investment property; General Intangibles (including but not limited to, tax and
duty claims and refunds, registered and unregistered patents, trademarks,
service marks, certificates, copyrights trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims, and existing and future leasehold interests in equipment, real estate
and fixtures); Documents; Instruments; letters of credit, bankers’ acceptances
or guaranties; cash moneys, deposits; securities, bank accounts, deposit
accounts, credits and other property now or hereafter owned or held in any
capacity by Diametrics, as well as its affiliates, agreements or property
securing or relating to any of the items referred to above;

(ii) Goods: All now owned and hereafter acquired right, title and interest of
Diametrics in, to and in respect of goods, including, but not limited to:

(a) All Inventory, wherever located, whether now owned or hereafter acquired, of
whatever kind, nature or description, including all raw materials,
work-in-process, finished goods, and materials to be used or consumed in
Diametrics’ business; and all names or marks affixed to or to be affixed thereto
for purposes of selling same by the seller, manufacturer, lessor or licensor
thereof and all Inventory which may be returned to Diametrics by its customers
or repossessed by Diametrics and all of Diametrics’ right, title and interest in
and to the foregoing (including all of Diametrics’ rights as a seller of goods);

(b) All Equipment and fixtures, wherever located, whether now owned or hereafter
acquired, including, without limitation, all machinery, motor vehicles,
furniture and fixtures, and any and all additions, substitutions, replacements
(including spare parts), and accessions thereof and thereto (including, but not
limited to Diametrics’ rights to acquire any of the foregoing, whether by
exercise of a purchase option or otherwise);

(iii) Property: All now owned and hereafter acquired right, title and interests
of Diametrics in, to and in respect of any real or other personal property in or
upon which Diametrics has or may hereafter have a security interest, lien or
right of setoff;

(iv) Books and Records: All present and future books and records relating to any
of the above including, without limitation, all computer programs, printed
output and computer readable data in the possession or control of Diametrics,
any computer service bureau or other third party; and

(v) Products and Proceeds: All products and Proceeds of the foregoing in
whatever form and wherever located, including, without limitation, all insurance
proceeds and all claims against third parties for loss or destruction of or
damage to any of the foregoing.

(B) All now owned and hereafter acquired right, title and interest of Diametrics
in, to and in respect of the following:

(i) the shares of stock, partnership interests, member interests or other equity
interests at any time and from time to time acquired by Diametrics of any and
all entities now or hereafter existing, all or a portion of such stock or other
equity interests which are acquired by such entities at any time (such entities,
together with the existing issuers, being hereinafter referred to collectively
as the “Pledged Issuers” and individually as a “Pledged Issuer”), the
certificates representing such shares, partnership interests, member interests
or other interests, all options and other rights, contractual or otherwise, in
respect thereof and all dividends, distributions, cash, instruments, investment
property and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such shares,
partnership interests, member interests or other interests;

(ii) all additional shares of stock, partnership interests, member interests or
other equity interests from time to time acquired by Diametrics, of any Pledged
Issuer, the certificates representing such additional shares, all options and
other rights, contractual or otherwise, in respect thereof and all dividends,
distributions, cash, instruments, investment property and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such additional shares, interests or equity; and

(iii) all security entitlements of Diametrics in, and all Proceeds of any and
all of the foregoing in each case, whether now owned or hereafter acquired by
Diametrics and howsoever its interest therein may arise or appear (whether by
ownership, security interest, lien, claim or otherwise).

3.3 The Collateral Agent is hereby specifically authorized, after the Maturity
Date (defined in the Notes) whether accelerated or otherwise, or after an Event
of Default (as defined herein) and the expiration of any applicable cure period,
to transfer any Collateral into the name of the Collateral Agent and to take any
and all action deemed advisable to the Collateral Agent to remove any transfer
restrictions affecting the Collateral.

4. Perfection of Security Interest.

4.1 Diametrics shall prepare, execute and deliver to the Collateral Agent UCC-1
Financing Statements. The Collateral Agent is instructed to prepare and file at
Diametrics’ cost and expense, financing statements in such jurisdictions deemed
advisable to the Collateral Agent, including but not limited to Minnesota. The
Financing Statements are deemed to have been filed for the benefit of the
Collateral Agent and Lenders identified on Schedule A hereto.

4.2 All other certificates and instruments constituting Collateral from time to
time required to be pledged to Collateral Agent pursuant to the terms hereof
(the “Additional Collateral”) shall be delivered to Collateral Agent promptly
upon receipt thereof by or on behalf of Diametrics. All such certificates and
instruments shall be held by or on behalf of Collateral Agent pursuant hereto
and shall be delivered in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment or undated
stock powers executed in blank, all in form and substance satisfactory to
Collateral Agent. If any Collateral consists of uncertificated securities,
unless the immediately following sentence is applicable thereto, Diametrics
shall cause Collateral Agent (or its custodian, nominee or other designee) to
become the registered holder thereof, or cause each issuer of such securities to
agree that it will comply with instructions originated by Collateral Agent with
respect to such securities without further consent by Diametrics. If any
Collateral consists of security entitlements, Diametrics shall transfer such
security entitlements to Collateral Agent (or its custodian, nominee or other
designee) or cause the applicable securities intermediary to agree that it will
comply with entitlement orders by Collateral Agent without further consent by
Diametrics.

4.3 Within five (5) days after the receipt by Diametrics of any Additional
Collateral, a Pledge Amendment, duly executed by Diametrics, in substantially
the form of Annex I hereto (a “Pledge Amendment”), shall be delivered to
Collateral Agent in respect of the Additional Collateral to be pledged pursuant
to this Agreement. Diametrics hereby authorizes Collateral Agent to attach each
Pledge Amendment to this Agreement and agrees that all certificates or
instruments listed on any Pledge Amendment delivered to Collateral Agent shall
for all purposes hereunder constitute Collateral.

4.4 If Diametrics shall receive, by virtue of Diametrics’s being or having been
an owner of any Collateral, any (i) stock certificate (including, without
limitation, any certificate representing a stock dividend or distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off), promissory note or other instrument, (ii) option or right, whether
as an addition to, substitution for, or in exchange for, any Collateral, or
otherwise, (iii) dividends payable in cash (except such dividends permitted to
be retained by Diametrics pursuant to Section 5.2 hereof) or in securities or
other property or (iv) dividends or other distributions in connection with a
partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus, Diametrics shall receive such stock
certificate, promissory note, instrument, option, right, payment or distribution
in trust for the benefit of Collateral Agent, shall segregate it from
Diametrics’ other property and shall deliver it forthwith to Collateral Agent,
in the exact form received, with any necessary endorsement and/or appropriate
stock powers duly executed in blank, to be held by Collateral Agent as
Collateral and as further collateral security for the Obligations.

5. Distribution on Liquidation.

5.1 If any sum is paid as a liquidating distribution on or with respect to the
Collateral, Diametrics shall deliver same to the Collateral Agent to be applied
to the Obligations, then due, in accordance with the terms of the Convertible
Notes.

5.2 So long as no Event of Default exists, Diametrics shall be entitled (i) to
exercise all voting power pertaining to any of the Collateral, provided such
exercise is not contrary to the interests of the Lenders and does not impair the
Collateral and (ii) may receive and retain any and all dividends, interest
payments or other distributions paid in respect of the Collateral.

5.3. Upon the occurrence and during the continuation of an Event of Default, all
rights of Diametrics, upon notice given by Collateral Agent, to exercise the
voting power and receive payments, which it would otherwise be entitled to
pursuant to Section 5.2, shall cease and all such rights shall thereupon become
vested in Collateral Agent, which shall thereupon have the sole right to
exercise such voting power and receive such payments.

5.4 All dividends, distributions, interest and other payments which are received
by Diametrics contrary to the provisions of Section 5.3 shall be received in
trust for the benefit of Collateral Agent, shall be segregated from other funds
of Diametrics, and shall be forthwith paid over to Collateral Agent as
Collateral in the exact form received with any necessary endorsement and/or
appropriate stock powers duly executed in blank, to be held by Collateral Agent
as Collateral and as further collateral security for the Obligations.

6. Further Action By Diametrics; Covenants and Warranties.

6.1 Collateral Agent at all times shall have a perfected security interest in
the Collateral. Subject to the security interests described herein, Diametrics
has and will continue to have full title to the Collateral free from any liens,
leases, encumbrances, judgments or other claims. Collateral Agent’s security
interest in the Collateral constitutes and will continue to constitute a first,
prior and indefeasible security interest in favor of Collateral Agent.
Diametrics will do all acts and things, and will execute and file all
instruments (including, but not limited to, security agreements, financing
statements, continuation statements, etc.) reasonably requested by Collateral
Agent to establish, maintain and continue the perfected security interest of
Collateral Agent in the Collateral, and will promptly on demand, pay all costs
and expenses of filing and recording, including the costs of any searches
reasonably deemed necessary by Collateral Agent from time to time to establish
and determine the validity and the continuing priority of the security interest
of Collateral Agent, and also pay all other claims and charges that, in the
opinion of Collateral Agent, exercised in good faith, are reasonably likely to
materially prejudice, imperil or otherwise affect the Collateral or Collateral
Agent’s or Lenders’ security interests therein.

6.2 Other than in the ordinary course of business, and except for Collateral
which is substituted by assets of identical or greater value or which has become
obsolete or is of inconsequential in value, Diametrics will not sell, transfer,
assign or pledge those items of Collateral (or allow any such items to be sold,
transferred, assigned or pledged), without the prior written consent of
Collateral Agent other than a transfer of the Collateral to a wholly-owned
subsidiary on prior notice to Collateral Agent, and provided the Collateral
remains subject to the security interest herein described. Although Proceeds of
Collateral are covered by this Agreement, this shall not be construed to mean
that Collateral Agent consents to any sale of the Collateral, except as provided
herein. Sales of Collateral in the ordinary course of business shall be free of
the security interest of Lenders and Collateral Agent and Lenders and Collateral
Agent shall promptly execute such documents (including without limitation
releases and termination statements) as may be required by Debtor to evidence or
effectuate the same.

6.3 Diametrics will, at all reasonable times and upon reasonable notice, allow
Collateral Agent or its representatives free and complete access to the
Collateral and all of Diametrics’ records which in any way relate to the
Collateral, for such inspection and examination as Collateral Agent reasonably
deems necessary.

6.4 Diametrics, at its sole cost and expense, will protect and defend this
Security Agreement, all of the rights of Collateral Agent and Lenders hereunder,
and the Collateral against the claims and demands of all other persons.

6.5 Diametrics will promptly notify Collateral Agent of any levy, distraint or
other seizure by legal process or otherwise of any part of the Collateral, and
of any threatened or filed claims or proceedings that are reasonably likely to
affect or impair any of the rights of Collateral Agent under this Security
Agreement in any material respect.

6.6 Diametrics, at its own expense, will obtain and maintain in force insurance
policies covering losses or damage to those items of Collateral which constitute
physical personal property. The insurance policies to be obtained by Diametrics
shall be in form and amounts reasonably acceptable to Collateral Agent.
Diametrics shall make the Collateral Agent a first loss payee thereon to the
extent of its interest in the Collateral. Collateral Agent is hereby irrevocably
(until the Obligations are paid in full) appointed Diametrics’ attorney-in-fact
to endorse any check or draft that may be payable to Diametrics so that
Collateral Agent may collect the proceeds payable for any loss under such
insurance. The proceeds of such insurance (subject to the rights of senior
secured parties), less any costs and expenses incurred or paid by Collateral
Agent in the collection thereof, shall be applied either toward the cost of the
repair or replacement of the items damaged or destroyed, or on account of any
sums secured hereby, whether or not then due or payable.

6.7 Collateral Agent may, at its option, and without any obligation to do so,
pay, perform and discharge any and all amounts, costs, expenses and liabilities
herein agreed to be paid or performed by Diametrics. Upon Diametrics’ failure to
do so, all amounts expended by Collateral Agent in so doing shall become part of
the Obligations secured hereby, and shall be immediately due and payable by
Diametrics to Collateral Agent upon demand and shall bear interest at the lesser
of 18% per annum or the highest legal amount from the dates of such expenditures
until paid.

6.8 Upon the request of Collateral Agent, Diametrics will furnish to Collateral
Agent within five (5) business days thereafter, or to any proposed assignee of
this Security Agreement, a written statement in form reasonably satisfactory to
Collateral Agent, duly acknowledged, certifying the amount of the principal and
interest and any other sum then owing under the Obligations, whether to its
knowledge any claims, offsets or defenses exist against the Obligations or
against this Security Agreement, or any of the terms and provisions of any other
agreement of Diametrics securing the Obligations. In connection with any
assignment by Collateral Agent of this Security Agreement, Diametrics hereby
agrees to cause the insurance policies required hereby to be carried by
Diametrics, if any, to be endorsed in form satisfactory to Collateral Agent or
to such assignee, with loss payable clauses in favor of such assignee, and to
cause such endorsements to be delivered to Collateral Agent within ten
(10) calendar days after request therefore by Collateral Agent.

6.9 Diametrics will, at its own expense, make, execute, endorse, acknowledge,
file and/or deliver to the Collateral Agent from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other reasonable assurances or instruments and take further steps relating to
the Collateral and other property or rights covered by the security interest
hereby granted, as the Collateral Agent may reasonably require to perfect its
security interest hereunder.

6.10 Diametrics represents and warrants that it is the true and lawful exclusive
owner of the Collateral, free and clear of any liens and encumbrances (except as
otherwise set forth in that certain Subordination Agreement of even date
herewith).

6.11 Diametrics hereby agrees not to divest itself of any right under the
Collateral except as permitted herein absent prior written approval of the
Collateral Agent.

6.12 Diametrics shall cause each Subsidiary of Diametrics not in existence on
the date hereof to execute and deliver to Collateral Agent promptly and in any
event within 10 days after the formation, acquisition or change in status
thereof (A) a guaranty guaranteeing the Obligations and (B) a security and
pledge agreement substantially in the form of this Agreement, together with (x)
certificates evidencing all of the capital stock of any entity owned by such
Subsidiary, (y) undated stock powers executed in blank with signature
guaranteed, and (z) such opinion of counsel and such approving certificate of
such Subsidiary as Collateral Agent may reasonably request in respect of
complying with any legend on any such certificate or any other matter relating
to such shares and (C) such other agreements, instruments, approvals, legal
opinions or other documents reasonably requested by Collateral Agent in order to
create, perfect, establish the first priority of or otherwise protect any lien
purported to be covered by any such pledge and security agreement or otherwise
to effect the intent that all property and assets of such Subsidiary shall
become Collateral for the Obligations. For purposes of this Agreement,
“Subsidiary” means, with respect to any entity at any date, any corporation,
limited or general partnership, limited liability company, trust, estate,
association, joint venture or other business entity of which more than 50% of
(A) the outstanding capital stock having (in the absence of contingencies)
ordinary voting power to elect a majority of the board of directors or other
managing body of such entity, (B) in the case of a partnership or limited
liability company, the interest in the capital or profits of such partnership or
limited liability company or (C) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such
entity; provided, however, “Subsidiary” as it applies to Diametrics does not
include Diametrics Medical Limited.

7. Power of Attorney.

After the occurrence and during the uncured continuation of an Event of Default
as defined in Section 9 below, Diametrics hereby irrevocably constitutes and
appoints the Collateral Agent as the true and lawful attorney of Diametrics,
with full power of substitution, in the place and stead of Diametrics and in the
name of Diametrics or otherwise, at any time or times, in the discretion of the
Collateral Agent, to take any action and to execute any instrument or document
which the Collateral Agent may deem necessary or advisable to accomplish the
purposes of this Agreement. This power of attorney is coupled with an interest
and is irrevocable until the Obligations are satisfied.

8. Performance By The Collateral Agent.

If Diametrics fails to perform any material covenant, agreement, duty or
obligation of Diametrics under this Agreement, the Collateral Agent may, after
any applicable cure period, at any time or times in its discretion, take action
to effect performance of such obligation. All reasonable expenses of the
Collateral Agent incurred in connection with the foregoing authorization shall
be payable by Diametrics as provided in Paragraph 12.1 hereof. No discretionary
right, remedy or power granted to the Collateral Agent under any part of this
Agreement shall be deemed to impose any obligation whatsoever on the Collateral
Agent with respect thereto, such rights, remedies and powers being solely for
the protection of the Collateral Agent.

9. Event of Default.

An event of default (“Event of Default”) shall be deemed to have occurred
hereunder upon the occurrence of any event of default as defined and described
in this Agreement, in the Notes, Subscription Agreement, and any other agreement
to which Diametrics and Collateral Agent or a Lender are parties. Upon and after
any Event of Default, after the applicable cure period, if any, any or all of
the Obligations shall become immediately due and payable at the option of the
Collateral Agent, for the benefit of the Lenders, and the Collateral Agent may
dispose of Collateral as provided below. A default by Diametrics of any of its
material obligations pursuant to this Agreement shall be an Event of Default
hereunder and an event of default as defined in the Notes, and Subscription
Agreement.

10. Disposition of Collateral.

Upon and after any Event of Default which is then continuing,

10.1 The Collateral Agent may exercise its rights with respect to each and every
component of the Collateral, without regard to the existence of any other
security or source of payment for the Obligations. In addition to other rights
and remedies provided for herein or otherwise available to it, the Collateral
Agent shall have all of the rights and remedies of a lender on default under the
Uniform Commercial Code then in effect in the State of New York.

10.2 If any notice to Diametrics of the sale or other disposition of Collateral
is required by then applicable law, five business (5) days prior written notice
(which Diametrics agrees is reasonable notice within the meaning of
Section 9.612(a) of the Uniform Commercial Code) shall be given to Diametrics of
the time and place of any sale of Collateral, which Diametrics hereby agrees may
be by private sale. The rights granted in this Section are in addition to any
and all rights available to Collateral Agent under the Uniform Commercial Code.

10.3 The Collateral Agent is authorized, at any such sale, if the Collateral
Agent deems it advisable to do so, in order to comply with any applicable
securities laws, to restrict the prospective bidders or purchasers to persons
who will represent and agree, among other things, that they are purchasing the
Collateral for their own account for investment, and not with a view to the
distribution or resale thereof, or otherwise to restrict such sale in such other
manner as the Collateral Agent deems advisable to ensure such compliance. Sales
made subject to such restrictions shall be deemed to have been made in a
commercially reasonable manner.

10.4 All proceeds received by the Collateral Agent for the benefit of the
Lenders in respect of any sale, collection or other enforcement or disposition
of Collateral, shall be applied (after deduction of any amounts payable to the
Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations pro
rata among the Lenders in proportion to their interests in the Obligations. Upon
payment in full of all Obligations, Diametrics shall be entitled to the return
of all Collateral, including cash, which has not been used or applied toward the
payment of Obligations or used or applied to any and all costs or expenses of
the Collateral Agent incurred in connection with the liquidation of the
Collateral (unless another person is legally entitled thereto). Any assignment
of Collateral by the Collateral Agent to Diametrics shall be without
representation or warranty of any nature whatsoever and wholly without recourse.
To the extent allowed by law, each Lender may purchase the Collateral and pay
for such purchase by offsetting up to such Lender’s pro rata portion of the
proceeds with sums owed to such Lender by Diametrics arising under the
Obligations or any other source.

11. Waiver of Automatic Stay. Diametrics acknowledges and agrees that should a
proceeding under any bankruptcy or insolvency law be commenced by or against
Diametrics, or if any of the Collateral should become the subject of any
bankruptcy or insolvency proceeding, then the Collateral Agent should be
entitled to, among other relief to which the Collateral Agent or Lenders may be
entitled under the Note, Subscription Agreement and any other agreement to which
the Debtor, Lenders or Collateral Agent are parties, (collectively “Loan
Documents”) and/or applicable law, an order from the court granting immediate
relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the
Collateral Agent to exercise all of its rights and remedies pursuant to the Loan
Documents and/or applicable law. DIAMETRICS EXPRESSLY WAIVES THE BENEFIT OF THE
AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, DIAMETRICS
EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY
OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING,
WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION,
REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL AGENT TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW.
Diametrics hereby consents to any motion for relief from stay which may be filed
by the Collateral Agent in any bankruptcy or insolvency proceeding initiated by
or against Diametrics, and further agrees not to file any opposition to any
motion for relief from stay filed by the Collateral Agent. Diametrics
represents, acknowledges and agrees that this provision is a specific and
material aspect of this Agreement, and that the Collateral Agent would not agree
to the terms of this Agreement if this waiver were not a part of this Agreement.
Diametrics further represents, acknowledges and agrees that this waiver is
knowingly, intelligently and voluntarily made, that neither the Collateral Agent
nor any person acting on behalf of the Collateral Agent has made any
representations to induce this waiver, that Diametrics has been represented (or
has had the opportunity to be represented) in the signing of this Agreement and
in the making of this waiver by independent legal counsel selected by Diametrics
and that Diametrics has had the opportunity to discuss this waiver with counsel.
Diametrics further agrees that any bankruptcy or insolvency proceeding initiated
by Diametrics will only be brought in the Federal Court within the Southern
District of New York.

12. Miscellaneous.

12.1 Expenses. Diametrics shall pay to the Collateral Agent, on demand, the
amount of any and all reasonable expenses, including, without limitation,
attorneys’ fees, legal expenses and brokers’ fees, which the Collateral Agent
may incur in connection with (a) sale, collection or other enforcement or
disposition of Collateral; (b) exercise or enforcement of any the rights,
remedies or powers of the Collateral Agent hereunder or with respect to any or
all of the Obligations upon breach or threatened breach; or (c) failure by
Diametrics to perform and observe any agreements of Diametrics contained herein
which are performed by the Collateral Agent.

12.2 Waivers, Amendment and Remedies. No course of dealing by the Collateral
Agent and no failure by the Collateral Agent to exercise, or delay by the
Collateral Agent in exercising, any right, remedy or power hereunder shall
operate as a waiver thereof, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any other
right, remedy or power of the Collateral Agent. No amendment, modification or
waiver of any provision of this Agreement and no consent to any departure by
Diametrics therefrom, shall, in any event, be effective unless contained in a
writing signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. The rights, remedies and powers of the Collateral Agent, not only
hereunder, but also under any instruments and agreements evidencing or securing
the Obligations and under applicable law are cumulative, and may be exercised by
the Collateral Agent from time to time in such order as the Collateral Agent may
elect.

12.3 Notices. All notices or other communications given or made hereunder shall
be in writing and shall be personally delivered or deemed delivered the first
business day after being faxed (provided that a copy is delivered by first class
mail) to the party to receive the same at its address set forth below or to such
other address as either party shall hereafter give to the other by notice duly
made under this Section:

     
To Diametrics:
  Diametrics Medical, Inc.
3050 Centre Pointe Drive, Suite 150
St. Paul, MN 55113
Attn: David B. Kaysen, President & CEO
Fax: (651) 639-8549
 
   
With a copy to:
  Kenneth L. Cutler, Esq.
Dorsey & Whitney LLP
50 South Sixth Street, Suite 1500
Minneapolis, MN 55402
Fax: (612) 340-7800
 
   
To Lenders:
  To the addresses and telecopier numbers set forth
on Schedule A
 
   
To the Collateral Agent:
  Barbara R. Mittman

Grushko & Mittman, P.C.
551 Fifth Avenue, Suite 1601
New York, New York 10176
Fax: (212) 697-3575

Any party may change its address by written notice in accordance with this
paragraph.

12.4 Term; Binding Effect. This Agreement shall (a) remain in full force and
effect until payment and satisfaction in full of all of the Obligations; (b) be
binding upon Diametrics, and its successors and permitted assigns; and (c) inure
to the benefit of the Collateral Agent, for the benefit of the Lenders and their
respective successors and assigns. All the rights and benefits granted by Debtor
to the Collateral Agent and Lenders in the Loan Documents and other agreements
and documents delivered in connection therewith are deemed granted to both the
Collateral Agent and Lenders.

12.5 Captions. The captions of Paragraphs, Articles and Sections in this
Agreement have been included for convenience of reference only, and shall not
define or limit the provisions hereof and have no legal or other significance
whatsoever.

12.6 Governing Law; Venue; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts or choice of law, except to the extent that the
perfection of the security interest granted hereby in respect of any item of
Collateral may be governed by the law of another jurisdiction. Any legal action
or proceeding against Diametrics with respect to this Agreement may be brought
in the courts in the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement,
Diametrics hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts.
Diametrics hereby irrevocably waives any objection which they may now or
hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement brought in the
aforesaid courts and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum. If any provision of this
Agreement, or the application thereof to any person or circumstance, is held
invalid, such invalidity shall not affect any other provisions which can be
given effect without the invalid provision or application, and to this end the
provisions hereof shall be severable and the remaining, valid provisions shall
remain of full force and effect.

12.7 Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by the different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile signature and delivered by facsimile transmission.

[THIS SPACE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the undersigned have executed and delivered this Security
Agreement, as of the date first written above.

     
“DEBTOR”
DIAMETRICS MEDICAL, INC.
a Minnesota corporation
  “THE COLLATERAL AGENT”
BARBARA R. MITTMAN

 
   
By: /s/ David B. Kaysen
  /s/ Barbara R. Mittman

Its: President and CEO

APPROVED BY “LENDERS”:

     
LONGVIEW EQUITY FUND, L.P.
  LONGVIEW FUND L.P.
 
   
By: /s/ Wayne H. Coleson
Its: Investment Advisor
  By: /s/ S. Michael Rudolph
Its: Investment Advisor
 
   
LONGVIEW INTERNATIONAL EQUITY
FUND, L.P.
  CAMDEN INTERNATIONAL

 
   
By: /s/ Wayne H. Coleson
Its: Investment Advisor
  By: /s/ Deirdre M. McCoy
Its: Director
 
   
MERCATOR MOMENTUM FUND III L.P.
By: Mercator Advisory Group, LLC
Its: General Partner
  MERCATOR MOMENTUM FUND L.P.
By: Mercator Advisory Group, LLC
Its: General Partner
 
   
By: /s/ David Firestone
Its: Managing Member
  By: /s/ David Firestone
Its: Managing Member
 
   
MONARCH POINTE FUND, LTD.
By: Mercator Advisory Group, LLC
Its: General Partner
 

 
   
By: /s/ David Firestone
Its: Managing Member
 

This Security Agreement may be signed by facsimile signature and
delivered by confirmed facsimile transmission.

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SCHEDULE A TO SECURITY AND PLEDGE AGREEMENT

                                 
 
  INITIAL CLOSING   INITIAL CLOSING           SECOND CLOSING
SUBSCRIBER
  NOTES   WARRANTS   SECOND CLOSING NOTES   WARRANTS
 
                               
LONGVIEW EQUITY FUND, LP
600 Montgomery Street, 44th Floor
San Francisco, CA 94111
Fax: (415) 981-5302
  $ 200,000.00   5,000,000   $ 133,333.00   3,333,325
 
                               
LONGVIEW FUND, LP
600 Montgomery Street, 44th Floor
San Francisco, CA 94111
Fax: (415) 981-5302
  $ 350,000.00   8,750,000   $ 233,333.00   5,833,325
 
                               
LONGVIEW INTERNATIONAL EQUITY
FUND, LP
600 Montgomery Street, 44th Floor
San Francisco, CA 94111
Fax: (415) 981-5302
  $ 100,000.00   2,500,000   $ 66,667.00   1,666,675
 
                               
MERCATOR MOMENTUM FUND III L.P.
555 South Flower Street, Suite 4200
Los Angeles, CA 90071
Fax: (213) 533-8285
Additional Copy:
                               
David C. Ulich, Esq.
Fax: (213) 620-1398
  $ 160,000.00   4,000,000   $ 106,667.00   2,666,675
 
                               
MERCATOR MOMENTUM FUND L.P.
555 South Flower Street, Suite 4200
Los Angeles, CA 90071
Fax: (213) 533-8285
Additional Copy:
                               
David C. Ulich, Esq.
Fax: (213) 620-1398
  $ 230,000.00   5,750,000   $ 153,333.00   3,833,325
 
                               
MONARCH POINTE FUND, LTD.
555 South Flower Street, Suite 4200
Los Angeles, CA 90071
Fax: (213) 533-8285
Additional Copy:
                               
David C. Ulich, Esq.
Fax: (213) 620-1398
  $ 510,000.00   12,750,000   $ 340,000.00   8,500,000
 
                               
CAMDEN INTERNATIONAL
Charlotte House, Charlotte Street
P.O. Box N 9204
Nassau, Bahamas
Fax: 415-835-8320
  $ 250,000.00   6,250,000   $ 166,667.00   4,166,675
 
                               
TOTAL
  $ 1,800,000.00   45,000,000   $ 1,200,000.00   30,000,000
 
                               

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ANNEX I

TO

SECURITY AND PLEDGE AGREEMENT

PLEDGE AMENDMENT

This Pledge Amendment, dated    200_, is delivered pursuant to Section 4.3 of
the Security and Pledge Agreement referred to below. The undersigned hereby
agrees that this Pledge Amendment may be attached to the Security and Pledge
Agreement, dated December    , 2004, as it may heretofore have been or hereafter
may be amended, restated, supplemented or otherwise modified from time to time
and that the shares listed on this Pledge Amendment shall be hereby pledged and
assigned to Collateral Agent and become part of the Collateral referred to in
such Security and Pledge Agreement and shall secure all of the Obligations
referred to in such Security and Pledge Agreement.

             
Name of Issuer
  Number
of Shares   Class   Certificate
Number(s)
 
           

          DIAMETRICS MEDICAL, INC.

By:
    —      Name:
   Title:

4